MF-Query

MF-Query

 

In your query you have not mentioned the purpose of investing in this fund and neither do we know when you had invested in this fund. Therefore, commenting on whether should you exit or not would depend on when you have entered and with which objective. However, we will give you a fair idea of how these funds are and whether at all you should be invested in this category or not. While advising we have assumed that you have not allocated these funds to any of your financial goals.

Arbitrage funds are those whose objective is to generate capital appreciation and income by predominantly seeking arbitrage opportunities in the cash and the derivative segments of the equity markets and the arbitrage opportunities available within the derivative segment. This means that go derive maximum benefit from these funds you need a good amount of volatility in the market. Also, the fund manager should be capable enough to profit from the available arbitrage opportunities.

If your investment objective is for long term, then investing in this fund makes no sense. Also, these funds usually help you in restricting the losses during any financial crises such as the one we are facing today. In terms of taxability, the same tax rules are applicable to the funds that are applicable to equity funds. If liquidity is your major concern then liquid funds would prove to be a better choice than arbitrage funds with similar risk and returns pay-off with higher liquidity. Arbitrage funds should be considered by those who fall under the 30 per cent tax bracket.

In our opinion, this fund has done well till now as against the category. Also, in this current scenario where the equity is down to about 30 per cent, it makes sense to continue with this fund. However, you can start moving out from it gradually as and when the markets start to recover. Rather than investing in credit risk funds it makes more sense to invest in gilt funds if your investment horizon is seven years or more. If it is five years then investing in corporate bond funds would be ideal. However, if it is less than that then investing in short duration funds would make more sense. As far as the credit risk fund in the query is concerned, the fund is taking quite a bit of risk. A majority of its investments revolve around the infrastructure theme. In the current scenario this fund is quite risky. Hence, it is recommended to exit from this fund and move into a short duration fund or a corporate bond fund or a gilt fund depending upon your investment horizon. If your investment objective is wealth creation then do check out our cover story. This will help you to have a good portfolio of equity funds.

 

Gold is an investment which often performs well during turbulent situations like what we are witnessing today. Ideally, we believe that gold should not be considered as an individual investment and expect to earn handsome returns from. In the long term, in fact, gold has a low growth rate than equity. Therefore, from a return perspective, investing in equity makes more sense than gold. So, does it mean that you should completely avoid gold? No! Not at all! We believe that gold should form at least 5 per cent and not more than 10 per cent of your portfolio. We look at gold more as a hedging tool rather than an investment vehicle. Having gold in your portfolio often helps you to contain risk during the period when even debt is not helping to cushion your portfolio. Therefore, we are not against investing in gold unless it is not exceeding and disturbing the balance of your portfolio.

Hence, it is recommended that you check your portfolio first and calculate the percentage of your portfolio that is contributed by gold. If it is more than 10 per cent, sell some of the units to bring it to 10 per cent and invest the same in equity and debt as per the shortfall. If in case you do not have a portfolio, then you can book profit in a staggered manner and wait for the gold prices to revert back. Once the gold prices revert back, invest in sovereign gold bonds. This is because they offer a guaranteed return of 2.5% per year over and above the return provided by the price of gold, though the investment cannot be redeemed before a tenure of five years.

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