Even as gilt funds lose money when interest rates rise, those that invest in the money market gain. Money market is the shorter-term market where the tenure of instruments is less than one year.
Liquid funds are investors’ popular choice. They invest in very short-term securities such as commercial papers, short-term treasury papers and bank deposits. These instruments do not lose much value when rates rise. So, if one holds on till the maturity of the product, the investor stands to gain from a rising yield. So, while they are offering returns of around 4-5% currently, this number will rise when the Reserve Bank raises rates later in the year.
Floating rate funds are another good option when interest rates are expected to rise. A floating rate fund invests a major portion of its corpus in floating rate instruments. So, when rates rise, the coupons go up, fetching the investor better returns. The merit of floaters is self-evident from the returns. Most floating funds have delivered a return of 4-4.5% for the past year, as per Value research, whereas income funds have delivered just over 2%.
Liquid fund returns pale in comparison to floating rate funds, but this is because the tenure of the investments is lower. Floaters comprise instruments for medium term and long term, so their returns are higher. (There are floater funds with both short and long tenures.) Another difference is that when rates rise, yields of floaters rise immediately. That of liquid funds happen with a lag.
Thus, both floating rate funds and liquid funds help guard capital. As a rule, floating rate fund would give better returns than a liquid fund, but holding period here is longer. Investment advisors say both the categories should be used as parking lots for those who are waiting for the right opportunity to get into bond funds.
Investors should also bear in mind that from April 1, interest rates on savings accounts will generate returns on a daily basis. So, for instance, if a depositor maintains proceeds from sale of real estate in his savings accounts for a few days, it will generate him annualized interest at the rate of 3.5%.
Courtesy:- ET dt:- 19-03-2010
For information about real estate, real estate india, Indian real estate property, property in india, Indian property, apartments, apartments for sale, apartments for buy, apartments for sale in delhi, apartments for sale in gurgaon, apartments for sale in indirapuram, flats for sale in delhi, homes, homes for sale, houses for sale, homes for sale in delhi, homes for sale in gurgaon, houses for sale in delhi, houses for sale in gurgaon, property investment options in delhi, investment option in real estate, real estate consultant, real estate agents, real estate developers and many more log on to http://www.zameen-zaidad.com and http://propertycafeteria.com/
Author
Hi I am Ravi Chauhan I am working in (Bhardwaj Buildtech Pvt Ltd) Company in Delhi.
To Visit for more information http://www.zameen-zaidad.com & http://www.propertycafeteria.com/main.aspx
LIQUID FUND INVESTORS TO GAIN FROM RATE RISE
Monday, March 22, 2010
Zameen
