A portfolio of AAA-rated NBFCs and HFCs could potentially provide a return of around 8%. (Image source: Freepik)
What type of investment options can give better returns than
fixed deposits
? Fixed deposit interest rates are at a high, but if as an investor you are looking to beat
FD returns
, then debt is one possible way to go.
According to an ET report,
Aditya Birla Sun Life
Mutual Fund is offering a series of
target maturity funds
that could be an attractive investment option for investors seeking a low-cost
passive debt instrument
.
These funds have the potential to generate returns higher than fixed deposits while maintaining a high level of safety over an investment period of 15-33 months.
The fund house is launching seven target maturity funds with varying tenures, as it considers the yields at the lower end of the yield curve to be favorable. By investing in these schemes, investors could potentially earn a spread of 50-80 basis points over government securities or fixed deposits.
Two of these schemes have already been launched through New Fund Offers (NFOs), with five more expected to be introduced soon. The portfolio of these schemes will consist of 10-12 securities, including AAA-rated non-banking finance companies (NBFCs) and housing finance companies (HFCs), with a maximum exposure of 15% to a single company.
According to financial planners, these target maturity funds provide investors with an opportunity to earn higher returns than bank deposits while maintaining high liquidity. The schemes do not have any lock-in period or exit load, allowing investors to redeem their units on any working day.
Target maturity funds are passive
debt funds
that track an index of debt instruments and closely replicate the composition of the underlying index. Unlike other open-ended mutual fund schemes, these funds have specific maturity dates, and investors holding units of the funds will receive their principal amount back upon maturity.
While a 1-3 year bank fixed deposit could offer investors a yield of 7-7.25%, a portfolio of AAA-rated NBFCs and HFCs could potentially provide a return of around 8%. After accounting for an expense ratio of 15 basis points, investors could earn 60-80 basis points more than a fixed deposit. Financial planners suggest that this product could be suitable for investors who prioritize liquidity and have short-term goals.
“This product works for investors who want a fixed return, are in tax brackets, and wish to take advantage by locking in funds at higher interest rates before the rate cut cycle begins,” Amol Joshi, founder of Plan Rupee told ET.
