In a recent interaction with investors and distributors on Facebook Live, Mahesh Patil, CIO, ABSL Mutual Fund said that the current market situation presents a good opportunity to increase allocation to equities. He, however, asked investors to take a staggered approach through STP to invest in equity funds.
Distributors need to look for a fund that can withstand all economic scenarios to do STP and preserve client’s investment capital in the short-term. While investors can park money for short term needs in a savings bank account or bank FD but these will provide suboptimal returns. Hence, a more efficient way is to invest in overnight funds, liquid funds and short duration funds. .
In this space, an ultrashort duration fund is a good choice. Like liquid funds and overnight funds, this fund category is designed to provide adequate liquidity, low volatility, high credit quality and better returns. If the investor wants to park the money for 1-6 months, the ultrashort duration category is more suitable than overnight funds and liquid funds because of the flexibility in its investment horizon. This is because while overnight funds are restricted to invest in debt securities with overnight maturities, liquid funds are allowed to invest only in securities having less than 91 days maturity.
If you are looking to zero-in an ultrashort duration fund, you should consider Aditya Birla Sun Life Savings Fund. Remaining true to its label, the fund has sailed through the tough times in the debt market. It has consistently delivered better returns compared to traditional investment avenues like bank fixed deposits. In fact, the fund has consistently outperformed its benchmark.
The fund has delivered a CAGR of 7.67% in the last one year as against its benchmark CAGR of 7.40%. The fund has also outperformed its benchmark over the 3 and 5 year periods as well.
Further, the current economic scenario has made the fund more attractive. There are serious concerns over India’s growth which could prompt the RBI to further cut rates. As a result, bond yields are likely to contract more in coming months, presenting attractive investment opportunities at the shorter end of the curve. Since these funds hold a significant part of their portfolio in securities of 3-6 months duration, they can generate better returns compared to overnight funds and liquid funds.
With its low credit and duration risk, this fund is ideal for conservative investors who want to park their surplus money up to 6-12 months. It is also useful for investors who want to start STP in another scheme or schedule SWP to ensure a regular cash flow.
You can recommend this fund to investorswho want regular income to meet their monthly household expenses. The fund is also suitable for clients who want to build an emergency corpus.
