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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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Ram Shetty, 45 years old, is an investor who tends to invest on the side of caution. He prefers fixed deposits, term and endowment insurance as his primary form of investment. One of his investment in an endowment plan will give him a payout of Rs.1 crore when he is 65 years old. However, when he recently sat down to calculate the amount of money he needs to save to enjoy the same kind of lifestyle in retirement as he does now, he realized that he needs to invest into instruments that will give him a higher rate of return.
Now, make no mistake, buying term & endowment insurance is a very smart move on Ram’s part. He has ensured that in the case of his untimely demise, he leaves behind a decent sum of money for his wife and child. And in the natural course of things, he will receive a hefty payout in 20 years. He’s done a sensible thing here.
Now, he needs to start looking at products that are capable of enlarging his retirement corpus. His products must try to ensure three things:
As outlined earlier, Ram prefers investment instruments where his capital is protected. While deposits are a great way to do that, they might not be the best way to beat inflation. While it is advisable to have some amount of funds in bank deposits, there should be a certain amount that may be invested into mutual funds.
Since Ram is a conservative investor, he may consider investing into a conservative debt hybrid mutual funds. These funds offer the best of both equity and debt funds. They invest a maximum of 75% of their resources in debt instruments and the balance in equity. Allocation to equity is restricted to a maximum of 25% at any point in time.
The debt part of the fund provides a cushion against market volatility and fluctuations. The equity part of the fund offers a chance of getting higher returns when the equity markets go up.
Debt instruments in hybrid debt funds include government securities, debentures, bonds, treasury bills etc. These are all fixed-income instruments that are supposed to offer stable returns to the investor. When hybrid debt funds invest in equities, they generally invest in large-cap companies. Since the equity part of the fund is mostly invested in blue-chips, the chances of fluctuation and volatility are relatively lower compared to other funds.
Ram may look at making lumpsum payments or staggered lumpsum payments into the following mutual funds for the conservative debt hybrid segment:
Source: MFI Explorer | Data as on 28th February 2023
* Less than 1 year Absolute returns, Greater than or Equal to 1 year Compound Annualized returns
While this gives Ram an overview of debt hybrid sense, he will understand it a lot better if he gets on a call with his Relationship Manager at his bank to understand debt funds in detail. He can then make an informed choice that suits his style of investing.
Disclaimer:
Mutual fund investments are subject to market risks, read all scheme related documents carefully. AMFI Registration Number (ARN) 1390. Please read the offer document carefully before investing. The calculator is only an illustration, to demonstrate the concept of compounding and investing and should not be constructed as a promise, guarantee or a forecast of any minimum returns or future returns. Kotak Mahindra Bank does not assure any safeguard of capital and investments through SIP, does not guarantee or assure any protection against loses.
This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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