Mutual funds: Fixed maturity plans ideal when interest rates are volatile

Gold ETFs invest in physical gold and track the price of the yellow metal.

Written by AshishKapur | Published: July 17, 2012 12:30:11 am

Are gold ETFs better than gold fund of funds?

Aurobindo Kumar

Gold ETFs invest in physical gold and track the price of the yellow metal. You need a demat account to invest in a gold ETF and it does not offer an SIP option. Gold fund of funds,on the other hand,target investors who wish to invest in gold. They need not have a demat account. The fund invests in units of gold ETF. They are like any other open-ended fund and have the SIP option as well.

Both the options aim at saving the investors from the hassles of safekeeping of gold and quality of gold. The fund of funds scheme has some expenses over and above that of underlying gold ETFs in which it invests. These costs are transferred to the investors. If you have a demat account and wish to make lump sum investments,gold ETFs are a better option. For SIPs,you have to go for fund of funds

Do index funds have a lower risk-return ratio than actively managed equity funds?

Gopal Sharma

An index fund is a type of mutual fund that tracks the components and performance of a market index. Index funds use the indexing methodology,which attempts to weight all the securities in the index fund to mirror the target index composition as closely as possible.

The idea is to replicate the performance of the index on which they are based. These funds are passively managed and,thus,have a lower risk-return ratio compared to actively managed equity funds. Index funds give conservative returns and,at the same time,fall less sharply during a downturn. Moreover,the funds also help in tax savings. If you are looking for investments in index funds,you can opt for Kotak PSU Bank ETF,Bank BeEs,etc.

In a rising interest rate regime,how does a fixed maturity plan work?

Ruchira Sood

Fixed maturity plans (FMPs) are mutual fund schemes that last only for a fixed period of time. The time duration can be as little as 15 days or as long as five years. FMPs are a great investment option when there is a lot of interest rate volatility as these schemes invest primarily in fixed return investments like government bonds and money market instruments (very short-term fixed return investments). The instruments mature in the same duration as the scheme. This insulates the schemes from volatility in the interest rates.

I am a salaried person and want to start investing in MFs through the SIP route. My disposable income is R20,000 per month…

Dinesh Ramarathin

The SIP route for investing in MFs,especially in these volatile markets,is the ideal method. You can diversify your monthly disposable income among 3-4 good MF schemes. We recommend a core and satellite investment philosophy. According to this,you allocate your corpus in a 30:70 ratio in core and satellite funds,respectively. Core funds are funds with an exposure to large-cap funds while satellite funds have an exposure to mid and small-cap funds. This provides a good balance.

The writer is CEO,

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