Can I get a systematic investment plan (SIP) for dynamic or debt mutual funds?
Narender Jha
Yes, several mutual funds nowadays offer SIP in debt mutual funds. SIP helps in two things primarily: One, building a discipline of investing in mutual funds at a regular interval, and second, reducing the market-timing risk.
In case of debt mutual funds, although market-timing risk is not as high as equity funds, there is still some risk in identifying any shift in the interest-rate cycle accurately. A SIP, in this case, may help reduce this risk to some extent, especially in a volatile interest rate environment.
The type of debt fund would also depend on your investment horizon and risk profile. If you are investing for a short-term horizon, and cannot digest much volatility, then a short-term bond fund could be suited to your needs.
However, if you are looking for a duration bond fund, to capitalise on the expected downtrend in interest rates, then a SIP in a dynamic bond fund or actively managed debt fund could be suitable. Since the duration of these funds are actively managed by the fund manager, depending on the interest rate environment, a SIP medium of investing could work in case of these funds, as it helps to reduce the market-timing risk to some extent.
Is it possible to redeem my units in close-ended schemes before maturity by paying some penalty or exit fee to the fund house?
Subir Kumar
Yes, you can redeem units in close-ended schemes before the maturity using the stock exchange route. All close-ended schemes are required to be listed on the stock exchange. Listing the units on the stock exchange means that you can transact in the units (buy or sell) of the close-ended fund through a broker, in the same manner as buying or selling shares of company.
Do note that the units may trade at a premium or discount to the NAV. Also, sometimes, the liquidity of a particular close-ended fund may not be sufficient on the stock exchange, which also has a bearing on the price on which you will be able to exit.
Besides that, several close-ended funds also have an exit load on premature exits/redemptions, which will be deducted from your redemption proceeds.
As direct plans have come into place from January 1, should I go for them to get higher returns in the long run?
Biswajit Sen
The direct plan option does help to reduce the expense ratio of the fund to the extent of selling and distribution expenses. Even though the reduction in expense ratio under the direct plan is minimal, it can add up to a significant amount over a period of time.
However, it would be important to assess if you require advice on your investments or other operational/transactional facilities provided by a fund distributor or financial advisor. If you are a self-guided, do-it-yourself investor, then it makes sense to go in for a direct plan option. Otherwise, if you are dependent on advice from a distributor/financial advisor, then it probably makes sense to go in for the distributor or regular plan option, and bear a slightly higher expense ratio.
* The author is senior research analyst, Morningstar India
* Send your queries at fepersonalfinance@expressindia.com
