Income funds invest in G-secs, corporate bonds and the money market, thus reducing volatility
Funds which invest only in government securities may seem to be a risk-free category of funds to own, but the returns of these funds depend quite heavily on interest rate direction. Their NAVs can be very volatile as long-term G-secs can suffer losses if interest rates spike. Income funds, which invest in a combination of G-secs, corporate bonds and money-market instruments, offer a less volatile alternative to gilt funds by trying to earn their returns both from interest receipts (accruals) and capital gains. The income-fund category features over 90 funds, managing assets valued at R1,23,235 crore as of April 30, 2015.
With interest rates falling, these funds have averaged an 11 per cent return in the last one year, 9.2 per cent in three years and 9 per cent in five years. That's lower than the gilt fund category but still quite good, given the lower risk profile of most income funds.
While the combination of accrual and duration strategies makes for a better risk-reward ratio for income funds, investors should watch out for the very differentiated strategies in this space. Some income funds are dominated by G-secs and take long duration calls much like gilt funds. Others stick to moderate or short-maturity portfolios but shop for AA or lower-rated corporate bonds, which can carry credit risk. Others follow a mix of both the strategies.
Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015
1.ICICI Prudential Tax Plan
2.Reliance Tax Saver (ELSS) Fund
3.HDFC TaxSaver
4.DSP BlackRock Tax Saver Fund
5.Religare Tax Plan
6.Franklin India TaxShield
7.Canara Robeco Equity Tax Saver
8.IDFC Tax Advantage (ELSS) Fund
9.Axis Tax Saver Fund
10.BNP Paribas Long Term Equity Fund
You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds
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