In the last one-and-a half years, whenever financial planners were asked about investing in debt funds, the advice was — stay short. That is, invest in short-term debt funds. Things have changed significantly since the last fortnight, when the Reserve Bank of India indicated a halt in rate increases. Rates could now fall in the months to come.

As a result, market experts are happy advising long-term debt funds. We believe policy rates have peaked. It makes sense for investors to increase allocation towards longer duration funds. Investors can consider investments for horizons ranging from one to three years. And, for this, they can consider various types of funds — income funds, gilt funds or even dynamic bond funds —depending on their risk appetite.

If you have a horizon of 12-18 months, you should look at long-term income funds or gilt funds. Chiefly because, with these funds, one can get the advantage of high coupon rates and capital appreciation once the rates start falling.

Gilt funds are usually preferred by risk-averse investors, as these invest only in government securities. These are typically free of credit risk. Gilt funds offer tenures ranging from 9-18 months. However, the low risk will garner low returns as well. This category has given a pre-tax return of six per cent over the past year ended December 30, 2011, according to Value Research, an online portal comparing mutual funds.

Comparatively, income funds have returned 8.3 per cent annually. Dynamic bond funds have given higher returns, with average annual returns at nine per cent. The category's top performers, SBI Dynamic Bond and IDFC Dynamic Bond have even given returns of 11 per cent.

Dynamic bond funds are a good bet, as they are actively managed by the fund manager. He can take a view on the market and alter his holdings regularly, choosing from corporate and government papers.

However, such high involvement of the fund manager can even prove a double-edged sword. Reason: the funds performance is largely dependent on the fund managers ability to take the right calls. A slightly longer holding period of one three years is recommended for this category.

Many may argue that with fixed deposits (FDs) giving assured annual returns of 9.25 per cent for a period of one-10 years, these score over debt MFs. However, these returns, when compared on a post-tax basis, wont seem as attractive, especially for tenures exceeding a year. The recent NHAI bonds offering 8.3 per cent for 15 years has also caught the fancy of investors.

FD returns are taxed entirely at slab rates. In case of debt funds, long-term capital gains (for holding over one year at the time of sale), will be taxed at 10 per cent without indexation or 20 per cent with indexation.

If you sell your investment within a year, the capital gains are added to income and taxed according to the slab applicable. However, you can choose the dividend distribution tax to circumvent this.

Here, you will be given the dividend, net of a dividend distribution tax of 14 per cent (borne by the fund house).

Remember, though, that the shadow of uncertainty looms large. Financial planners opine the rate cut has only been hinted at and not begun. Investors must, therefore, move from short- to medium-term debt funds to long-term ones, gradually and in tranches.

Investors should not wait for subscribing till the last day of the NFO for ensuring timely completion of the process

THERE are several occasions when a mutual fund announces the extension of a new fund offer (NFO) period. Investors are puzzled about whether this is a good sign or a bad one, and, hence, they tend to get worried when this happens.

There are different conditions under which an NFO's closing date is extended. There are several factors that need to be considered while analysing extensions.

Understanding the issue would help investors take right decisions based on available information.

Initial time period: An NFO is open for investment for a specific time period that is specified at the time of the launch of the issue. This is a period within which in investors can actually contribute the required amount to the fund and complete their investment requirements.

In most cases, the initial fund offer period is not very important due to the fact that these are open-ended funds, therefore, there will be several opportunities down the line when investors will be able to invest in the fund according to their convenience. There are no restrictions on when an investor invests in open ended funds.

At the same time, there are not going to be major changes witnessed immediately in terms of the value of the fund because it will be open for subscriptions for a few more days. The value of the fund depends on the underlying asset.

Inadequate subscriptions: There are times when an NFO does not get the required amount of investment from various investors during the initial time period. There are always some internal targets that are set for collections, therefore, when this is not met, then, the investor would find that the NFO period has been extended.

An investor must evaluate an NFO on its merits and whether it in tune with his requirements. Just because the NFO is not very popular with other investors, it does not necessarily mean that an investor should not subscribe to it, if he needs that kind of a fund exposure in his portfolio.

Facing adverse market conditions: Sometimes, there could be a sudden deterioration in market conditions and this could lead to poor sentiments among investors. In such a situation,

the fund offerings that are open might be affected, even though they would not have much to do with the situation. These conditions could prompt funds to extend their offer period, which would give investors more time to invest in the fund.

Investors should evaluate the situation and take action based only on their own interests.

Investor's action: Investors should be clear in their minds as to why they are actually investing in a particular area and a fund. If there is nothing that differentiates a fund from several others in the market, then it would not make much sense to subscribe to the new fund, and, hence, such offers can be put on hold to review performance.

However, there could be times when an NFO offers some unique features, in which case, an investor might want to subscribe because he wants to avail the benefits.

At the same time, there should not be any delay in making the investments. An investor should also not wait till the last day of the offer period to subscribe to ensure that the process is completed on time, failing which the investor faces the risk of losing an investment opportunity.

Also, I will remember to pay all my premiums, be it monthly quarterly or yearly, on time.
Resolutions for first-jobbers (21-30 years) I will protect my family's financial future by buying a term plan for myself.

I will ensure there is no drain of finances in case of any medical emergency in the family. For this, I will take up a health plan to help me achieve thsi goal.

I will drive my bike safely and responsibly.

I will also ensure that all the medical expenses are taken care of, in case of an accident, through a health insurance plan.

Resolutions for newly married (28-35 years) With marriage, comes additional responsibilities. To secure my finances for our future, I will invest in a good savings-plus investment plan that will take care of both purposes.

With the rising costs of education, it is important for me to invest in a good child plan.

By investing in a unit-linked plan , I can get the benefits from the upside market movements, which has been unstable for a long time now, and be able to build a bigger corpus in lesser time.

To ensure that my young child can fulfil his/her dreams, I need to invest in a good endowment or unit linked insurance policy (Ulip) that will help me build a corpus for education needs and other plans.

To ensure that my wife and children enjoy good life even after me, I will invest in a good term plan, which will pay a high cover.

Resolutions for older people (35 years or above) I want to maintain my present lifestyle even when I have taken the retirement.

A good pension plan with proper thinking can help me to achieve this.

To maintain a regular income in my later years of life, I will consider taking up an endowment or money back plan, which will help me get continuous flow of money.