With returns from bank deposits around that 4 to 5.5% range, it's unlikely that you are going to generate returns. In fact, if you are in the highest tax bracket you might end-up with returns of 2 to 3.5%. It's time to look at mutual fund schemes that are into corporate bonds and can offer better returns.
Reasons to invest in debt instruments like Corporate Bond Funds
It is expected that RBI is likely to continue to announce Open Market Operations, Operation Twist in addition to G-SAP which would help boost market sentiment. Further, the government likely to continue to borrow massive amounts, yields would remain at reasonably good levels. This presents a good opportunity for a conservative investor to look at UTI Corporate Bond Fund for an investment horizon of more than 12 months.
Returns from the UTI Bond Fund are decent
This corporate bond fund was launched in Aug 2018 and going by the current NAV of Rs 12.84, the returns are to the tune of 9.35%. The 1-year returns are close to 7%, which is pretty decent.
Most of the corpus is invested in debt instruments of government owned entities like National Highways Authority of India, NABARD, SIDBI, Rural Electrification, Power Finance etc. The portfolio is rather strong.
The fund predominantly invests in high quality corporate bonds such that minimum 80% of portfolio is invested in AAA and AA+ rated corporate bond and equivalent instruments with an aim to provide reasonable income through accrual strategy. This fund follows conservative approach in security selection and has currently invested 100% of the portfolio in AAA rated securities issued by Public Sector Undertakings, Public Financial Institutions and Corporates with strong parentage & proven track record with various maturities. The fund's average maturity generally ranges from 3.5 to 4.5 years.
The returns are likely to remain pretty decent at that 6% mark is what we believe. This is still better than what banks are offering currently. If you are looking at diversification and away from bank deposits, UTI Bond Fund could be a good bet.