Readers' Corner: Mutual Fund

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What is the difference between income and dynamic bond funds? If I am saving for the long-term (10-15 years), which one should I choose?

The primary difference between income and dynamic bond funds is the way these two funds are managed. While income funds predominantly follow an accrual strategy and seek to generate returns by investing in short-term and medium-term bonds, dynamic bond funds seek to generate returns by active management of duration based on interest rate view of the fund manager. You can look at investing in dynamic bond funds for a long-term investment horizon and income fund for medium to long-term. Do note dynamic bonds funds carry higher volatility as compared to income funds.    

A few of the schemes that I hold have changed attributes after Sebi’s re-categorisation of mutual funds. What should I do with them?

You can look at the change in the fundamental attribute of the schemes you have invested in and check if they align with your current goals and risk profile. In case they do not, shift your investments to other suitable schemes. Post the scheme re-categorisation exercise, every asset management company (AMC) has given a choice to its investors to exit the scheme without paying any load.

What exactly are accrual funds? I have read many investment experts recommending them in the current interest rate scenario. But I don’t see a category called as accrual funds.

There is no category called as accrual funds. Accrual funds are nothing but income fund. These funds adopt a strategy which focuses on generating returns predominantly through interest income on the investments in the portfolio. Accrual funds follow a buy and hold strategy, that is,  investments are made intending to hold till maturity. At present, when the interest rates are high, fund managers can invest in securities with high coupon rates and thus offer better yields.  Short to medium duration funds and fixed maturity products are some of the schemes that generally adopt accrual strategy.

 To meet my cash flow requirement after retirement, can I do systematic withdrawal plan (SWP) in an equity fund or is SWP only recommended in a debt scheme? How much percentage of my corpus should I withdraw monthly or yearly to ensure that the money keeps growing despite partial redemption?

An SWP can be activated in equity funds too. As is evident from the historical track record, equity funds are more volatile and therefore you need to have an investment horizon of minimum five to seven years. The percentage of withdrawal can be based on the historical return of the fund, that is, the percentage withdrawal should be lower than the average historical return of the fund over the long term. With this approach, while you may withdraw a small portion of your savings for regular cash flow requirement, the remaining corpus continues to grow.      

What are the differences between a regular and a direct plan? Why are the returns from direct plans are better than regular plans? 

Direct plan of the fund is the one where no intermediation is done by any of the channel partners. Hence, no distribution charges are applicable on a direct plan. Since distribution expenses are not charged in direct plans, the difference in return are more visible over a longer period. writer is MD and CEO, SBI Mutual Fund. The views expressed are the expert’s own. Send your queries to

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