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Help me understand fixed income funds
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What is the benefit? I understand the relationship between price and interest rates of a bond in and of itself, but the shorter term funds don't seem to follow that pattern.
Take SCHO, for example (short term UST). The fund has been declining YTD but the rate is half of what UST's are earning right now. So it seems like you get the worst of both sides with a loss of principal and a lower return. And if returns are considered interest/capital gains, there is no tax advantage. And during the pandemic, we witnessed the fixed income funds tank along with regular equities, so they definitely did not provide the safe harbor from market volatility that the underlying funds are known for.
I'm likely clueless, but it doesn't seem like little upside with these funds? Please educate me!
Top Comment: Rising rates hurt bond prices, causing the loss of value. Rates haven't risen this fast in a long time, if ever. Add in the inverted yield curve, bond prices are weird.
How should one pick between Fixed Deposit and liquid fund in Feb 2021?
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EDIT since I can't edit title now: March, not Feb.
Hello,
Right now the interest rate on FD is 4.9% in ICICI. At the same time the liquid fund of ICICI Prudential: https://www.moneycontrol.com/mutual-funds/nav/icici-prudential-liquid-fund-direct-fund-growth/MPI1216 has a one year return of 3.93%.
Now I understand liquid funds are evaluated from a PoV of liquidity and safety over returns, however in 2021 it takes 1 day to liquidate a FD in ICICI/HDFC etc. online and given the banks are systemically important it's as safe as safe can be.
My question then would be, what am I missing here in terms of why one should prefer a liquid fund over a bank FD?
Should one instead be looking at this as a choice between keeping the money in a bank account vs liquid fund instead of FD vs liquid fund? If yes, assuming one won't have a "very urgent" cash requirement where they need funds under a day, should one keep the "mostly liquid" part of their portfolio in FDs over liquid funds right now?
What are the other evaluation criteria that I'm missing?
I thought about indexation but since these investments aren't meant for compounding over a long horizon and would certainly be liquidated at the 365 + 1 day mark, as I understand it the indexation factor wouldn't be high enough to make much of a difference. More than likely one would pay STCG instead of LTCG too if they don't take it to the full 365 day mark.
Top Comment: I only do arbitrage, liquid and money market funds. No fds. FDs have breakage penalties. Sure, there are some overdraft tricks but it's too complicated for me so I'm out. The benefits of debt funds are reduced ltcg and you only need to redeem and pay tax for what you've withdrawn.
Debt Mutual Fund and Fixed Deposit - Is it fair to be compared?
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I have been putting aside money saved yearly after my long term saving (Equity, Equity Mutual Funds) into Fixed deposit. Till last year these FD used to give me a good cushion with interest rates above 6.5%. That was the easiest way for me to manage any urgent need which could come up.
But this time due to the Fixed deposit rates being too low, I was looking for an alternative.
Everywhere I read about Debt Mutual funds, I keep getting the answer that don't compare both, but not many places a clear detail where given.
Can anyone from the forum be able to help me with their experience with short term (1-3 years) debt Mutual fund (lump sum) investments?
Top Comment: This has not been mentioned yet. Almost all comparisons that I see use inconsistent data. For example, people say that aaa bank FD is giving 5.25%, while xyz debt fund (a conservative one) gave 7% last year, and so I will ditch the FD. What is wrong with this? FD rates are forward looking and tell you what you *will* get. Mutual fund performance data is in the past and tell you what you *would have* got had you invested. These can't be compared. Try this out. Take a well run conservative, high-credit quality debt fund. Look at its YTM. Then look at the FD rates fro the comparable term. e.g if you are looking at UST, low duration funds etc, look at 1 year FD rates. Both products are part of the debt portfolio and have to be compared. You just need to use the right measures.
Why Fixed Deposits is the best place for emergency fund
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- It's protected from your debit ATM card. If your card 16 digits PAN, expiry date, 3 digits CVC got stolen or brute forced, your savings account is compromised, but your fixed deposits are safe from it.
- You can withdraw it anytime. Just do it from online banking and mobile app between 8AM-10PM, you should see the money appear in your normal current/saving accounts directly.
- But I will lose the interest? Not really, just save RM1000 and set 2-3 months term, auto renewal. Here is a graph to show you:
Basically, it doesn't really matter which interest you choose. When it auto renews, the interests paid are reinvested and compounded over and over. The graph above shows that if you choose 6 months term over 60 months, you actually get more money 5 years down the road.
Alternatives Analysis:
- Savings account - It's liquid af, got the urge to spend it all, FD tucks it away making it slightly less liquid.
- StashAway Simple or other money market funds - Stable, but extremely illiquid. Takes 5 days to withdraw, that is very very bad for "emergency fund".
What to do?
- Setup 2 accounts in different banks. There is a chance you may lose access to 1 bank account, this makes it safer.
- Save at least 3 months living expenses in each of them.
Top Comment:
Not sure if I have been shadowbanned in this sub
Thoughts on Blossom app (fixed income fund)?
Main Post: Thoughts on Blossom app (fixed income fund)?
Top Comment:
So, I work in the industry and took a look through the PDS (thanks u/YerrAWizard).
In effect, when you use Blossom, you're investing in an actively managed Fixed Income Fund (run by Fortlake Asset Management). As such, it's important to recognize that this is not a direct substitute for keeping money in cash. The fund is higher risk and as such, you can lose money by investing.
The prospectus states that the "Weighted average credit weighting of the bond portfolio within the Fund no lower than BBB+". This implies that the average weighting of the portfolio will be investment grade, but they can go an invest in high yield securities (colloquially known as junk bonds). Whether or not you're comfortable with this will depend on your risk tolerance.
As pointed out, fees for a service like this are going to be significantly higher than fixed income ETFs. There may also be some cheaper actively managed options out there. However, you may also know that when interest rates rise, fixed income ETFs lose money (the price of a bond and interest rates are generally inversely correlated). Therefore, if rates were to rise, an actively managed bond portfolio like Blossom could (and in theory should) outperform bond ETFs.
Whether or not this is appropriate for you will depend on your own risk tolerance/situation, but all else equal, it's important to diversify your investments/savings. You generally don't want all of your savings parked in a single fund.
From a commercial standpoint, it looks like their business model is basically wrapping up fixed income products in a millennial-friendly wrapper.
On the plus side, I should note that they have a pretty impressive team managing the Fund. The CIO is ex-UBS, who were a pretty highly regarded fixed income fund in Aus (perhaps one of the best, depending on who you ask).
Variable Rate Bonds vs Fixed Rate Bonds
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In a falling interest rate environment do floating rate bonds perform poorly when compared to any regular fixed rate bond fund. I’m trying to build up a short duration fixed income portfolio that I will use in the next 2 years and was wondering how would you all build that portfolio?
I’m considering FLOT - variable rate ultrashort FIGB - investment grade bond fund. Seems pretty mixed SHY - 1 to 3 year treasuries IEF - 7 to 10 year treasuries
Top Comment: You have to remember the market is forward looking. All things being equal a floating rate bond and a two year bond will have the same performance, if rates follow what is currently priced in. Over the next 24 months the market is pricing in 2.55% of rate cuts. If the Fed cuts faster the fixed bond will out perform, if they cut slower the floating rate bond will outperform.
Binance flexible savings (noob on this matter)
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Sup guys. So i was searching online for opinions about this but i didnt find that many. I just lended all my VET to Binance flexible because i thought it would be nice to experiment something different and see the results. I'm perfecty confortable with this decision and with the amount of $ invested, even if by some weird chance it dissapears.
I'm asking for opinions/experiences about this service. I found it to be reasonably safe but it's always good to hear from others.
Thanks!
Top Comment: I keep USDT or Bitcoin or both in the flexible scheme when it's not in an active trade as it would be on the exchange anyway. It may as well be earning an annual 6% and 1.2% respectively rather than nothing. I also have coins in cold wallets that I could deposit and gain interest on but don't. It boils down to not your keys, not your coins. If you're comfortable with what's in the scheme, why not leave it there. If you aren't, move some off the exchange, you will lose out on interest, but the ownership of the coins is in your control alone. Regards the service it does exactly what it says it does and works. I have had zero problems with it and I submit and redeem coins regularly.
Fixed income and where to park CASH
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Any Thoughts and Ideas for me to research to gain more yield on the cash portion of my Taxable portfolio. my fixed income consists of
DODIX DODGE & COX INCOME FUND
PIMIX PIMCO INCOME FUND
BSV VANGUARD SHORT TERM BOND FUND
BND sold position because of maybe being to general of a fund and interest rate sensitive
I had a significant portion in BND And when the interest rate started rising I jumped out of that because it became too volatile. My Black rock cash Equivalent fund isn't paying much....
Top Comment:
Why do you have a cash portion of your portfolio? Are you retired?