Friday, 25 September 2015

Best Long Term Income Fund to Invest for Low Risk Investors - ICICI Prudential Long Term Plan

Posted by MyInvestmentsPub
Investors have been experiencing high fluctuations in the Market in recent times. Because of National and International reasons, these Market fluctuations would not stop imminently and continue to prevail for some more time. Many small investors are risk averse or low risk appetite and cannot digest these market fluctuations. Hence, investors with low risk profile are moving out of the market and going with low yielding Bank Fixed Deposits (FDs). However, many investors are not aware that  Mutual funds are providing an option to invest in Debt Mutual funds which not only generate higher income than FDs but also assuring safety. Out of these Debt funds, the Debt Income Mutual funds or Long Term Income funds are best suitable Debt Category for the conservative investors looking for a medium to long-term investment horizon. In this category, ICICI Pru Long Term Plan is the best Debt Income or Long Term Income fund.


What are Debt Income or Long Term Income Funds?

Debt Income or Long Term Income Funds are those funds that invest in Government Bonds of medium and long term maturities issued by Central and State Governments, Corporate Bonds and Money market instruments. Usually the long term income funds and long term gilt funds are the categories of debt funds that benefit the most when the interest rates are on the downward spiral. Though, now it is very unlikely that the RBI will raise the policy rate; the future course of action still remains anybody’s guess as RBI may maintain status quo for a while before it announces a rate cut.

Why Long Term Income Funds?

1. Shielding from Market Fluctuations:  

Markets are fluctuating from the last 1 year because of various National and International factors. For small investors, it is very difficult to predict the attractive returns from the market at this moment. For these risk averse investors, the Long Term Income funds are suitable to see inflation-beat returns in Medium to Long term time horizon.

2. RBI Policy Rate cuts: 

The inflation statistics are very well under control and RBI is very unlikely to raise the policy rates in the near future. Lower crude oil prices are also one key reason for the controlled inflation rate. The performance of these Long term Income funds depend on the interest rates. These funds would perform well as the RBI's key interest rates are on the downward spiral. In short, Drop in Interest Rate will benefit the Long Term Debt Funds the most as they invest in Government of India Bonds and Corporate Bonds of long term maturity.

3. Inflation-beat Returns: 


If you see the returns statistics from the last 5 years, a good performing Long Term income funds yielded returns between 9% - 14%. From the last 1 year, the average returns are in the range of 12% - 14% which are better than Bank FDs (yielding 7% - 9%). The average returns from Long Term income funds even beat the returns from some Diversified Equity Mutual funds.

4. TDS Benefits: 


Unlike Bank FDs, there will be no Tax Deducted at Source (TDS) on the gains from a Long Term Income Fund. In fixed deposits, if your interest income exceeds Rs 10,000 a year, the bank will deduct 10.3% from this income in each investment year.  Separate documentation is required to submit in the banks to avail no TDS.

5. Tax Benefits:  


You will get the money once the deposit matures, but the income is taxed every year. In debt funds, the tax is deferred indefinitely till the investor redeems his units. However, in last year's Budget, the tax rules for debt funds were changed. The minimum tenure for long-term capital gains was extended from one to three years. This means that investors will have to remain invested for at least three years if they want the benefit of lower tax on long-term capital gains. But, still the Debt funds are better than FDs.

About ICICI Prudential Long Term Plan:

ICICI Prudential Long Term Plan is one of the best and consistent performer of Long Term Debt category. The scheme seeks to generate income through investments in a range of debt instruments and money market instruments and the plan aims to maintain the optimum balance of yield , safety and liquidity. Almost 90% of its investments are in Government securities and the remaining in Corporate bonds. This selective portfolio makes ICICI Prudential Long Term Plan the best in its category. The performance of the fund from the last 5 years is very consistent and unbeatable with any other fund in this category. Because of the favorable atmosphere, the fund yielded 13.67% in the last 1 year. You can expect this kind of performance in the coming days as well.


Features of ICICI Prudential Long Term Plan:


  1. Yielding best returns from the last 5 years
  2. The portfolio mixture of Government bonds blended with Corporate bonds assuring best returns in its category.
  3. Lowest expense ratio (0.94) resulting better returns to the investor.
  4. Minimum Investment Rs 5000, Minimum SIP Investment Rs 1000
  5. This is an Open-ended fund and Exit load is 0.25% with in 30 days, and nil after 30 days
  6. Best suitable for Risk averse investors and senior citizens. 
  7. Put your lump sum investments and make a Systematic Transfer Plan to any Equity Diversified Plan for maximizing your returns. 

Conclusion:

If you want to invest your lump sum amounts, ICICI Pru Long Term Plan is the best option for you. For Investors with low risk profile can invest into this fund through SIP approach. For senior citizens can invest their surplus into this fund and can opt for SWP (Systematic Withdrawal Plan) for their monthly expenses.

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