Absolute return funds should be familiar to you if you’re looking for a clever way to increase your money without experiencing wild swings. These kind of mutual funds are meant to yield good returns in all market conditions, regardless of direction of the market.
Particularly for Indian investors, let us dissect what absolute return funds are and how they operate.
Explain absolute return funds.
Mutual funds classified as absolute return funds concentrate on producing consistent returns independent of market performance. They combine techniques such as:
- Equity, sometimes known as stocks
- Debt, bonds
- Derivas (for hedging)
Simply said, the objective is low risk, positive returns.
Unlike conventional mutual funds, they are aiming to always make a gain, even if it is minor, not to surpass the index.
In what ways are they different?
Assume the stock market drops ten percent. An ordinary equity fund could exhibit a loss. An absolute return fund, on the other hand, may still show a modest profit but employs clever techniques to guard your money.
This is what appeals to those who prefer not surprises.
Relative advantages of absolute return funds
- Risk less than those of pure equity funds
- Even in market volatility, steady returns are possible.
- Excellent choice for newly starting investors
- Helps to balance a high-risk portfolio
- A few funds provide monthly income plans.
Who ought to make investments?
- If you wish higher returns than a savings account or FD, you could take some thought on absolute return funds.
- You want not to assume complete equity risk.
- Short-to-medium term objectives call for steady development.
- You are assembling a varied portfolio of investments.
Things to Look at Before Making an Investment
- Past performance: has the fund stayed constant in difficult markets?
- Which of the fund managers’ approaches—active, conservative, or balanced—fits you?
- Lower is better in the expense ratio.
- Lock-in period: some may have exit load should one withdraw early.
Do these tax like debt funds?
Sure. For tax reasons most absolute return funds are handled like debt mutual funds:
- Not more than three years: Short-term capital gain taxed as per your slab
- More than three years: indexation-based long-term capital gain taxed at 20%
Staying invested longer increases their tax-efficiency as well.
Notable Absolute Return Funds from India
Certain mutual funds available in India use absolute return techniques or related approaches:
- Aditya Birla The Sun Life Equity Savings Fund
- The ICICI Prudential Balanced Advantage Fund
- HDFC Equity Savings Account
- Kotak Advantage Fund Balanced Edition
Though they aren’t exactly named “absolute return,” these have the same concept: steady returns, reduced risk.
Thought at Last
For cautious investors seeking steady and slow growth, absolute return funds are a wonderful choice. Although they might not offer sky-high returns, they help guard your capital and ease tension during market declines.
This could be the fund for you whether your plans call for a vacation, kid’s school expenses, or just safer returns than equity.