Can a middle-aged Gulf- based NRI park all accumulated wealth in debt index funds for regular income? Also, will it give a better return during volatile market sessions. In addition to Indian markets, is it good to allocate funds (Index/Feeder) in foreign markets such as US, Europe, MENA countries, China, Singapore.
To answer your first question, the passive debt funds available in India today are not quite amenable for generating regular income. This is because of the fact that these funds are mostly ‘target-maturity’ funds, ones where good returns can be realized only by holding them until maturity date. While they are ‘open-ended’ which means you can withdraw at any time, doing so may be risky to your capital and/or returns. A better option would be to use active debt funds, where you can make choices that are specific to your time frame. For example, you can choose an ultra short or low-duration debt fund for investment or income-generation time frames of 1 to 2 years. You can use SWP (systematic withdrawal plan) to make your withdrawals for regular income purposes. With regards to the second question, debt funds are reasonably detached from the equity markets and their returns will not be affected by the market volatility. Diversification across international markets is always a good idea. If your principal market of investing is India, it would make sense to invest a 10% in the US-market focused investment options, and another 5-10% in an international fund that invest in markets outside of the US.
Srikanth Meenakshi is founder, Primeinvestor.in.
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