Falling interest rate regime and excessive liquidity due to demonetisation, high savings and financial literacy have prompted investors to look for investment options with better returns while ensuring maximum safety of capital. But is there any other efficient way of earning?
Mutual funds are fast becoming a part of everyone’s portfolio. The debt fund category of mutual funds invests most of the money collected from investors in fixed income instruments like corporate bonds, government bonds, bonds issued by banks, certificates of deposit, treasury bills, etc. There are many benefits to investors doing SIP in debt funds. Below are some of the most important features:
the protection
The chances of default in any type of investment are negligible. There is no guarantee of returns in the debt category either. Returns are market linked, and the investor is completely exposed to defaults or any other credit problems in the bonds being invested. However, the MF industry is closely regulated and monitored by the regulator, Securities and Exchange Board of India. (SEBI). The regulations framed by SEBI put a tight rein on the risk profile of the investment, concentration of risk in the fund, valuation of the investment and compliance of the fund with its objectives. In the past, these measures have proven to be highly effective with very few adverse cases.
to tax
The second big difference is taxation. When an investor has a SIP in a debt fund and remains invested for at least 3 years, the capital gains are taxable with indexation benefit and the long-term capital gains tax payable is 20% which is taxable as per the tax slab Much better than paying. , especially when one is in the highest tax bracket. However, in case of debt mutual fund schemes, if the holding period is less than 3 years, the tax levied will be as per the tax slab.
liquidity
Upon redemption, the proceeds of open-ended debt funds are usually credited within a period of 2-3 working days. Debt mutual funds, other than fixed maturity plans, do not restrict redemption. However, many funds charge an exit load ranging from 0.25–1% of the amount redeemed if redeemed within a pre-specified period. Such a period can be anywhere from 15 days to 6 months. Ultra-short-term and many short-term funds may not charge exit load and are best suited to park any emergency fund.
Return
Debt funds give around 1-4% returns. Debt fund investments carry both credit risk (lending to riskier borrowers) and interest rate risk (the risk of bond prices falling when interest rates rise). Therefore, such investments are compensated by high returns. However, since debt funds invest in a variety of securities and are closely monitored, they probably provide the best risk-adjusted returns.
We advise you to get in touch with your financial advisor and enjoy substantial returns without taking any significant risks.
Views are personal: The author is Rajesh Saraogi, a mutual fund distributor from North-East.
Disclaimer: The views expressed are those of the author and are personal. TAML may or may not subscribe to it. The views expressed in this article/video are in no way intended to predict or time the markets. The views expressed are for informational purposes only and do not imply any investment, legal or taxation advice. Any action taken by you based on the information contained herein is your responsibility alone and Tata Asset Management will not be liable in any way for the consequences of such action by you.
Mutual fund investments are subject to market risks, read all the scheme related documents carefully.