With Interest Rates on the decline, families’ dependent on income generated from their savings, has triggered a need for more efficient investment options. We are happy to share factors which have made Debt Funds relevant today.
The 6 reasons enumerated in the article are as follows:
- Higher Returns: Debt Funds investing money in to Bank FDs garner higher interest rates as compared to when we go directly to our bank to invest in an FD. Difference is greater than .5% per year
- Time horizon: There is a suitable debt fund for every investment horizon (3 days, 1 week, 1 month, 6 months, 1 year, 3 years, 5 years).
- Tax efficiency: Interest income from FD’s or Bonds are taxed every year at your income tax slab, whereas in debt funds, capital gains is taxed for debt funds on redemption of units. Debt Funds also offer ‘indexation’ benefits if held for more than 3 years (as in the case of Capital Gains in Real Estate).
- Regular cash flows: Debt funds can provide tax efficient cash flows for a retired family, via systematic withdrawal plans (SWP)
- Diversification: Debt funds invest across Govt. of India Bonds, Bank FD’s and Corporate FD’s, creating a diversified portfolios, making returns more stable than equity funds.
- Convenience: One can start a systematic transfer plan (STP) from debt funds to transfer smaller sums every month into equity funds.
With the recent surge in Indian Equity Markets over the past 1 year, many analysts recommend individuals to book profits and move money in to Debt Funds as Indian markets are highly overvalued, especially in mid cap and small caps.
Please feel free to share the article with your friends and family who may benefit from such advice.