Skip to main content

Investment avenues in debt instruments

Here are some debt options for investors who are risk-averse and find the volatility in the equity markets too high


   Inflation is an on-going rise in the cost of goods and services. Inflation numbers that were 8.62 percent in September 2010 dropped further for the second consecutive month to 8.58 percent in October. Inflation is expected to ease further by the year end. In reality, inflation erodes returns from investments. If it is eight percent, something that cost Rs 100 a year ago, costs Rs 108 today. In other words, it is the risk that money obtained in the future will be worth much less than what it is today.

 

   Let us consider the impact of inflation on his annual returns from investment. It is assumed that since this is the only income earned that year, the returns are tax-free as it is less than the minimum taxable salary.


   Here are a few debt instruments and the returns they yield:

Tax-saving bond    

Tailored for investors with a low risk appetite, preservation of income is its primary goal. Tax-saving bonds are issued by both public and private sector organisations.


   Long-term infrastructure bonds are aimed at enhancing investments in infrastructure projects in the country. With tenure of 10 years and a minimum lock-in period of five years, these exhibit highest degree of safety. The yield on these bonds is between 7.5 and eight percent, depending on the tenure and the type of bond product.


   Depending on the applicable tax slab, individuals investing in tax-free infrastructure bonds can benefit from a tax saving of Rs 2,000 to Rs 6,000 per annum, under Section 80CCF. The interest earned is taxable though.

Debt fund    

Debt mutual funds are invested in a slew of debt instruments such as corporate bonds, government securities and money market instruments through income funds, gilt funds and liquid funds. Compare the past performance and returns delivered before choosing a debt fund.


   The returns carry a degree of uncertainty unlike other traditional debt products. If redeemed within a year of investment, the returns are taxed at slab rates and beyond that as long-term capital gains. Dividends earned are subjected to dividend distribution tax, which is withheld by the fund house before dividend disbursement.

Public Provident Fund


   The Public Provident Fund (PPF) is one of the most attractive investment options for play-safe investors, currently offering eight percent tax-free returns. A PPF account can be opened with any nationalised bank or post office. Open only to resident Indian individuals, Rs 500 is the minimum investment per year and Rs 70,000 is the maximum investment per year in a PPF account.


   An investment in PPF up to a ceiling of Rs 70,000 is also allowed as a deduction from taxable income, under Section 80C.

Employee Provident Fund    

The salaried class typically invests in the Employee Provident Fund (EPF), as it is mandated. Generally, it is 12 percent of monthly basic salary. One can augment this and invest additional money in their EPF account. This is called Voluntary Provident Fund (VPF).


   There is no upper limit on the amount that can be invested in an EPF account per annum. Current returns on EPF are eight percent and the returns are tax-free. A deduction of up to Rs 1 lakh is allowed under Section 80C.

Post office monthly income scheme    

The post office monthly income scheme (POMIS) gives eight percent return per annum, payable monthly. This is ideally suited for someone looking for monthly returns on a totally risk-free investment product. With a maturity period of six years, one can invest up to Rs 6 lakhs in a joint account. Otherwise, a maximum of Rs 3 lakhs can be deposited in a single account.


   The returns are not tax-free though.

Inflation holds key    

Unless inflation is pegged a few more percentage points down, the returns from debt instruments will continue to remain unappealing. Long-term investors who are saving for retirement must retain a significant exposure to equity to beat inflation.

 

Popular posts from this blog

Axis Mutual Fund NFO - Axis Fixed Term Plan Series 18

Axis MF has announced that the NFO period of Axis Fixed Term Plan Series 18 (15 Months) under Axis Fixed Term Plan Series 17 19 has been preponded from February 27 to February 24.        --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.   Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)   Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications   These Application Forms can be used for buying regular mutual funds also   Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) HDFC TaxSaver ICICI Prudential Tax Plan DSP BlackRock Tax Saver Fund Birla Sun Life Tax Relief '96 Reliance Tax Saver (ELSS) Fund IDFC Tax Advantage (ELSS) Fund SBI Magnum Tax Gain Schem...

Budget 2014 Highlights for Saving

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   The new finance minister Arun Jaitley has just presented his first budget. What measures does the budget contain that will specifically impact savers and investors? Here they are: 1. Housing loans exemption for self-occupied properties increased to Rs2 lakh: Earlier this amount was Rs1.5 lakhs. This move barely keeps pace with the inflation in asset values.   2. Investment limit under 80 (C) increased to Rs1.5 lakh: This is a good move again and offers some relief to taxpayers.   3. IT exemption increased to Rs2.5 lakh, Rs3 lakh for senior citizens. This comes as a minor relief for taxpayers.   4. Annual PPF ceiling to be enhanced to Rs1.5 lakh, from Rs1 lakh: This is in tune with the change in 80C.   5. Long term capital gains tax for debt funds has been rai...

Franklin India Taxshield

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   This fund maintains a quality portfolio of large-cap orientation. The fund manager adheres to a bottom-up investment approach and looks for companies whose current market price does not reflect future growth prospects. Investments are in companies that can drive future earnings growth. Stocks are selected based on the company's financial strength, management's expertise, growth potential within the industry, and the industry's growth potential.   The portfolio is well-diversified across sectors and market capitalisation and follows a blend of value and growth style of investing. The fund follows a predominantly large-cap allocation of over 70 per cent, with small-cap allocation never exceeding 10 per cent since inception.   Performance The fund doesn't dev...

ELSS Funds for different Risk Profile

Match your Goals Risk Profile With ELSS Investment   DIFFERENT TRACKS Unlike funds with a clearly defined investment universe -- large-cap, mid-cap or multi-cap - Tax Saving Schemes do not specify investment focus If you are looking for an equity Linked Savings Scheme (ELSS) to pare your tax burden, the plethora of options may confuse you. Many investors simply opt for ELSS funds , also called tax saving schemes with the best return over a certain time period. However, this may not yield the best results. There are several types of ELSS funds and it requires a nuanced approach to pick the right one. DIFFERENT RISK PROFILES Unlike funds with a clearly defined investment universe -- large-cap, midcap or even multi-cap schemes in the ELSS category do not specify their investment focus. While these schemes have the flexibility to invest anywhere, most tend to follow a defined template. For instance, some funds take a distinct large-cap tilt with a limited exposure to mid or small-cap st...

Reliance Tax Saver Fund Online

Invest in Reliance Tax Saver Fund Online   ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) Fund 9. Religare Tax Plan 10. Birla Sun Life Tax Plan Invest in Best Performing 2016 Tax Saver Mutual Funds Online Invest Online Download Application Forms For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a mis...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now