All investors should have some exposure to bonds. The percentage of allocation to bonds can vary based on the risk profile of the investor. Including debt-based instruments brings stability to the overall investment portfolio of an investor.
Some bonds also qualify for tax rebate and hence their overall returns net of taxes become quite attractive.
Advantages of debt instruments
Interest rates have reached their peak levels and expectations are the Reserve Bank of India (RBI) will go for some monetary softening, going forward. Investments in debt based instruments seem quite attractive from many perspectives such as capital preservation and risk returns ratio. Capital appreciation is intact even if interest rates go down in the future.
Investors with a low risk appetite can reduce exposure to equity and rebalance the portfolio by investing in debt based instruments.
Here are some options in bonds:
Debt funds
These instruments are good options for investors with a low risk appetite. These funds invest in debt based instruments and government bonds.
Therefore provide safety of principal with decent returns. These funds come without any lock-in such as bank fixed deposits. They offer quick liquidation and hence come in handy for those wanting to invest with a short to mediumterm perspective without any investment risk.
Since interest rates are up, debt-based instruments are attractive from many perspectives such as capital preservation, low risk, high returns and the possibility of capital appreciation if the interest rates go down in future.
Liquid funds
Liquid funds are good for investors who want to park their funds for a short term. These funds invest the corpus mainly in money market instruments, short-term corporate deposits and treasury. Liquid funds can be liquidated on a very short notice. Therefore, they score over other short-term deposits.
Returns from bank fixed deposits are taxable depending on the tax bracket of the investor, which pulls down the actual returns considerably. Dividends from liquid funds are tax-free in the hands of the investor. This increases their effective returns.
Tax-saving bonds
There are various bonds available in the market that qualifies for income tax rebate. These tax-saving bonds come with a lock-in period of five years or more. The returns from these bonds, including the income tax savings, are attractive for investors in higher income tax brackets.
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 Scheme 1993
- Sundaram Tax Saver
