Skip to main content

Debt portfolio can yield good returns

Buy Gold Mutual Funds

Invest Mutual Funds Online

Download Tax Saving Mutual Fund Application Forms
Call 0 94 8300 8300 (India)
It's a good time for debt allocation with both short-term and long-term options offering good returns


   In the midst of a rising inflation and the resultant higher interest rate scenario, there is some good news if you are a short-term investor. Your money, even if parked for a short period of time, can get you good returns. In the last few months, the annualised returns offered by money market and liquid funds have moved upwards. The annualised returns have been in the range of over six percent.


   Ironically, the returns offered by a number of sector funds have been substantially lower or negative during the same period. After more than a 1,000-point rally, index funds managed to add some green to their chart.


   So, the debt market is not a bad place to be in considering that many other assets are looking not too comfortable. While equity always carries risk and its riskreward ratio changes according to timing of entry, other assets too are demanding perfect timing. Property is a perfect example which was once considered a safe haven for the long term. Commodities, because of their global linkage, are increasingly volatile and expensive too. Hence, for the risk-averse investor, there are only a few options in terms of asset classes. But the good news is that the segment as a whole is getting lot of action and with the recent budget proposals, the debt market in India, is in for major growth.


   When you consider debt as an asset class, there is a growing confusion among - should they choose innovative products or simply stick to vanilla products where what you see is what you get (or earn in this context). The fear is understandable considering the fact that the 2008 financial crisis is a by-product of smart innovations in debt and derivative products.


   So, in an era where debt products are giving smart returns and even closer to double digit, investors can stick to vanilla options. While debt is for the short term and for those who don't need risk, it can have some allocation if the portfolio is aiming for a 10 percent growth over the medium term. Here, investors will have to keep in mind the tax implications as 10 percent returns offered by a fixed deposit need not be tax-free returns. Since interest income is taxable, you need to keep in mind the tax-free exemption limit. While super senior citizens have the luxury of parking a large corpus because of their higher exemption limit in the coming days, it is not the case for many others.


   In this context, monthly income plans of mutual funds can come in handy. While dividend is tax-free because of dividend distribution tax, it offers some added advantage in the form of lower effective tax on long-term capital gains. If you were to take into account the indexation benefit, the real returns from these products can be superior to other vanilla debt products.


   Interestingly, in the last few months, investors have also had the opportunity to park long-term money in debt options with a number of issuers hitting the market with 10-year maturity papers. They are a good option in the current environment because of high interest rates. For instance, any investor would be willing to settle for a 9-10 percent interest rate option for a period of 10 years if liquidity is not an issue.


   Unfortunately, very few investors fall into this category as more often than not, debt investors prefer liquidity. While a retired individual needs regular source of income, a high net worth individual may look at debt for tiding over liquidity. For such investors, a 10-year product may not fulfill the requirement unless asset allocation demands such a product for risk management. Those who can afford to allocate can make the best use of the current environment.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

 

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver Mutual  Funds  Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

 

Popular posts from this blog

Am you Required to E-file Tax Return?

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   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...
Read more

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Read more

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...
Read more

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...
Read more

Bharat Bond ETF

Top SIP Funds Online   The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it. The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio'). The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations. But does it make sense for you, the investor, to invest in it? Lets find out. What is the product? As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 ye...
Read more
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