Relevant questions answered in this section of article are –
1. Get 8% to 9% return on your investment risk free !! in debt funds more than your fixed deposits.
2. This post is useful for people falling in higher Tax bracket or Senior citizens who mostly invests in FD’s.
3. Can I expect better returns in Debt Funds compared to FD’s if yes which is the best Debt Fund to Invest
So lets start by looking the interest rate trend in India, in last 5 years down from 9% to 6.5%, plz check image below. (Source – Trading Economics, Reserve Bank of India )
So clearly the trend is down and it may further come down.
Friends don’t worry we have solution for this just read patiently and you will know how to get 8% to 9% returns in Debt funds.
Please note – taking tax advantage on this fund will enhance your return, so carefully go through the tax calculation of debt fund explained below
We recommend investing in Debt Funds for getting higher returns when compared to Fixed deposits.
Our top pick in debt fund, which will beat Fixed deposit return is
“Birla Sun Life Medium Term Plan – Retail Plan (G)”
Features of this fund and how get maximum returns from this fund –
- This fund invests in safer bonds with high CRISIL rating and have consistent track
2. To get full benefit of this plan and get maximum return on our investment we should invest in this fund for a minimum period of 3 years.
Average return of last 5 years is 10% yes some years even 11% !!
3.Choose option as Growth, cause dividend re-investment will attract Dividend Distribution Tax
4. Hold it for 3 years as you will get benefit of indexation as per Income Tax act.
5. Even if you take a conservative approach you can expect returns around 7.5 to 8% post indexation.
6. Tax implication and how it works –
Lets understand this with an example
Lets say an investor hold and investment for more than 3 years, his return on investment will be the difference of returns between two dates (we are redeeming the fund after a period of 3 years to get the benefit of indexation)
Debt fund Bought on 1st Jan 2013 –
Hence say you invested on 1 jan 2013 in Birla Sunlife Medium Term Plan Rs. 100000 applicable Nav was 13.4563 = no of units allotted is 7431.46 units
Debt fund Sold on 5th Jan 2016 –
On 6th Jan 2017 you sell the debt fund after 3 years to get indexation benefit.
NAV of the mutual fund on 5th Jan 2016 is 18.2289 Amount you invested has become 7431.46 (Units allotted) * 18.2289 (Value of NAV on 6th Jan 2016) = 135467 Rs
Now calculating the Tax –
Step 1- Calculate the difference between the purchase price and selling price.
Cost of the fund post Indexation = (100000/939) * 1125 = 119808
Gain will be
Clearly far better than Fixed deposits 🙂
Friends you can clearly see the benefits of investing in Debt funds generating higher returns than FD’s
Please feel free to share your inputs in the comments section below !!
Happy Investing !!
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