Setting aside a set amount of money each month specifically for saving or investing is the best way to build wealth. For people willing to invest a fixed amount each month rather than a one-time investment of a huge amount, starting a SIP is the most preferred option today.

The fall in the interest rate regime and the excessive liquidity caused by demonetization, increased savings and financial literacy have led investors to seek investment alternatives that offer better returns while ensuring maximum security. of capital. But is there a more efficient way to make money?

Mutual funds are increasingly part of everyone’s portfolio. The debt mutual fund category invests most of the money raised from investors in fixed income instruments such as corporate bonds, government bonds, bonds issued by banks, certificates deposit, treasury bills, etc. Investors who carry out SIPs in debt funds have many advantages. Here are some of the most important features:

Security
Any type of investment can have a negligible chance of default. There is also no guaranteed return in the debt category. The returns are linked to the market and the investor is fully exposed to defaults or other credit problems in the entities in which the bonds are invested. However, the MF industry is tightly regulated and overseen by the regulator, the Securities and Exchange Board of India. (SEBI). The regulations put in place by SEBI closely control the risk profile of investments, the concentration of risks in the funds, the valuation of investments and the compliance of the funds with its objectives. In the past, these measures have proven to be very effective with very few unwanted cases.

Taxation
The other big difference is taxation. When an investor has SIP in a debt fund and remains invested for at least 3 years, the capital gain is taxable with an indexation benefit and the long-term capital gains tax payable is 20% , which is much better than paying tax according to the tax bracket. , especially when you are in the highest tax bracket. However, in the case of debt UCITS, if the holding period is less than 3 years, the tax levied will be that of the tax slab.

Liquidity
On repayment, the proceeds of open-ended debt funds are usually credited within 2-3 business days. Debt mutual funds, other than fixed-term plans, do not limit redemption. However, many funds charge an exit fee, ranging from 0.25 to 1% of the amount redeemed, if redeemed within a predefined time frame. These periods can range from 15 days to 6 months. Very short term funds and many short term funds may not charge exit charges and are best suited to park any emergency funds.

Return
Debt funds generate returns of around 1-4%. Debt fund investments involve both credit risk (lending to riskier borrowers) and interest rate risk (the risk of bond prices falling when interest rates rise). Therefore, these investments are offset by higher returns. However, since debt funds invest in a diverse range of securities and are very closely watched, they likely offer the best risk-adjusted returns.

We recommend that you contact your financial advisor and enjoy substantial returns without taking significant risks.

Opinions are personal: the author is Rajesh Sarawgi, a Northeastern Mutual Fund Distributor.


Disclaimer: The opinions expressed are those of the author and are personal. TAML may or may not subscribe to it. The opinions expressed in this article / video are in no way intended to predict or time the markets. The opinions expressed are for informational purposes only and in no way constitute investment, legal or tax advice. Any action taken by you based on the information contained in this document is your sole responsibility and Tata Asset Management will not be responsible for the consequences of any such action taken by you.


Investments in mutual funds are subject to market risks, carefully read all documents relating to the plan.


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