Well, my simple answer will be a BIG NO. Not because i am a distributor and have vested interest, there are some genuine advantages Debt fund provides, and we all should utilise the same.
Let’s take a holistic view of Debt funds and see the logic behind my first statement.
The current problem is only in few schemes and of few Mutual Funds and not with the whole Debt Fund universe. Out of hundreds of schemes few schemes have become bad and there are still lot of good schemes and good fund managers whom you can entrust your money with.
Yes, the risk is genuine. No one is denying that. But it is also not so big a risk that you completely give up on investing in debt funds. If a person has a diversified portfolio of debt mutual funds, the impact of such stray instances on the total portfolio will be insignificant.
If you look at the long term track record of debt mutual funds, it has been very much convincing. They have had their draw-downs, but they have always lived up to the expectations of the investors, provided you or your advisor has chosen the appropriate scheme.
Debt mutual funds depending on their objective invest their corpus in a diversified set of Instruments. Their universe ranges from Govt. Securities, Debentures, Certificate of Deposits, Bonds, Commercial Paper, etc. issued by investment-worthy Banks, Govt., Public Sector Enterprises, and Pvt. Companies. It is practically impossible for all of them to simultaneously default.
Debt funds are perfect tool to follow Asset Allocation for your portfolio, imagine under the current circumstances if you have invested in Debt funds, it would have arrested the fall in your overall portfolio at the same time, you can take out some money from Debt and average in your Equity portfolio.
Debt mutual funds enjoy lower taxation when the holding period exceeds 3 years (i.e. long term capital gains). While the interest income on fixed deposits is fully taxable, the long term capital gains are taxed @20% with indexation benefit. This makes debt funds far more tax efficient than the fixed deposits for investors in the higher tax brackets.
It makes no sense to give up on such massive tax savings.
Meanwhile, short term capital gains from debt funds and interest income on fixed deposit are treated at par and taxable as per your marginal tax slab. So even in this case Debt funds are at par with other Fixed Income Instruments.
Though, i don’t deny that, FDs from PSU banks provide full safety for our money. But then if you apply correct metrics and pick correct funds, you can reap the actual benefits of Debt Funds.
Happy Investing!
RaVi
Be First to Comment