Please suggest some debt-oriented mutual funds that qualify as tax saving schemes. I am looking for a low-risk scheme that can generate around 12 per cent tax-free returns.
- Anirban Biswas
The only class of equity mutual funds that qualify for tax-savings are equity linked savings schemes (ELSS) that invest a minimum 80 per cent of their assets in equities and all returns are tax free.
Due to their equity component, the risk component will be higher than debt funds. Apart from these, there are two pension schemes viz. Templeton India Pension Plan and UTI Retirement Benefit Unit Plan which invest a minimum of 60 per cent of their assets in fixed income instruments.
Debt investments qualifying for exemption under Section 80C of Income Tax Act are National Savings Certificate (8.16%, taxable), Public Provident Fund (8%, tax free), Infrastructure Bonds (6%, taxable) and 5-year fixed deposits with banks and Post Office (8-8.75%, taxable).
For tax free returns, consider balanced funds that invest about 65 per cent of their assets in equities and the rest in fixed income instruments, which are less risky than the pure equity schemes. All dividend income and capital gains from them after one year are tax-free. For all calculation purposes, they are expected to return 10 per cent per annum, but can deliver more depending upon market conditions.
Some good conservative balanced funds are Canara Robeco Balance and DSP BlackRock Balanced.