My father is retired and has around Rs 5 lakh that he wishes to invest in a good long-term debt fund whose returns can beat the inflation and FD rates. Could you suggest some or briefly guide as to which type of debt funds will be the most suitable for him.?
Medium-term debt funds can provide more returns than bank deposits and possibly inflation too. But debt funds can go down in value and they are not completely risk-free. These funds deliver higher return when interest rates go down and lose value when rates go up. Besides they also carry credit risk on their investment. The return from these funds are more tax efficient as they are treated as capital gains if held for 1-year. A well rated medium-term debt fund can be good choice.
For investors seeking risk-free fixed return these fund may not be suited. A bank fixed deposit is safer with high liquidity. Currently some banks are giving up to 11% interest to senior citizens.