I would like to invest Rs 20 lakh in long term debt funds for 7 to 10 years. I am in the 30 per cent tax bracket. I would like to have at least 9.5 per cent post tax returns. Can you suggest funds that I can invest in?
Considering the high tax bracket to which you belong and the investment time frame that you have in mind, instead of looking at debt mutual funds; you can consider investing in the NHAI and PFC bonds that are available right now. The rates offered by both these bonds are attractive for investors in the higher tax brackets, as the interest paid out is tax-free. Both PFC and NHAI are offering an 8.2 per cent annual payout for the 10 year option and 8.3 per cent for the 15 year option. The minimum investment in the PFC bond is Rs 10,000 compared to Rs 50,000 in the NHAI bond which also has an upper limit of Rs 5 lakh for retail investors.
Do not confuse investments in these tax-saving bonds with the infrastructure bonds that qualify for Section 80CCF benefits with Rs 20,000 limit on deductions. In these two bonds, there is no deduction on the principal invested, however, the interest earned is completely tax-free under Section 10(15)(iv)(h). What one needs to be careful of is the impact of DTC on the tax free nature of the interest payout whenever it comes into effect.