Invest a lump sum amount for 3 years in income funds if safety, liquidity and tax benefits are what you seek
26-May-2015 •Research Desk
I have a large sum of money at my disposal and do not require it for another three years at the least. Would you recommend to invest it in a FMP or a long duration Income Fund on the parameters of safety, volatility and post tax returns?
- Nitin Desai
We would advise you to invest your money in income funds, given your requirements for safety, liquidity and tax benefits. We suggest income funds for three reasons. One, income funds are relatively easier to pick because of availability of a track record. FMPs have no track record to demonstrate performance. Two, income funds give the fund manager flexibility to actively manage the tenure and control credit risk on the portfolio, in line with changing market conditions. FMPs lock into a fixed yield. Finally, income funds are open end and allow you to redeem at any time while FMPs are closed ended funds, so you might face liquidity issues. Taxation for both the funds is same, if held for more than 3 years.