I am looking for debt funds as a replacement for my fixed deposits. Someone advised me to invest in arbitrage funds with an investment horizon of up to one year. But I couldn't find these funds in your Year Book 2015. And for long duration, someone advised me accrual funds, corporate debt bonds and no credit opportunity funds. I have invested in four debt income funds recommended in your book. I do not want to park all the money in these funds. I have invested in balanced and equity funds. Please help me clear the confusion.
- Naresh Kumar Taneja
To begin with, it is not a great idea to take investment advice from "someone." Use Value Research website for your research. Check the Ask section for queries of similar nature. Also, use the search option to research the topic you have in mind. If you find it too problematic, it is always better to hire a qualified person to do that job for a small fee. Do not rely on "someone".
It makes sense to invest in arbitrage funds if you have an investment horizon of more than a year, as these funds are treated as equity funds for taxation purpose and you do not have to pay any tax on returns from them if you hold the investment for more than a year. Long term capital gains tax on equity investments held over a year is nil. Though they are treated as equity schemes for the purpose of taxation, they do not invest in stocks. These schemes invest in arbitrage opportunities that exist between the cash and the future market. They are relatively less risky and you can expect decent returns (almost similar to debt investments, but tax-efficient) from them.
For more, read: Arbitrage Funds: Risk Free and Tax Free.
Here is a list of top-rated arbitrage funds.
You already have four top-rated long-term debt funds in portfolio. Don't add more funds, as it will be difficult to track their performance on a regular basis.
This article was originally published on December 22, 2015.
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