With bank fixed deposits (FDs) giving lower interest rates, I am looking at debt instruments which are very safe. My objective is capital appreciation over a long term of around three years to benefit from long term capital gains tax (LTCG). I am considering investing in dynamic bond funds. I would like to know if this the the right choice or are there any other better instruments?
- Jignesh Shah
Since your investment horizon is three years, it is better to stick to relatively-safer options like debt mutual fund schemes to earn a slightly better tax-adjusted returns. Dynamic bond funds are ideal if you want to leave the job of taking a call on future interest rate movements to the fund manager. It is very important to time the entry into and exit from long-term debt mutual fund schemes as they are very sensitive to interest rate movements. An average investor would find it difficult to time their entry into these funds. Dynamic bond funds are ideal for such investors, as they can leave the job of taking a call on interest rate movements to the fund manager. Dynamic bond funds invest across debt instruments of different maturities, based on the fund manager's view on the economy and interest rates.