My mother is a senior citizen. She does not want to put money in Equity. Should she select PPF or a combination of Ultra short term & Short term debt funds for better post tax returns in 10-15 years?
- Sujan Som
If you seek tax efficiency with assured returns, Public Provident Fund (PPF) scores over debt mutual funds. Both investment and returns in PPF are tax free, however PPF has a lock in period of 15 years and the returns may just about match government security rates. Debt funds should be your choice if you seek higher returns with anytime liquidity. But if held for less than three years they will attract short term capital gains tax as per your income tax slab. Debt funds held for more than three years will qualify for long term capital gain tax of 20 percent, with indexation benefits on your costs. You need to be aware that just like in equity markets, in the debt market, the prices of different bonds can rise or fall. Therefore returns from debt funds, even short term ones can vary from year to year. But then, PPF interest rates will now change every quarter too.
If you are completely averse to taking any risk with your money, then opt for the Public Provident Fund (PPF). It is safe because it is backed by the government.