I am 65 years old and retired. My bank FDs are earning less now. Should I start investing in debt funds? If yes, what kind of debt funds would be suitable for me?
- Suresh Patwardhan
I think for somebody who has never invested in market-linked investments, it is not easy. So, I would like you to start with short- duration funds. But before that you should check whether you depend on this investment or fixed deposit for your income. If so, you need a different plan.
But if this is the money that provides you with financial security but you don't depend on it, then I would like you to get little venturesome in the sense that put 80 per cent of your money in conservative fixed-income funds and about 20 per cent in equity.
There are two advantages to it, one is that the income from a fixed deposit is taxable, whereas the income from a fixed-income fund is not taxable until you withdraw it. So, if this money is going to remain there, it will earn little more than a fixed deposit and you will not be liable for any tax until you withdraw it. If you hold it for a period exceeding three years, long-term capital gains tax will be applicable and that tax rate may be substantially lower than the marginal tax rate applicable on the interest from fixed deposits.
Another thing is that having about 20 per cent in equity (if you are not going to depend on these investments for income) is desirable because that is the best way to beat inflation or at least match inflation. In the coming times, fixed-income returns whether from fixed deposits or debt funds will be barely able to match inflation. So, psychologically, you will be comfortable that your money is growing and is safe but it is not actually growing in value in real terms because if you invest Rs 100 today, then it will become Rs 105 next year but all other things that you spend on will also require your income to rise. So, you need two different plans depending on whether you are going to depend on these investments for income or it is just for your financial security to have it handy in a safe manner.