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Which debt fund would you suggest to get two-three per cent extra return than a fixed deposit?

Dhirendra Kumar helps you choose the right debt fund for your needs

Which category of debt fund would you suggest for a horizon of two-three years? I am seeking two-three per cent extra return over and above the fixed deposit returns.
-Deepa Jain

The case for debt funds becomes much stronger if you are going to hold them for more than three years. There isn't a great advantage if you hold it for a lesser time period as the tax advantage kicks in only after three years. If you hold it for even a little more than three years and earn as much return as a fixed deposit, your post-tax return will be higher. Your gains will be indexed for inflation and you will be liable for taxation only on the gains post adjustment of inflation.

On choosing a fund - err on the side of caution. The interest rate outlook is still hazy. So only consider a short duration or a banking and PSU debt fund.

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