Best Debt Mutual Funds
Lalitha Sudha wants to know about the best debt funds that give returns comparable or better than FDs. Here we answer her query & tell her more about debt funds
By Research Desk | Apr 16, 2008
I would like to know which are the best debt mutual funds that give comparable or better results than bank fixed deposits (FDs).
Let us first briefly differentiate between debt funds and FDs. Debt funds do offer superior returns than FDs at times but they have an associated interest rate risk. If you hold a debt fund for more than a year you can avail of the indexation benefit (tax on gain from debt fund after a year - 20 per cent with indexation benefit or 10 per cent without it, whichever is less) and reduce your tax liability further. Though fixed deposits provide you a guaranteed return over a fixed term and have no associated interest rate risk, the interest earned is to be added to income. This reduces their yield further.
If you are a long term investor and wish to invest in debt funds, opt for some five or four star rated debt funds. Kotak Flexi Debt, ICICI Prudential Long Term or Birla Sun Life Income can be some good options. You should also consider Arbitrage Funds for investing which have minimal associated market risk and are considered at par with equity funds for tax treatment. These funds have managed to generate returns in line with those generated by debt funds.