Debt Funds: FD has been a reliable investment option for people for years, but today there are many options that can give better returns than FD. If you want to invest money for 2 to 3 years and have the courage to take a little risk on investment, then you should definitely think about debt fund once. Debt fund is considered the safest option among mutual funds and it has the potential to give much better returns than FD.
Debt funds
In debt funds, the money taken from investors is invested in fixed income securities like bonds, government securities, treasury bills and non-convertible debentures etc. That is, the money of debt funds is invested in a safe place. Debt funds are considered safer than equity. There is no problem of liquidity in this, that is, you can withdraw your money whenever you want. Usually, debt funds have a fixed maturity date.
Debt funds can give you slightly better returns
If you look at it from the profit point of view, debt funds can give you slightly better returns than FDs. Usually, you get 6% to 7 or 7.5% interest on FDs of 1 year to 3 years. But the return of debt funds is considered to be around 9%. In such a situation, you can earn more profit by investing in debt funds. However, investors should not expect high returns like equity in debt funds. Talking about tax, there is a provision of tax on profits from Debt Funds.
Income tax rule
The entire profit from debt mutual funds is taxed as per the income tax slab. It depends on whether you have bought the fund before April 2023 or after. If you have bought the fund before April 2023, then tax will be levied under the old rules. If you have bought the fund on or after April 2023, then your profit will be taxed as per the income tax slab.
Short-term capital gains (STCG) from holdings of less than three years are taxed according to the investor’s income slab. Long-term capital gains (LTCG) from holdings of more than three years are taxed at 20% with indexation benefits. Talking about FDs, 5-year FDs are tax free. You have to pay income tax on FDs of less than this period.
Disclaimer
This is general information based on available online sources. Please verify before making any transactions. Times Bull is not responsible for any financial investments made, as it is entirely your responsibility. For better results, please consult a financial advisor.