Page 27 - seniors today August issue
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chosen by the investor.                              corporates and the merits of investments are
        •10 year tenure, which can be extended by 3          managed by professional teams.
        years, once the scheme matures.                      •Highly liquid
        •Premature withdrawals are allowed only in           •Tax efficient. Indexation and preferential rate
        case of any critical/terminal illness of self or     (in case of long term capital gains) significantly
        spouse with a penalty of 2%.                         reduces the tax liability and has to be paid only at
        •Interest received is taxable.                       the time of redemption, thereby making it one of
        Positives                                            the most tax efficient debt investments.
        •Higher fixed returns and safe as it is backed       •Ideal for investors in the high tax slabs or
        by Government of India.                              investors who are not looking at fixed returns.
        •Ideal for investors who are looking for a           There may be some volatility in returns but
        fixed periodic payout and may not need the           effectively, it is one of the best modes of taking
        principal amount for 10 years.                       exposure to debt instruments.
        Limitations                                          Limitations
        •Returns are taxable and hence not tax-              •Returns are not fixed and may be subject to inter-
        efficient                                            est & credit risk
        •Illiquid, except in case of medical
        emergencies                                          EQUITY MUTUAL FUNDS
                                                             Key Features
        3. DEBT MUTUAL FUNDS                                 •Like Debt Mutual Funds, Equity MFs are profes-
        Key Features                                         sionally managed by SEBI registered Asset Man-
        •Professionally managed by SEBI registered           agers and it is one of the cheapest modes of taking
        Asset Managers. These funds invest in                equity exposure
        various debt instruments such as gsecs,              •Investment can start from minimum of INR
        corporate bonds, debentures, etc                     100 and there is no restriction on the maximum
        •Investment can start from minimum of                amount.
        INR 100 and there is no restriction on the           •Different category of funds available which is
        maximum amount.                                      suitable for an investment horizon of at least 5-7
        •Different category of funds available for           years and above.
        different time horizons and different risk           •Returns vary, depending on the equity market
        profile. It can be as small as overnight upto        performance.
        funds suitable for 7 years above.                    •Returns upto INR 1 lakh per annum is tax ex-
        •Returns vary, depending on the type of fund         empt. Returns in excess of INR 1 lakh p.a. for
        and are subject to prevailing interest rates         investments held for more than 12 months are
        and credit cycle. Typically they offer better        taxable @ 10%.
        returns compared to other similar time               Positives
        horizon debt products.                               •A superior product considering professional
        •Open ended Debt Mutual Funds can be                 management, small ticket size and lower costs.
        redeemed anytime, though there may be a              •Ideal for investors who may not be adept to track
        charge in select funds for withdrawal before         equity markets themselves diligently and has a
        the minimum investment term.                         time horizon of more than 5-7 years to stay invest-
        •Returns are eligible for indexation benefits        ed.
        under income tax laws if redemption is made          Limitations
        beyond a period of 3 years and is taxed at a         •Returns are not fixed and may be subject to
        preferential rate as long term capital gains.        equity market risk. Equities in short term may
        Positives                                            be extremely volatile and hence not suitable for
        •A superior product compared to corporate            short-term investments
        FDs, as risk is diversified across different

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