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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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