However, most mutual fund advisors do not recommend these schemes to regular debt mutual fund investors because these funds are extremely sensitive to interest rate movements. They can lose heavily when the interest rates harden or stay put. Similarly, they benefit the most when the rates start falling.
Simply put, these funds benefit the most when the RBI starts cutting its policy rates. They offer double-digit returns during such an easy rate period. However, they lose heavily when the central banker starts to pause or hike policy rates.
Investors can avoid this only if they know about interest rates in the economy and time their entry and exit in these schemes based on the rate movements. However, many regular investors will not be able to do it, say mutual fund advisors. It is not easy for lay investors to predict RBI actions or keep track of macro-economic factors.
However, if you have a long investment horizon and you are aware about interest rates in the economy, you can consider investing in these schemes. However, be forewarned. You should be prepared to hold your investment through an entire interest rate cycle. Getting out of the scheme in a hurry may result in losses.
If you think it is complicated to pull it off by yourself, seek the help of a reliable mutual fund advisor. Or stick to relatively-safer debt mutual fund options.
These schemes are taxed like all non-equity schemes. If you sell your investments in these schemes before three years, the returns (called short-term capital gains) would be added to your income and taxed as per the income tax slab applicable to you. If you sell your investments after three years, returns would be treated as long-term capital gains and taxed at 20% after indexation benefits.
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1 Comment on this Story
ask me66 days ago
the sugesstion is too conservative. try good balanced advanrage fund,