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Old 5th March 2023, 08:09   #151
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Re: Investing in debt funds

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Originally Posted by carboy View Post
I used to this earlier but stopped now because AIS which you can download from the IT site doesn't do this, so my CA advised that, I also should stop doing it....
Please take such advice with a lot of caution. The IT rules have not changed. What you were doing earlier was right. Please check this in the thread dedicated to Income Tax queries.
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Old 5th March 2023, 10:53   #152
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Re: Investing in debt funds

I want to park funds in a debt fund and the period is not very clear, I may need to redeem them in portions across a year/more or may be lumpsum whenever I see an opportunity to invest elsewhere. I am wondering if I should (a) push them into a liquid fund or (b) invest portions in liquid/low duration/MM/short duration funds or (c) just go for a single MM fund and redeem them as and when required?
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Old 5th March 2023, 11:08   #153
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Re: Investing in debt funds

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Originally Posted by skumare View Post
I want to park funds in a debt fund and the period is not very clear, I may need to redeem them in portions across a year/more or may be lumpsum whenever I see an opportunity to invest elsewhere. I am wondering if I should (a) push them into a liquid fund or (b) invest portions in liquid/low duration/MM/short duration funds or (c) just go for a single MM fund and redeem them as and when required?
Something like this is suitable for most investors:

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Originally Posted by SmartCat View Post

- Invest 34% in liquid funds (will benefit from rising interest rates)
- Invest 33% in PSU debt & banking fund (or BharatBond ETF)
- Invest 33% in G-sec Regular funds (will benefit from falling interest rates)

The above portfolio will give the best "risk adjusted returns" (highest returns taking the lowest risk).
Here you start off with equal allocation. But over time, the 'current' allocation will change as each category of debt funds sees variable returns. So when you need the money, you can put out funds from category that has given the higher returns. That is, redeem funds such that current value of funds has 33/33/33 allocation

Last edited by SmartCat : 5th March 2023 at 11:28.
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Old 24th March 2023, 10:48   #154
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Re: Investing in debt funds

Looks like LTCG benefits on debt funds, gold funds and international funds are going to be removed. https://economictimes.indiatimes.com...w/98957864.cms

If this is done, is there any tangible benefits of debt funds over a regular bank FD?
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Old 24th March 2023, 11:21   #155
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Re: Investing in debt funds

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Looks like LTCG benefits on debt funds, gold funds and international funds are going to be removed.
If this is done, is there any tangible benefits of debt funds over a regular bank FD?
I think there will be no impact on existing holdings... Assuming the amendment is passed, we can expect AMCs to change the investment mandate to reclassify them as type I non-equity funds.

Fund houses can increase arbitrage exposure to more than 35% to ensure the indexation benefit is retained. Naturally, this is less than desirable but is better than paying tax as per slab, especially on long-term holdings (made after 1st*April*2023).
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Old 24th March 2023, 11:32   #156
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Re: Investing in debt funds

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Originally Posted by Gsynch View Post
I think there will be no impact on existing holdings... Assuming the amendment is passed, we can expect AMCs to change the investment mandate to reclassify them as type I non-equity funds.

Fund houses can increase arbitrage exposure to more than 35% to ensure the indexation benefit is retained. Naturally, this is less than desirable but is better than paying tax as per slab, especially on long-term holdings (made after 1st*April*2023).
Does anyone have any idea on how existing investments would be treated?
Will we have LTCG benefits for the NAV as on March 31, 2023 and any appreciation would be taxed at slab rate during redemption?

Or will we have the entire fund value at redemption considered as grandfathered (any time in future) and be considered for LTCG benefits? I think it will be the former. But some clarity would help decide how I proceed with my investments in debt funds.
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Old 24th March 2023, 17:28   #157
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Re: Investing in debt funds

Had a query on how this "Capital gain from debt mutual funds to be taxed as per income tax slab" thing works. How exactly is the income tax slab determined?

Is the slab based only your income consisting of salary + Interest from FDs? Or is capital gains (arising out of share/funds sales) included to determine the slab?

To give an example, after today's amendment, if a person has 10L salary + FD income, and 15L debt fund CG, is the income tax slab determined by 10L or 25L?
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Old 24th March 2023, 17:42   #158
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Re: Investing in debt funds

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Originally Posted by DigitalOne View Post
To give an example, after today's amendment, if a person has 10L salary + FD income, and 15L debt fund CG, is the income tax slab determined by 10L or 25L?
So, the amendment is applicable with effect from 1st April 2023 onwards and the news articles are currently silent on the actual treatment of the existing investments, other than stating that the existing investments would not be impacted.

In your example, if the debt funds are invested in post 1st April 2023, then you will be in the income tax slab of 25L.
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Old 24th March 2023, 18:00   #159
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Re: Investing in debt funds

https://www.ndtv.com/business/explai...dtv_topstories

It could also give a push to bank deposits that have witnessed slow growth as compared to credit demand in the past 12 months.

Investors are likely to start preferring fixed deposits over debt funds once the indexation benefit is gone
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Old 24th March 2023, 19:12   #160
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Re: Investing in debt funds

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Originally Posted by Fx14 View Post
So, the amendment is applicable with effect from 1st April 2023 onwards and the news articles are currently silent on the actual treatment of the existing investments, other than stating that the existing investments would not be impacted.

In your example, if the debt funds are invested in post 1st April 2023, then you will be in the income tax slab of 25L.
Has any fund house provided any clarification? Hope this doesn't trigger a redemption rush for tax harvesting.
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Old 1st April 2023, 12:27   #161
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Re: Investing in debt funds

I invested in a Liquid fund on Mar/31/2023. However, the NAV of units allocated is as on Mar/30/2023, is this normal? Why? (Mar/30 was a holiday).

I have 2 queries for Debt MF investments made post Apr/01/2023:
a) Can we assume taxation will impact at the time of redemption only, hence the compounding will be better marginally if funds are retained for long-term in Debt MFs?
b) Are the gains out of any investment in Debt MFs made post Apr/01/2023 treated as STCG and adjusted against previous loss(es)?
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Old 1st April 2023, 18:12   #162
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Re: Investing in debt funds

I own a Liquid Fund, an Overnight fund & also DSP Government Securities Fund. All of them have crossed 3 years of holding. I am in need of some money, so I have to sell one or more of the funds.

What should my order of preference of selling these Funds at the current time? i.e. if I had to choose only one of these funds to sell, which one should it be. If I had to sell 2 of these, which would be the 2?

How do I make this decision? Since RBI rates have been changing constantly over the last year or so, I was think I should check last 1 month returns of each of these funds & sell off that which has given the lowest return in the last one month & so on & so forth.


The Overnight funds shows 0.54% return for last 1 month, the liquid fund, 0.57% & DSP shows 1.35%.

So I think my first pref should be to sell the Overnight fund.

Is this the right way to decide or is there a better way?

Last edited by carboy : 1st April 2023 at 18:18.
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Old 1st April 2023, 19:00   #163
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Re: Investing in debt funds

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Originally Posted by carboy View Post
What should my order of preference of selling these Funds at the current time?

The Overnight funds shows 0.54% return for last 1 month, the liquid fund, 0.57% & DSP shows 1.35%.
My recommendation would be Overnight fund first, then liquid fund and then DSP Govt securities fund.

YTM would be a good indication of the future returns. Also the expectations are that RBI would increase interest rates only once more, then keep it steady, and then start reducing the rates. Same is the expectations with the US Federal reserve. Funds having long duration govt securities will give very good returns in a falling rate scenario. So hold onto the DSP government securities fund at least for a couple of years if you can. I also have invested in this fund.

Standard disclaimers apply .
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Old 1st April 2023, 19:35   #164
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Re: Investing in debt funds

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Originally Posted by carboy View Post
Is this the right way to decide or is there a better way?
Liquid and overnight funds are very stable when it comes to NAV movements and will not give you negative returns.

On the other hand, funds like DSP Gsec are very sensitive to interest rate movements and can give negative returns for months or years on end depending. So there is a probability of your GSec fund losing 1.5% or more next month wiping out gains for an extended period.

So the decision depends on your risk taking capabilities and plans on redemption of the remaining units.

I see couple of options here -

1 - Take a bet on the direction of interest rates and follow DigitalOne's advice. What he has suggested is aligned with what most financial experts are predicting on the direction of policy rates.
2 - If you are not sure of that bet, then redeem all three funds for an equal amount to meet immediate cash needs. Example - if you need 3 lac rupees, then redeem one lac each across all three. This way you continue to hold eggs in all the baskets and are not making a bet on which one one of your funds will be the best performer.

Last edited by warrioraks : 1st April 2023 at 20:05.
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Old 1st April 2023, 20:05   #165
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Re: Investing in debt funds

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Originally Posted by carboy View Post
I am in need of some money, so I have to sell one or more of the funds.
Is this going to be a permanent redemption or something short term and you would be investing back the amount in a short time ( say in < 3 months)

If it is a permanent redemption then I would go for the debt fund since once you use this capital up you would still need to have some liquid cash to be used in an emergency and for that sudden redemption liquid and o/n funds are the best.

If it is something short term then would suggest doing more in liquid funds as you don't want to miss out on any short term capital appreciation that might happen in debt funds. But again make sure you have sufficient liquidity to cover the 3 months..
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