[green_ninja]

Originally Posted by thanixravindran

Is it not possible to do it directly with RBI retail?

I suppose that is possible too but the added hassle of maintaining another account beats doing everything with one account at a small added cost.

[Latheesh]

Hi, Need a help!
I have some cash which I do not need for the next 5 years. I thought of doing SIP in an index fund over next 1 year, but looking at the current market trend I am not sure. What is the best FD alternate debt instrument where I can get a decent return? Thanks in advance!

[Linuskm]

Originally Posted by Latheesh

Hi, Need a help!
I have some cash which I do not need for the next 5 years. I thought of doing SIP in an index fund over next 1 year, but looking at the current market trend I am not sure. What is the best FD alternate debt instrument where I can get a decent return? Thanks in advance!

You can look at debt funds with low duration.

https://www.valueresearchonline.com/...d-direct-plan/

Since your timeline is 5 years hybrid funds are also a good choice

https://www.valueresearchonline.com/...nd-direct-plan

[Thebat]

Originally Posted by Latheesh

Hi, Need a help!
I have some cash which I do not need for the next 5 years. I thought of doing SIP in an index fund over next 1 year, but looking at the current market trend I am not sure. What is the best FD alternate debt instrument where I can get a decent return? Thanks in advance!

You can look into the credit risk category given the present market condition. I would personally recommend ICICI Prudential Credit Risk fund as it has consistently delivered superior returns while not partaking in any negative credit event, the fund is professional managed with an enviable track record. I feel it would suit your investments need.

[srvm]

Originally Posted by Latheesh

Hi, Need a help!
I have some cash which I do not need for the next 5 years. I thought of doing SIP in an index fund over next 1 year, but looking at the current market trend I am not sure. What is the best FD alternate debt instrument where I can get a decent return? Thanks in advance!

Which tax bracket are you in?
If you are in 30% bracket, then any decent debt fund (not necessarily the credit risk funds) should be more efficient than FD.
Reason: FD interest is taxed as per your tax bracket. Debt funds held for more than 3 years qualify as long term capital gains and are taxed at 20% with indexation benefit.

Look for debt funds which may have good balance of exposure to Govt bonds, Corporate bonds (AAA or above) with average duration of 2-3 years. Like Linuskm suggested, Hybrid funds (typically equity exposure of 15% approx) may also do well in the 5 year duration that you have in mind.

[SmartCat]

Originally Posted by Latheesh

I have some cash which I do not need for the next 5 years. I thought of doing SIP in an index fund over next 1 year, but looking at the current market trend I am not sure. What is the best FD alternate debt instrument where I can get a decent return? Thanks in advance!

Because we cannot predict what the interest rates trend will be like over the next 5 years, the best strategy to use "Fixed Income Laddering"
https://www.investopedia.com/terms/b/bondladdering.asp

To keep it simple -

- 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).

Now if you want to take a higher risk (with a possibility of higher returns):

- Invest 34% in "Low Duration" funds
https://www.valueresearchonline.com/...uspended-plans
- Invest 33% in "Corporate Bond" fund
https://www.valueresearchonline.com/...uspended-plans
- Invest 33% in "G-Sec Constant Maturity" fund
https://www.valueresearchonline.com/...uspended-plans

[DigitalOne]

Originally Posted by Latheesh

What is the best FD alternate debt instrument where I can get a decent return? Thanks in advance!

You should look at Target Maturity Debt Funds. This relatively new category of debt funds, buy G-Secs, State Govt SDLs, PSU bonds, or AAA rated bonds and have a fixed end date, and a predictable (not guaranteed) return. I have written about it earlier in this thread. There is no lock-in, so you can redeem it earlier if needed.

[carboy]

I want to park my money for 1 year. I can get around 7% from an FD. Is there any kind of debt fund which can be better considering the following assumptions

- Interest rates won't probably go down in the next 1 year
- Interest rates may go up by 0.25% to 0.50% over the next 1 year (which may mean NAV of debt funds may go down & hence may offset some of the interest in the debt fund)
- Differential tax treatment of debt funds & FDs
- 10+ Lakh Tax bracket.

[SmartCat]

Originally Posted by carboy

I want to park my money for 1 year. I can get around 7% from an FD. Is there any kind of debt fund which can be better considering the following assumptions

You could look at 'low duration' funds with average maturity of around 1 year
https://www.valueresearchonline.com/...&tab=portfolio

When you list the funds based on 'yield to maturity', you will find some funds with yield greater than 7% and going up to 8.2%. These funds are most likely to beat 7% FD returns



However, in my opinion, it does not make much sense to try and generate extra alpha over fixed deposits. Those gains are not worth our time.

[Sandegov]

Originally Posted by carboy

- Differential tax treatment of debt funds & FDs

For any debt fund - wouldn't the taxation remain same as FD over 1 year? with Long term capital gain+indexation kicking in only after 3 years?

New to the MF scene so pardon my ignorance if I am missing something here.

[carboy]

Originally Posted by SmartCat

You could look at 'low duration' funds with average maturity of around 1 year
https://www.valueresearchonline.com/...&tab=portfolio

Thank you. And for a longer time period say 3 to 5 years what kind of debt funds would you advise which could outperform FDs.

[deepak_misra]

Originally Posted by Sandegov

For any debt fund - wouldn't the taxation remain same as FD over 1 year? with Long term capital gain+indexation kicking in only after 3 years?

You are right. For a period of less than 3 years a debt fund has no advantage over a FD viz a viz taxation.
For a period of >1 year and <3 years arbitrage funds are alow risk option and are treated as equity from a taxation perspective

[deepak_misra]

Originally Posted by carboy

I want to park my money for 1 year. I can get around 7% from an FD. Is there any kind of debt fund which can be better considering the following assumptions

- Interest rates won't probably go down in the next 1 year
- Interest rates may go up by 0.25% to 0.50% over the next 1 year (which may mean NAV of debt funds may go down & hence may offset some of the interest in the debt fund)
- Differential tax treatment of debt funds & FDs
- 10+ Lakh Tax bracket.

I would strongly recommend understanding the different types of debt funds and the associated risks. (If you are already familiar - ignore my post ).
As has been pointed out, there is no taxation advantage over FD for periods lower than 3 years.

One approach would be to calculate the total interest on FD depending on the amount you want to invest and the interest from a debt fund which would give a 1% or 2% higher interest rate .

See the difference between the two and balance it with peace of mind

[Fx14]

Originally Posted by Sandegov

For any debt fund - wouldn't the taxation remain same as FD over 1 year? with Long term capital gain+indexation kicking in only after 3 years?

While the indexation benefit is not applicable, there may be a difference between the two options due to the fact that FD interest accrues and is paid quarterly whereas the capital gains on MF are only on redemption (so gets deferred to the next year).

So for large size of principal amounts, the impact could vary.

[carboy]

Originally Posted by Fx14

While the indexation benefit is not applicable, there may be a difference between the two options due to the fact that FD interest accrues and is paid quarterly whereas the capital gains on MF are only on redemption (so gets deferred to the next year).

FDs also have an option where the interest accumulates & is paid only when the FD matures.

However, as per IT rules, I think you are still supposed to show accrued interest in your returns in your filing. 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 because the AIS shows the whole interest at redemption for cumulative deposits & that may cause problems for me in filing in the future year when it actually does so.