If you stop SIPs to reduce number of funds, you need not withdraw existing investment2 min read . Updated: 07 Oct 2020, 10:09 PM IST
- Debt funds give you indexation benefits if you hold them for more than three years, saving tax outflow
- You can work out a rough post-tax return on debt funds and other debt instruments and see if the tax-free bond yields are good in comparison
I am retired and have an investible surplus of ₹50 lakh. Please suggest some debt funds to avoid tax. Also, how safe are these options: 1) National Housing Board tax-free bond series N6 (9.10% interest, maturity date 13 January 2034 and 6.10% effective interest, and similar products. 2) Karur Vysya Bank 11.95% 2029 taxable bond?
Debt funds give you indexation benefits if you hold them for more than three years, saving tax outflow. You can first go for Senior Citizens Savings Scheme, PM Vaya Vandana Yojana and RBI floating rate bonds as they give low-risk steady income. The interest income, however, will be taxable at your slab rate. You can also go for tax-free bonds in the secondary market, but liquidity in these can be low.
You can work out a rough post-tax return on debt funds and other debt instruments and see if the tax-free bond yields are good in comparison.
You can consider bank bonds. But avoid perpetual bonds, and if coupon rates are high (which means the risk is high), avoid investing over 5% of the surplus, and do so only if you can stomach higher risk.
In debt funds, go for accrual-based high credit quality funds such as Aditya Birla Sun Life Corp Bond, Kotak Corporate Bond, IDFC Bond, SBI Magnum Ultra Short Duration and Kotak Savings. The last two will work well if you set up a systematic withdrawal plan.
I invest ₹12,500 in Public Provident Fund; ₹4,000 in DSP US Flexible Equity; ₹3,000 in Axis Bluechip; ₹2,500 in L&T Midcap; ₹2,000 each in Axis Small Cap, SBI Small Cap and Axis Midcap; ₹1,500 in SBI Focused Equity; and ₹1,000 each in IDFC Focused Equity, Invesco India Contra and SBI Magnum MultiCap. I want a corpus of ₹1.5 crore after 15 years. My risk appetite is moderate to aggressive. Also, suggest a fund for a lump sum of ₹2 lakh for two-three years.
Assuming returns of 10-11%, you should be able to reach your target, however, you have too many funds. You can prune it down in this manner: ₹5,000 each in Axis Bluechip, Axis Midcap and Invesco India Contra, ₹3,000 in DSP US Flexible Equity and ₹2,000 in SBI Small Cap.
Considering your PF contribution will cover for your debt allocation, a debt fund has not been added. Stop SIPs in other funds but hold present investments. If you increase the amount, you can consider restarting investing in these funds but review your portfolio annually.
Among debt funds, IDFC Bond Fund Short Term or SBI Short Term are suitable.
Srikanth Meenakshi is co-founder, PrimeInvestor.in