Any portfolio should have a balanced mix of asset classes and respective products. Diversification helps reduce the overall risk that an investor faces. For instance, equity investments tend to give higher returns than all other asset classes over the long run, but they are also riskier in nature. To balance that, it is important to invest in debt-related products. While these too carry some risk, they are considered safer. But returns are not the only factor to consider. One must also pay heed to the taxation rules. Apart from considering the ‘safety’ aspect of your debt investments, also look at the taxation to know what the net returns would be.

It may well be that a product you consider safe is actually leading to negative returns post-tax. Or, that the tax benefits are available only after a few years. Or, a new better product is now available.

Another reason why one must keep track of tax rules is that they change, which can affect the reason why you had invested in the product initially. Let’s take a look at the tax rules that apply to some debt-related investment products.

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