Debt Funds

Starting April 1, 2023, the Budget Bill, 2023 passed in the Lok Sabha today removes the indexation benefit and long-term capital gains tax break from debt mutual funds, exchange-traded funds (ETFs), gold funds, and international funds. This means that any gains (regardless of holding time) from these funds will be taxed at the individual's tax bracket. Debt funds still offer the advantage of deferring tax due, but investors need to be aware of the new tax rate which will apply to their gains. Individuals still have time to take advantage of the indexation benefit before it is removed on April 1, 2023, but the tax rate on the gains will still remain the same. Investors should also be on the lookout for debt funds with a 35% equity allocation to maintain the same tax benefits.

A debt fund's YTM does more than just show you an estimate of the possible returns on your investment. Therefore, having a thorough grasp of YTM can help you decide if a certain debt fund is a wise investment for you.

For conservative investors, fixed deposits and debt mutual funds are among the most prominent debt investments.

The new fund offer opened on January 5 and will close on January 11, 2023. This is a scheme with relatively high interest rate risk and relatively low credit risk.

Besides earning good returns, the idea behind an effective asset allocation is to ensure that the corpus is accumulated within the stipulated time period.

The benchmark 10-year bond yield was at 7.40%, while the liquid five-year bond yield was at 7.30%, with the spread at 10 basis points (bps). The spread had turned negative towards the end of September but has since recovered as market participants expect the Reserve Bank to India to reach the terminal interest rate sooner than they did earlier. The yield on the one-year to four-year bonds were in a range of 6.75% to 7.27%.

NHAI launches NCDs to raise Rs 1500 crores at 8.05 per cent yield.

Debt AIFs fall under CAT II AIF where minimum 51% of investments should be into unlisted securities and rest can be listed.

Those saving for retirement allocate their earnings to these government-sponsored schemes as a part of their debt portfolio. Of course, there are other options like fixed deposits and recurring deposits that many people love to park their money in to ensure enough funds for emergencies.

Unlike open ended debt funds of other categories, target maturity funds help in locking the portfolio yield for a fixed period of duration without any significant volatility, if held till the maturity.