Publication details: Smart Money Show – Bloomberg TV – 22-09-2015
Responses, opinion and view from Kartik Jhaveri.
Questions sent by S. Rupchand :-
Question 1: What should be the strategy in investing in debt funds when period of investment is not certain? What is the tax treatment for debt mutual funds?
Advice Given:
- Debt funds are ideally suited for short term investments. So if one has a time horizon of about 1-3 years, then he can opt for them.
- Debt funds invest predominantly in fixed income instruments, hence the main objective of investing is usually preservation of capital and earning steady returns.
- From the tax planning point of view, debt funds should be held for a period of 36 months. By doing this one can take advantage of the long term capital gain taxation.
Question 2: Since 30% tax deduction is inevitable on withdrawals, is it still advisable to invest in a liquid fund? Will not a savings account provide similar returns without the risk?
Advice Given:
- Liquid funds invest in short term money market instruments. Hence the objective is to generate return by having high liquidity with minimum risk in short term.
- In case of withdrawals from liquid funds, the gains will be added to income and taxed as per the prevailing income tax slab rates.
- In comparison to savings account, there are high chances of earning additional 1% – 2% p.a. in liquid funds.
- Both savings account and liquid funds offer flexibility. In terms of return, liquid funds have a slight edge over savings account. So one should make a choice as per his requirements and convenience.