Benefits of investing in Debt Mutual Funds
The various benefits of investing in Debt Mutual Funds are listed below –
Your investments are not affected by equity market volatility
Debt Mutual Funds invest in a range of interest bearing instruments such as Treasury Bills, Government Securities, Corporate Bonds, Money Market Instruments and other debt securities.
Add stability to your investment portfolio
As Debt Mutual Funds. mainly invest in debt securities, they are relatively more stable than equity investments. They can also lend stability to your equity portfolio by reducing the risk associated with your complete investment portfolio.
Freedom to withdraw your money when required
All open ended mutual funds give you the freedom to withdraw your money as and when required, although your investments may be subject to an exit load. Close ended mutual funds have a defined maturity date. Such funds are listed and can be traded on the stock exchange.
You can aim for better post tax returns
Earnings from debt instruments can come in two forms:
- Dividend or interest payments
- Capital gains based on the difference between the purchase price and the sale price of the debt security
Tax on dividend / interest income : Dividend distribution Tax (DDT) is broken up into the following
- Dividend for individual v/s non-individual investors and
- Dividend from liquid v/s non-liquid funds
The tax rates proposed in the Union Budget FY 2013-14 are as per the table below –
|Liquid Funds||Non-Liquid Funds|
|Individual Investor / HUF||25% + 10% Surcharge*+ 3% Cess||12.5%** /25%# + 10% Surcharge* + 3% Cess|
|Non-individual Investor||30% + 10% Surcharge* + 3% Cess||30% + 10% Surcharge* + 3% Cess|
* With effect from 01st April 2013
** Existing rate applicable till 31st May 2013
# With effect from 01st June 2013
Tax on capital gains: Capital gains tax are broken up and taxed as follows –
- Short term capital gains (not exceeding 12 months) – Marginal Tax Rate
- Long term capital gains (exceeding 12 months) – Indexed Tax Rate (Except for NRIs / QFIs incase of Unlisted Mutual Fund units, where indexation benefit will not be available)
Indexation adjust the purchase value of your investment to indicate the impact of inflation, while calculating long term capital gains tax for investments held for over 1 year.