Sunday, March 26, 2023

Why debt funds can work better for you than FDs – Usky News

The rate hike by the Reserve Bank of India (RBI) has raised the lending and deposit rates of banks. Major banks are offering up to 7.5% discount on fixed deposits of 1-5 years. before you invest in a Fixed depositRemember that interest earned on bank deposits is taxed at normal slab rates. in 30% tax bracketThe 7.5% interest earned on fixed deposits becomes a little over 5% after tax.
If your investment horizon is more than three years, debt finance There are better options. If debt funds are held for more than three years, the gain is classified as long-term capital gain and taxed at 20% after indexation. Indexation takes into account consumer inflation during the holding period and accordingly increases the purchase price of the property to adjust for inflation. As a result, the effective tax rate for mutual fund investment is much lower than that spent on fixed deposits.

avail indexation benefit
If held for a longer period, the indexation benefit is greater. If you invest in a debt fund in March 2020 and redeem it in March 2023, you will get three years of profit. But if you wait for a few days and redeem the investment after March 31 in the new financial year, you will get an additional benefit of one year. This is the reason why savvy investors stock up on debt funds and bonds just before the end of the financial year.
setting profit against loss
The gains from these funds can be adjusted against short term and long term capital losses on other investments. So, if you have made losses in stocks or gold, you can set them off against gains from debt funds.
No TDS on redemption
There is also no TDS in debt funds. In fixed deposits, if the interest income exceeds Rs 40,000 in a year, the bank deducts TDS at 10%. A taxpayer who is not liable to pay tax has to submit Form 15H or 15G to avoid TDS.
greater liquidity and flexibility
Debt funds can be redeemed with a click of the mouse. When you redeem your investment, the money is in your bank account the very next day. Fixed deposits can also be closed prematurely, but you get a lower rate of interest. Also, debt funds allow partial withdrawals, unlike FDs, where the entire investment is locked out.


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