In low interest rate regime, when conservative or most sought after investment instruments are just reaping returns not able to beat the inflation rate which for some time now amid soaring fuel and food prices has hit 6 percent level for CPI inflation, investors are on the hunt for better and lucrative bets. So, to tide over the situation i.e. to earn a return that does not result in capital erosion for you, here are suggested some better investment avenues.
Target Maturity Debt funds:
These funds carry low-interest rate and carry a pre-specified term i.e. as per the underlying maturity of bonds where the corpus is invested into. Usually, to reap the best out of these funds and avoid interest rate risk, these funds should be held till maturity.
Also, the offering in this category of funds is of those funds which invest into central and state government bonds.
Furthermore, considering the taxation aspect, if these funds are held for over 3 years, LTCG is taxed at 20% after providing for taxation benefit, so these funds can even offer a better return than bank FDs. So, in a case, if the investor remains invested in the investment option till maturity he or she is likely to get the return as indicated. Then the other positive of the fund is that these funds provide an opportunity for an investor to enter and exit at any time.
Hybrid funds:
As the name signifies these hybrid funds invest in a mix of debt and equity and thus offer the best of both worlds i.e. safety combined with better returns. Also, in some of the cases, the hybrid fund even bet on gold and international funds provide a better diversification.
Further, they can be either conservative i.e. bent more towards the debt part or as else in the other case on the equity side i.e. can be aggressive. In the last one year, the return from most such funds has been to the tune of between 40–45 percent, 3-year returns have been 9–11 percent.
Taxation of hybrid funds- for the equity component the taxation is like that of equity mutual funds