I have closed my bank account and I want details of all mutual fund schemes which are linked...
Which type of debt scheme will give assured monthly income and also be tax-efficient?
MLF’s Reply: There are no mutual fund schemes that offer assured returns. All mutual funds are market-linked. Debt schemes of mutual funds invest in low-risk (Please note: NOT risk-free) bond securities and money-market instruments. As you may be aware, interest rates and bond prices are inversely related. Therefore, when yields rise, bond prices (or NAVs of debt schemes) fall and vice-versa. Debt schemes are further categorised into long-term and short-term, depending on the duration (time to maturity) of the securities in which they invest. Long-term debt schemes, which have a longer tenure, are more sensitive to changes in interest rates and can be volatile.
Monthly income plans of mutual funds invest a part of the portfolio in equity as well. However, as Moneylife analysis has shown, these schemes have failed to provide adequate returns.
Read: “As Expected, MIPs Fail Again” - http://www.moneylife.in/article/37670.html Now, with a change in tax rules with effect from 10 July 2014, long-term capital gains tax of 20% with indexation will be applicable for investments held for three years or more. For investments of less than three years, gains will be taxed as per your income-tax bracket. Therefore, investments in debt schemes would be tax-efficient only if kept for three years or more.
For this year, which is a better option to invest—lump-sum or a systematic investment plan (SIP)?
MLF’s Reply: While SIP is a good way of investing in equity, there are times when SIP is not advantageous. You should also be aware that the timing of investment is crucial always. If much of your investment is made at higher prices and the market has remained flat, your returns would not be great.
For more details on SIP investing, please read- “SIP smartly” (http://www.moneylife.in/article/26607.html). This Moneylife Cover Story gives details of periods when SIP works and when it doesn’t.
As for the option for investing this year, the markets are almost at overvalued levels. Hence, a SIP would be a safer option than lump-sum investment at one go.