Why Debt Funds in your portfolio?

Investments in debt forms a part of every investors portfolio, either as debt funds, fixed deposits or bonds. Tax efficient returns and diversification of assets are some of the reasons why debt funds will play a bigger role in an investor’s portfolio.

Tax Efficient returns: Countries like India, with debt funds poised to give 9-10 per cent returns, they are comparable to bank FD’s, and better than the administrated return schemes to this end. Add to it the tax benefits. Unlike interest from bank deposits, which are taxed at the marginal rate of taxation applicable to the investor, dividends from debts funds are exempt from tax.

Rebalancing the portfolio: Equity fund will give outstanding returns to investors when it is the peak. With market touching new peaks, it is probably time for prudent investors to rebalance there portfolios by booking long term capital gain from equity funds. Income funds and debt funds can be used to park such gains. Moreover investors can use tools such as STP (Systematic Transfer Plan) to periodically invest in equity markets when valuations become attractively again.

Diversifying and derisking the portfolio: A portfolio must be diversified across asset classes to be able to give good risk adjusted-returns. Debt forms an integral part of every portfolio at this end. Debt funds are primed to give good returns along with lower volatility, liquidity. Tax efficiency and convenience.