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If I invest in corporate bond funds, will I get better returns/returns compared to bank deposits? Please tell me the pros and cons.
Corporate bond funds can only offer you superior returns compared to bank fixed deposits if your investment horizon is three years or longer. Note that interest you receive on bank deposits is fully taxable according to your income table. Likewise, any returns you earn from investing in corporate bond funds if held for less than three years will be subject to income tax according to your applicable tax bracket. However, if you can wait three years or more in this case, investing in corporate bond funds will give you better after-tax returns because you’ll be subject to long-term capital gains taxation at a lower rate of 20%, even after adjusting the purchase price for inflation , also known as the “indexing benefit”. We can recommend that you choose your investment in corporate bond funds from the following schemes:
1. Aditya Birla Sunlife Corporate Bond Fund
2. HDFC Corporate Bond Fund
3. ICICI Prudential Corporate Bond Fund
4. SBI Corporate Bond Fund
However, remember to opt for a growth option as dividends will be added to your taxable income and taxes will be payable at applicable rates. Another benefit of investing in corporate bond funds versus bank deposits is that there is no TDS with corporate bond fund investments, while your interest income from bank deposits is subject to a 10% TDS.
What is an AIF? Should I consider investing in AIF? What are the advantages? please guide me
The full form of AIF are alternative investment funds. These are regulated by Sebi. As the name suggests, AIF invest funds raised from investors in investment options other than the traditional options like stock market or debt securities etc. These alternatives can include private equity funds, venture capital funds, derivatives, managed options etc. Therefore, quite clearly, AIF are only intended for experienced investors who understand the intricacies not only of the capital market, but also of other investment opportunities in the ecosystem. In order to protect the retail investors from being exposed to this kind of not so well known investment products, Sebi has ordered that the minimum investment amount in AIF is at least Rs. 1 crore. Also, we recommend you to invest in AIF only if your total portfolio is at least Rs. 10 crores or more as we do not recommend investing in a system that accounts for more than 10% of your total financial portfolio. If you meet the above parameters, you can choose from the following AIFs currently available for investment:
1. IIFL Turnaround Opportunities Fund
2. Tata Equity Plus Absolute Return Fund
3. Motilal Oswal Next Billion Dollar Opportunity Fund
(Question answered by Rajiv Bajaj, Chairman & MD, Bajaj Capital Ltd.)
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