Which category of debt funds should I choose for the money that I have planned to invest in a fixed deposit? I want the absolute protection of my money.
- K. Venkata
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Ultra-short-duration funds, liquid funds and short-duration funds are the only alternatives. Although they will not give you substantially higher returns, still they will provide you returns superior to those of a fixed deposit. Debt funds will also provide you with superior liquidity and tax efficiency. Capital gains from non-equity funds are treated as long-term capital gains, provided the fund is held for more than three years. They are taxed at only 20 per cent after providing the benefit of indexation. On the other hand, if you are falling in the highest tax bracket, the interest from fixed deposits would be charged at 30 per cent.
However, when it comes to the absolute protection of your money, I would err on the side of caution and say that these debt funds will only provide you with reasonable protection. You should; however, keep in mind that mutual funds do not guarantee returns.