FD vs Debt Fund vs G-sec vs Bonds: Everyone should save and invest to meet their future financial needs and post-retirement expenses. However, there are so many financial products available for investment in the market that there is a confusion in front of investors as to where to invest. Talking about low volatile instruments, investors have the option of investing in banks’ FDs (fixed deposits), debt mutual funds or government securities, but all these options have their advantages and risks. In such a situation, before investing anywhere, fully understand their benefits and risk.
The investment strategy depends on the preference of an investor, what is the need of their funds, what is the fund cost, how much is the investor’s ability to take risk and what is the tax structure.
Fixed Deposit (FD)
Banks and non-banking finance companies (NBFCs) can invest in FDs and are considered to be the most preferred option for investment. In this, a fixed rate of return is received on the investment in a predetermined period and the market fluctuations on the return do not matter. Although according to S Ravi, former chairman of the Bombay Stock Exchange (BSE) and the founder and managing director of Ravi Ranjan & Corporation, returns on FDs are fixed but compared to other options, it offers lower rates of return and taxes. . The bank deducts TDS at an interest of more than 5 thousand rupees. According to Ravi, the advantage of investing in FD is that it can be planned according to the need of liquidity.
Debt Fund
Debt funds are relatively stable investments as a part of mutual funds. The liquidity of investment in this is very high and is safe. It is also an inflation efficient with an investment of more than 3 years in debt funds. According to Ravi, debt funds invest in fixed income securities issued by governments and companies, including corporate bonds, government securities, treasury bills, money market instruments and other types of debt securities. Debt funds are less risky than equity mutual funds and have higher returns than traditional savings products. According to Ravi, debt funds offer lower returns than equity funds, but higher returns than FDs and government securities. The NAV of debt funds goes up and down due to changes in interest rates. If interest rates rise, then its NAV will be lower. Apart from this, credit risk is associated with debt funds. According to Ravi, investing in debt mutual funds for a long time is tax efficient because indexation benefits can be taken on it.
G-Sec
Government securities are issued by either the state government or the central government and it is the safest debt instrument. It can be mainly divided into four major categories Treasury Bills (T-Bills), Cash Management Bills (CMB), Dated G-Securities and State Development Loans (SDL). At this time, it is getting returns at the rate of 6.13 percent per annum. Maturity is dependent on the redemption period and can also be traded in the secondary market. The yield depends on the time of investment or maturity. According to Ravi, before investing or before exiting, one should keep an eye on the trend of fluctuations in interest rates. In this, the risk on investment is almost negligible and the risk in it is only the fluctuation of interest rates. Small investors can invest in it indirectly through mutual funds. However, RBI has given a chance to retail investors under a new beginning that they can trade in government securities by opening their gilt accounts with RBI. Return on it depends on who has issued it and what is its maturity period. Like a bank FD, it also has to pay tax.
Bonds
Apart from the government, companies also issue bonds and through this they raise funds from investors. These types of corporate bonds pay a higher rate of interest than government securities, but the risk of default is also strong. In cases like Yes Bank and Laxmi Vilas Bank, retail investors suffered a lot.
(Article: Amitava Chakrabarty)
Get Business News in Hindi, latest India News in Hindi, and other breaking news on share market, investment scheme and much more on Business Khabar. Like us on Facebook, Follow us on Twitter for latest financial news and share market updates.
.