I would like to Demonstrate on why your
Long Term Savings must be in Conservative Hybrid Debt Fund which is (at least 75% Debt + Up to 25% Equity). The Biggest Advantage is if you are in 30% Income Tax Bracket.
1. You get benefit of Indexation
2. After Indexation, you pay Income Tax of 20% on the remaining gain, only if you decide to encash. (In case of Fixed Deposit, Bank says so much interest has accrued, they deduct TDS & you will have to compulsorily account for it in your IT returns every year)
3. To avail benefits described 1 & 2 above, you should hold it for at least 36 months
4. In case of Emergency, it can be liquidated anytime within 36 months and in that case it will be considered as Interest Income and clubbed with your regular income
5. Plan and Invest the Surplus Amount which you want to be Safe & will hold for more than 36 Months.
Illustration of Advantage of Investing in Conservative Hybrid DebtLet us assume your Fixed deposit earns 6%. You pay 30% Income Tax, therefore you have actually earned 6.0 - 1.8 =
4.2%Let us also assume that your investment in Hybrid Conservative Debt Fund yields 6%. Now you get
benefit of Inflation, which let us assume is 5%. 6.0 - 5.0 =1.0% is the actual gain on which you pay IT at rate of 20% (irrespective of the Tax Bracket you are in), which means 6.0 - 0.2% =
5.8% Actual Yield of Conservative Hybrid Debt Fund is at least 1.5% Higher than Fixed Deposit. In that scenario, the net gain will be 7.5 - 5.0(inflation) = 2.5 and with 20% Tax Rate you earn 7.5 - 0.5 =
7.0% Vs 4.2 in FD.
Thus you tend to
net gain 2.8% in a year and imagine the compounding that can happen over 10 years & that too in a safe manner.
NOTE: Consult SEBI Registered Adviser before Investing. Use "
Direct Plan" investing in the Conservative Hybrid Fund.
