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Fixed Income
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Debt Fund
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How to invest?
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FD are offered by most of the banks
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You could visit or contact a Mutual Fund house when required to invest in a direct plan
Also, one can also invest online through brokerage houses, like ICICI, Kotak etc., or through agents. However, this will charge commission around 0.5 per cent.
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Liquidity
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Moderate:Generally, premature withdrawal is allowed but it usually comes with a penalty of 1 per cent on the interest rates for which the deposit is kept
An investor can seek a loan against FD
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High: Redemption can be made any day. Usually, there are no charges for redemptions after 1 year. However, an exit load of 1 per cent is generally applicable if the units are redeemed before 1 year
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Taxation
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As per the current tax slabs (10, 20 or 30 percent)
If your interest income exceeds 10,000 a year, the bank will deduct 10.3% from this income
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Minimum 10 per cent flat or 20 per cent with indexation (explained earlier)
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Returns
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Interest rates on bank fixed deposits (FDs) have touched 7.5-9.0%
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The average short-term debt fund has given 9.8% returns in the past year, some long-term bond funds have shot up by 14-15% during the same period. However, returns in the short term could also be negative
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Commission/Charges
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NIL
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A MF usually has a fund management charge of around 0.5%. This can be reduced by investing in direct plans. However, if you have invested through a broker, the broker may also charge you around 0.5%
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Interest Rate
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Fixed for the entire tenure (Present 7.5-9.0%)
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MFs are actively managed and the fund usually seeks to generate returns from various instruments offering different interest rates as per the interest cycles
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Underlying Assets
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NA
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Government bonds, treasury bills, bank bonds, corporate CDs, etc.
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Guaranteed Returns
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Yes
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Theoretically, no, as these funds are linked to the market and subject to interest rate and credit risks. However, chances of a default are very minimal and hence debts funds are practically safe and give positive returns.
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