In low interest rate regime, when conservative or most sought after investment instruments are just reaping returns not able to beat inflation rate which for some time now amid soaring fuel and food prices has hit 6 percent level for CPI inflation, investors are on the hunt for better and lucrative bets. So, to tide over the situation i.e. to earn a return that does not result in capital erosion for you, here are suggested some better investment avenues.
1. Hybrid funds:
As the name signifies these hybrid funds they invest in a mix of debt and equity and thus offer the best of both worlds i.e. safety combined with better returns. Also, in some of the cases, the hybrid fund even bet on gold and international funds provide a better diversification.
Further they can be either conservative i.e. bent more towards the debt part or as else in the other case on the equity side i.e. can be aggressive. In the last one year, the return from most such funds has been to the tune of between 40-45 percent, 3-year returns have been 9-11 percent.
Taxation of hybrid funds- for the equity component the taxation is like that of equity mutual funds
2. Target Maturity Debt funds:
These funds carry low interest rate and carry a pre-specified term i.e. as per the underlying maturity of bonds where the corpus is invested into. Usually to reap the best out of these funds and avoid interest rate risk, these funds should be held till maturity.
Also the offering in this category of funds are of those funds which invests into central and state government bonds.
Furthermore, considering the taxation aspect, if these funds are held for over 3 years, LTCG are taxed at 20% after providing for taxation benefit, so these funds can even offer a better return than bank FDs. So, in a case if the investor remains invested into the investment option till maturity he or she is likely to get the return as indicated. Then the other positive of the fund is that these funds provide an opportunity to an investor to enter and exit at any time.