Importance of Debt Funds
As I have often said, debt funds are an integral part of one’s portfolio and the fixed income genre of asset allocation . However, lately I have stopped playing stress on it for few reasons:
The new taxation introduced on debt funds from first April, 2023 has taken away the tax advantage, because now you do not get any indexation benefit, and even for long-term capital gains the gains are taxed at the slab rate, without any deduction that comes with the income .
Secondly, most of the officers are heavy weight on NRE, FD, which in the light of above taxation issue is actually beneficial as long as you are nonresidents. but as soon as you give up the NRI status the interest on NREFD becomes taxable. Under such conditions once again, dead funds will become relevant.
Once a person has reached a critical amount in the NREFD one must actually start looking at debt funds to park the long term money for the purpose of asset allocation.
The way to manage the asset allocation ratio, which I usually prefer to keep for myself at 75 equity, and 25 in fixed income and debt funds. It works both ways and used to work better before capital gains on equity was introduced..
Irrespective of the condition of the market, whenever One found that one’s allocation to equity has gone up by 2 or 3% then one could shift excess funds into the debt category of the same AMC. Conversely, when the debt allocation had increased one could shift to equity. Even at the cost of incurring capital gains. This keeps One safe, especially in one’s retirement or non-working times, and it gives an immense peace of mind.
Specially, during the retirement time, when once corpus is adequate shifting from equity funds to the savings account is also considered a wise step.
Usually what happens is that a person gets influenced by external inputs, and mentally starts pegging the market at high or low, depending upon his own short-term and long-term memory ( will write an article on this) whereas in retirement, one should specially look at once short term and long-term expenses, because that is what he has accumulated his wealth for.
Retirement must be used wisely for a person’s Peace of mind, and one must not worry too much about the management of his funds because he should’ve already set up the systems in place.
His discussion about the market or investments, must be only for academic level, simply for social discussions.
The amount that one is expected to accumulate will actually be so high that they would hardly be any possibility of shifting from one phone to another of the same category for better returns
This is because after paying the capital gains on one fund, when would probably not have much margin left in anticipation of making profit in the other fund.
Therefore, it is imperative, that we not only build up a respectable corpus before thinking about retirement, but also set up the systems and inform our spouse about the system that would be practiced during that life.
It must be remembered that doing nothing about investment is also one of the most important things to do.
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