2 investments to get real positive returns in a low interest rate environment
In a low interest rate regime, when conservative or more sought-after investment instruments only reap returns unable to beat the rate of inflation which, for some time now, amid soaring prices of fuel and food has hit the 6% level for CPI inflation, investors are looking for better and lucrative bets. So, to overcome the situation, that is, to get a return that does not lead to capital erosion for you, here are some best suggested investment avenues.
1. Hybrid funds:
As the name suggests, these hybrid funds invest in a mix of debt and stocks and thus offer the best of both worlds – security combined with better returns. In addition, in some cases the hybrid fund even bets on gold and international funds offer better diversification.
In addition, they can either be conservative, i.e. more geared towards the debt part, or in the other case on the equity side, i.e. they can be aggressive. Over the past year most of these funds have returned in the range of 40-45%, 3-year returns have been 9-11%.
Taxation of hybrid funds – for the equity component, the taxation is similar to that of equity mutual funds
2. Target maturity debt fund:
These funds carry a low interest rate and a predefined duration, that is to say according to the underlying maturity of the bonds in which the corpus is invested. Usually, to get the most out of these funds and avoid interest rate risk, these funds should be held to maturity.
The offering in this fund category also includes funds that invest in central government and state bonds.
In addition, taking into account the tax aspect, if these funds are held for more than 3 years, LTCGs are taxed at 20% after having provided for a tax advantage, these funds can therefore even offer a better return than bank FDs. Thus, in the event that the investor remains invested in the investment option until maturity, he is likely to obtain the indicated return. Then the other good thing about the fund is that these funds offer an investor the ability to enter and exit at any time.
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Article first published: Friday July 2, 2021, 7:50 PM [IST]