Dr Rajesh Mevada writes, “What are debt fund / fixed income options for
non-salaried, self-employed professionals and businessmen? For salaried investors, it is compulsory to contribute to EPF/ VPF, or NPS, which automatically takes care of its debt component. But for non-salaried investors, choosing debt fund investment is a bit difficult. So another relevant question is ‘Why debt / fixed income is difficult, compared to equity?”
PPF seems the obvious replacement for EPF/NPS but has an Rs. 1.5 lakh per year limitation. All investors reading this article would need to invest a lot more in fixed income (and equity) for long-term goals.
The change in debt fund taxation rules from 1st April 2023 has significantly impacted short-term (< 5Y) and medium-term (5-10Y) goal planning. For these goals, a simple recurring or fixed deposit is enough. Arbitrage or equity savings funds will have lower taxes but also carry risk, and their final post-tax return may or may not be better than that of FDs/Rds.
For less than 10Y goals, risk management via regular rebalancing and equity de-risking is not a big priority (relative to long term goals). So we can get away by using FDs and RDs provided we do not chase returns and stick to safe (or too big to fail) banks.
For long term goals, FDs/RDs are not suitable because the instrument should be liquid for rebalancing. We recommend using gilt, corporate bond, or conservative hybrid funds. However, these funds are market linked, so the investor must understand the associated risks.
These funds can go through significant periods with poor returns, and the investor must bear this. Sometimes (if equity has done much better), a shift of assets from equity to these funds may be necessary as per the asset allocation schedule for the goal.
In the coming weeks, we can expect new products like balanced hybrid funds, and depending on their features, they may also be suitable, but it is too early to say.
If you notice, the options for long term goals that allow efficient portfolio risk management are the same for all individuals.
Non-salaried individuals have an opportunity to start with the right asset allocation (say 40-60% equity and the rest in fixed income) for long-term goals, unlike their salaried counterparts whose portfolios are typically EPF- heavy (and in a few cases, NPS-heavy).
This is a blessing in plain sight. How many utilise it, and how many take the bait of guaranteed returns and stay in fixed income is question.
Do share this article with your friends using the buttons below.
🔥Enjoy massive discounts on our courses and robo-advisory tool! 🔥
Use our Robo-advisory Excel Tool for a start-to-finish financial plan! ⇐ More than 1000 investors and advisors use this!
New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
- Follow us on Google News.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Join our YouTube Community and explore more than 1000 videos!
- Have a question? Subscribe to our newsletter with this form.
- Hit ‘reply’ to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!
Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. – Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)