Investors willing to take on greater risk can use a combination of Nifty 50 and Nifty Next 50 index funds. (View Highlight)
Long-term rolling returns and standard deviation of the Nifty Next 50 index are comparable to that of the Nifty Midcap 150 index. This makes Nifty Next 50 an effective substitute for a midcap index fund. Nifty Next 50 Index Funds cost around 0.3%. A portfolio with a 50-50 blend between Nifty 50 and Nifty Next 50 costs around 0.25%. (View Highlight)
For the debt component of long term portfolios, Employee Provident Fund (EPF), Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY) are automatic choices. There is no credit risk or interest rate risk in these products. It is very hard for other debt products in India to beat the post-tax returns of these three products. (View Highlight)
To maintain liquidity in the portfolio, debt mutual funds can be used (View Highlight)
The average portfolio maturity of a debt fund must be significantly lower than the tenure of the goal it is chosen for (View Highlight)
A simple choice within debt funds is Liquid funds. They invest in debt securities of the highest credit quality with a maturity of up to 91 days. A direct plan, the growth option of a liquid fund with extremely low credit risk, can be considered at a cost of 0.15% to 0.2% (View Highlight)
Indexation benefits are now unavailable on debt funds, but they may still be preferred over bank fixed deposits because they offer more flexibility. The tax liability in debt funds is deferred until redemption. This facilitates uninterrupted compounding until redemption. (View Highlight)
Interest income from bank fixed deposits is subject to tax at slab rates every year. Debt funds allow systematic investments and withdrawals without penalties, unlike fixed deposits. (View Highlight)
