Alternative Investment

Is corporate bond fund better than bank FD?

If I invest in corporate bond funds, will they give me better returns/yields as compared to bank fixed deposits? Please tell me the advantages as well as the disadvantages.

Prabhakar

Corporate bond funds can give you superior returns as compared to bank fixed deposits, only if your time horizon is three years or longer. Do note that interest earned by you on bank fixed deposit is fully taxable, as per your income slabs. Similarly, returns earned by you on investments in Corporate Bond funds, if held for less than three years will be subject to income tax as per your applicable slab. However, if you can wait for three years or longer in that case the investment in Corporate Bond funds will give you better after-tax returns as you will be subjected to long-term capital gain taxation at a lower rate of 20% and that too after adjusting the purchase price for inflation, which is also known as ‘indexation benefit’. We may recommend you to choose your investment in Corporate Bond funds from following schemes:

1. Aditya Birla Sunlife Corporate Bond Fund

2. HDFC Corporate Bond Fund

3. ICICI Prudential Corporate Bond Fund

4. SBI Corporate Bond Fund

However, remember to go for a growth option as dividends are added to your taxable income and tax is payable as per the applicable rates. Another advantage of investing in corporate bond funds as compared to bank fixed deposit is that there is no TDS in corporate bond funds investments whereas in bank fixed deposits, your interest income will be subject to TDS at the rate of 10%.

What is an AIF? Should I consider investing in AIF? What are the benefits? Please guide me.

-Paresh

The full form of AIF is Alternative Investment Funds. These are regulated by Sebi. As the name suggests, AIF invests amounts collected from investors in different investment options other than the traditional options like equity market or debt securities etc. These alternatives may include Private equity funds, Venture capital funds, Derivatives, managed options etc. Hence, very clearly, AIFs are meant for sophisticated investors only who understand the intricacies of not only the capital market but also other investment opportunities in the ecosystem. In order to shield the small investors from exposing themselves to this kind of not so well-known investment products, Sebi has mandated that the minimum amount of investment in AIF will be at least Rs. 1 crore. Also, we would recommend you to consider investing in AIF only when your total portfolio is at least Rs. 10 crores or higher as we do not recommend any investment in one scheme which is more than 10% of your total financial portfolio. If you meet the above parameters, you may choose from the following AIFs which are currently available for investment:

1. IIFL Turnaround Opportunities Fund

2. Tata Equity Plus Absolute Return Fund

3. Motilal Oswal Next Trillion Dollar Opportunity Fund

(Query answered by Rajiv Bajaj, Chairman & MD, Bajaj Capital Ltd.)

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