Retail investors should look at debt and fixed income instruments to earn “decent” returns, according to Akshay Gupta, CEO and MD of Peerless Mutual Fund.

“With equity markets not performing too well and gold, which till so far considered as an attractive alternative investment, also undergoing some correction; retail investors should look at fixed income instruments which can earn them 10 per cent tax free returns over a two year horizon,” Gupta told Business Line.

Indexation Benefits

At a time when wholesale inflation is at 7 per cent and retail inflation hovering over 10 per cent, investors have little choice for parking their investments.

Investing in debt mutual fund, Gupta said, gives an investor tax-free return due to the indexation benefit.

“Long-term capital gain on debt mutual fund offers indexation benefit. If you invest in the debt mutual funds and the holding period is more than a year, the income from it will be treated as long-term capital gain. It will be taxed at 10 per cent, or 20 per cent with indexation benefits,” he pointed out.

As a majority of retail investors are in the tax bracket of 20-30 per cent, they would stand to gain from the indexation benefits, he pointed out.

Educating Investors

Even while the market is flooded with a number of debt schemes, retail participation in such schemes has been very low due to the lack of awareness about the returns on such products, he said.

“In India, most people are afraid of volatility. But even then, investments in equity mutual funds are higher than that in debt, which is less volatile. This is because they are not aware of the post-tax returns on such instruments,” he said.

Investments in debt at Rs 1.25 lakh core account for about one-third of the total retail investments, which stands at Rs 3.7 lakh crore. High net worth individuals account for a majority of investments in debt, he said. The size of the total mutual fund industry size is about Rs 8.15 lakh crore, in which the share of institutional investments stands at Rs 4.5 lakh crore.

“With the commission on fixed income and equity schemes narrowing, both manufacturers and distributors are pushing for fixed income products,” he added.

shobha.roy@thehindu.co.in

(This article was published on April 8, 2013)
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