In Feb’2014, GOI came out with Tax free bonds bearing Interest rate upto 8.90% for 15 yrs bond.With decrease in 50 Bps in interest in FY 2015 and further downtrend, it is expected that this year Tax free bonds would be issued in range of 7.75 to 8.00% interest.
FMP’s and FD’s too give return of now in the range of 8.00 to 9.50% pa.
For all the investors, investing into above instruments, there is an alternate investment option available through Mutual Fund in form of “BALANCED FUND”.
Balanced Fund as name suggests have a mix of Equity and Debt. While several various combinations of Balanced funds are available, in my view a typical balanced fund composition would be as follows:
A brief comparative study of various investment instruments is given below.
An illustration of return in Balanced Fund:
The return of ICICI Prudential Balanced Advantage Fund is as below.
[Note: Return are high as equity exposure in ICICI Prudential Balanced Advantage Fund is higher and is ranging from 45-65%]
The above illustration clearly establishes the advantages of BALANCED FUND over other investment avenues.
The suggested fund mix should have a variance of +/- 3% ie return can vary from 7% to 13% in a short run but over a little longer duration of say >2 years we should have a tax free average return of 10% + .
To conclude, in my opinion “Balanced schemes” of Mutual Fund presents an excellent opportunity to earn tax free return in excess of 10% with relatively very negligible risk.
1 st Sept’15 NIFTY : 7798 SENSEX : 25730
(This Article is exact reproduction of my earlier article dated 25th May’15. There has been no material change in my thoughts except the fact that the interest rates have
been reduced further by 25 BPS. Please read the figures accordingly.)