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Thursday, August 03, 2017

Choose Debt fund wisely

The Reserve Bank of India (RBI) had cut the repo rate by 0.25 percent, in its third bi-monthly monetary review for the financial year 2017-18, on August 2, 2017. 

The move is surely going to depress the retirees and other investors who rely heavily on the fixed income products such as bank fixed deposits. The bank FD rates are already lying low and in all probability will come down further.

The option one can opt is debt fund.
For a retiree, building up a portfolio to meet regular income needs requires careful attention. Safety, liquidity and post-tax return have to be kept in mind. Bank FD can be between 10%-15% of their portfolio for immediate liquidity requirement and debt mutual fund should be around 75%-80% of their portfolio, 
* Basic rule one needs to follow is, not to withdraw from debt mutual funds until the holding period of more than 3 years is completed in order to make it tax efficient. 

* For the income for the initial 3 years, required funds should be parked in Liquid and arbitrage funds, which are a better option compared to saving account and a systematic withdrawal plan should be setup from it. 

*Income for 4th year onwards will come from debt mutual funds through systematic withdrawal

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