When we consider, the minimum expected holding period does not change with the type of . In other words, all types of should be invested in for the long term which can be classified as 5,7,10 years or more.
The same can’t be applied for all types of debt funds as different debt funds serve different needs. The two factors below can help you decide a reasonable holding period for different types of debt funds.
1.The thumb rule to follow
As a thumb rule try to match yourtime horizon with the average maturity of the debt fund. What is average maturity? A is a portfolio of fixed income securities like debentures and bonds, all maturing (return of principal with all interest pay-outs) at different times. Average maturity indicates the combined maturity profile of the fund portfolio. Let’s say the portfolio comprises of two bonds, A which is 60% of the fund and matures in 4 years and B which is the remaining 40%, maturing in 5 years. The average maturity of the fund is 4.4 years (60%X4+40%X5).
The rule states that if you are looking to Net Asset Value (NAV).for say 2 years, find a short-term income fund with an average maturity roughly around 2 years; if your requirement is for 6 months, then look for a liquid or ultra-short-term fund with an average maturity of around 6 months. By doing this you will be able to maximise the return potential of the scheme and at the same time you will not be bothered about the interim changes in the fund’s daily
Debt fund dividends get taxed at the fund level itself, before you receive the pay-out. At the highest level this tax is around 29.12% and at a minimum around 26%. If you opt for the growth option instead, gains will be taxed as capital gains. Short term capital gains in a debt fund are taxed at your marginal rate of income tax.
Debt fundget taxed at the fund level itself, before you receive the pay-out. At the highest level this tax is around 29.12% and at a minimum around 26%. If you opt for the growth option instead, gains will be taxed as . Short term in a debt fund are taxed at your marginal rate of income tax. Selling after 3 years of holding will attract long term , which is a lot more efficient at 20% after . refers to the practice of showing gains after adjusting for inflation over the past years. This increases the original cost, thereby reducing the gain.
Thus, for standard debt allocation, its best to opt for growth option and hold your debt fund for at least three years.
These are just guiding factors; in reality you may be compelled to sell your funds before or much after the estimatedholding period. Hence, don’t base your entire buying decision just on these two factors consider aspects like fund’s credit profile, and pedigree among other things.