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Should one hold the bond funds beyond 3 years

I want to invest 6 Lakhs in a Balanced fund with monthly SWP of Rs. 5,000 after 1 year. Please suggest? Whether one should hold on to Bond fund which has completed 3 years?

Dec 26, 2016 by Prashant C, Goa  |   Mutual Fund

You have two queries - let us answer one by one.

1. Your decision to withdraw from balanced funds after one year is right as long term capital gains (more than 365 days) on these withdrawals will be tax free. The monthly SWP amount of Rs. 5,000 from an initial investment of Rs. 6 Lakhs is also fine as you are withdrawing @10% / annual

In case you want to check the top performing balanced fund schemes, please click here https://www.advisorkhoj.com/mutual-funds...

2. With regards to holding bond funds beyond three years, please note that bond funds are open ended funds and thus there is no lock-in period. Normally, bond funds are an ideal investment option for more than 2-3 years of investment horizon. I think, you are asking this question because if you hold the bond funds for 3 years or more then you get the long term capital gain tax benefit (for bond funds, long term capital gains tax is 20% after indexation)

We think, one should hold on to the investments in bond funds beyond 3 years if one does not need the money. However, if you had invested with some goal in mind for 3 years, then yes of course, one can redeem the bond fund after 3 years or so. Also, if you compare returns of bond funds with that of fixed deposit, you will find that post tax returns of these funds are much higher than that of fixed deposits.

This article is helpful in this context - https://www.advisorkhoj.com/articles/Debt-Funds...

We suggest that in the current scenario, holding on the bond funds makes more sense as interest rates are expected to go down further and in that case the returns on bond fund will increase.

You may compare bond fund returns versus fixed deposits on our research section - https://www.advisorkhoj.com/mutual-funds...

Hope the above helps! Thanks for writing to Advisorkhoj!!

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