Top and Best Income Mutual Funds to invest in 2016
Income Mutual funds are long term debt mutual funds. These are alternatives to fixed income investments like bank FD’s, corporate fixed deposits etc., If you are moderate to high risk investor, you can invest in these income mutual funds and expect 8% to 12% annualized returns. What are Income Mutual Funds? Which are the best and top income mutual funds to invest in 2016? What are the risks and negative factors of investing in these best income mutual funds?
What are income mutual funds in India?
Income mutual funds are long term debt mutual funds which invests in corporate bonds, government bonds and securities and money market instruments. It would provide 8% to 12% annualized returns if invested in top income mutual funds. These are high volatile mutual funds and fluctuate with interest rate changes. Moderate to high risk appetite investors can invest in these mutual funds. One should invest them from medium term to long term of 1 to 5 years to get superior returns.
Also Read: Top SIP Mutual Funds to invest in India in 2016
Why should you invest in Income Mutual funds?
There are several reasons why you should invest in income mutual funds.
- These income mutual funds invests in fixed income options like corporate bonds, govt securities etc which are expected to provide stable returns.
- These are alternatives to bank FD’s to get fixed income though not guaranteed.
- Income mutual funds are expected to get higher yield during fall in interest rates. Since we are expecting RBI to reduce repo rate in coming quarters which would further reduce current interest rates, these income mutual funds are expected to yield higher returns as it is already investing in high return bonds.
- These are good for high tax bracket individuals as post tax returns would be higher compared to other fixed income options.
Negative factors of investing in Income Mutual funds
While there are several positive factors, there are a few negative and risk factors of investing in such debt income mutual funds.
- These are vulnerable to interest rates. Means in future if interest rates are going up, these funds may under-perform.
- Does not give any fixed or guaranteed returns.
- These invests in corporate bonds which may be high risk. Classic example was JPMC debt mutual funds which invested in Amtek Auto bonds and credit rating agencies downgraded Amtek auto debt instruments. JPMC mutual fund house has to put restriction on redemption of such bonds.
- Does not suit for low tax bracket investors as post tax returns are low compared to other fixed income options.
What is the tax treatement of Income Mutual Funds?
These would fall under debt mutual funds.
- Redemption < 3 Years: Capital gains arising within 3 years from the date of purchase are treated as short term capital gains and such gains needs to be added to individual income and income tax has to be paid as per individual income tax slab. Say if you are in 30% tax bracket, you need to pay 30% tax on short term capital gains.
- Redemption >= 3 Years: Capital gains arising after 3 years from the date of purchase are treated as long term capital gains and are taxed at 20% with indexation.
Also Read: Which are the best Diversified / hybrid mutual funds to invest in India now?
5 Best Income Mutual Funds to invest in 2016
Conclusion: These income mutual funds are good for high tax bracket individuals and who are willing to take some risk. This would be good alternative to fixed income options like bank FD or corporate FD’s.
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Suresh
Best Income Mutual Funds to invest in 2016
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I am currently investing in the below funds. Kindly suggest is this a good idea on investing in foreign currency
Mirae Asset China Advantage-Reg(D) – Re-investment – 1000
Reliance Japan Equity Fund-(D) – Re-investment – 1000
Religare Invesco Pan Eur Eq Fund-Reg(D) – Re-investment – 1000
Religare Invesco Pan Eur Eq Fund-Reg(G) – 1000
Hello sir term insurance can save tax for mutual fund investment ? if yes please advice me how I can save tax by term insurance.
Reds
Taj
Hi Suresh,
I am currently investing in below funds. Can you please guide me if I should stick with it or switch some funds in order to get better Growth. I am also thinking to invest in Franklin Tax Shield. Should I move ahead?
Birla Sun Life India GenNext Fund – 1000 PM
Birla Sun Life 95 Fund – 1000 PM
Axis Long Term Equity Fund -2500 PM
Canara Robeco Emerging Equities – 1000 PM
ICICI Prudential Exports and Other Services Fund – 1500 PM
Reliance Small Cap Fund – 1500 PM
Franklin Tax Shield – ???
Thank you in advance.
Hi suresh ,
I have started 6 SIP of 5000/- each for home down payment. Out of 6 MF 2 are arbitrage, 1 GILT ,1 dynamic bond & rest 2 are debt funds. My time frame is 2 to 2.5 years so I need to pay tax while withdrawing these funds. My question is can I claim Income tax refund against home loan taken at the time of withdrawal to save my tax ?
Thanks in advance .
1. Since the market is so low now, is it a good time to invest in mutual funds – as lumpsum – apart from being invested in SIPs?
2. I also had invested in a ULIP plan 5 years back for which the lock-in period has ended and which is completely invested in equities. Since the market is low, the returns as of today is quite low – less than what I had invested over 5 years. Should I wait until the market recovers to surrender the policy?
Hi Suresh,
Waiting for your response.
Hi Suresh,
Currently I am holding ICICI Pru focused blue chip, BL Sun life, HDFC Midcaps, Franklin Inia smaller companies and Mirare emerging Blue chip funds from last 1 year as SIP mode. But my portfolio goes on ‘Negative’ profits based on current markets. So, please provide your suggestion here.
Thanks,
Rama.
Dear Suresh sir,
Greetings.
i m 35 year old male married, if started to invest 7000 pm in mutual funds as my friends suggest me to invest,
in the process i start reading about mutual funds and luckily i found your blog. and its only your blog which encourage me to invest in mutual funds and i started investing in M.F with very little knowledge which i gather from reading online.
i started investing from Nov 2014, i sip in the following manner
7th day of month ICICI prudential dynamic Regular Plan – Growth = 2000 INR
10th day of month Birla sun life frontline Equity Fund-Growth- Regular Plan
16th day of month ICICI prudential Infrastructure Fund-Regular Plan-Growth
28th day of month IDFC Premier Equity Fund- Growth (Regular Plan)
now at this point of time i have invested almost 115000 INR and total Value after profit is 115,674 INR.
i only get liitle profit from IDFC fund in my portfolio. Rest of the funds have shown negative values.
Did I select wrong funds, should i re-select the funds please guide me. i m worried little bit.
my salary is 35k per month and i invested in these funds by a mind set for long term at least 5 years.
KINDLY SUGGEST.
Don’t worry for such short period. Invest for atleast 10 years. You would see 12% to 15% annualized returns
Suresh
All the 5 funds are interest rate sensitive funds. At the time when you wrote this, they were doing 9-10% for 1year return and if you look current 1 year performance, most are in the 6-7% category. Since we have to lock it for 3 years for tax efficiency, I am sure they will revive during the next year, when further interest rate cuts might come about but we are talking about 3 years. I feel towards the end of these 3 years, last 9 months or so, the interest rate regime will reverse and rates will rise, as per my expectation. Then, these funds will drop to 4-5%, when one is about to exit…This is why I recommend, high credit quality/low rate sensitivity combination….take for example, UTI treasury advantage…it is a fairly large AUM size fund and it does similar to the above returns (a tad less but that is ok since it does not matter on what Raghuram Rajan does)..thx
Hi Suresh, when I started investing in SBI Emerging Business Fund (Mid cap) it was ranked #1. Now it is ranked #5 and it has consistently lagged its peers. What do you suggest whether I continue investing in same fund or switch to some other fund? This fund is currently giving me 50% absolute returns
Amit, This is good fund, yes, I do agree it si lagging behind its peers. You should continue for few more years.
Dear Mr. Suresh,
First of all I would like to appreciate for all of your article.
Now I have one doubt need your clarification and valuable advise. Is income tax is applicable to the interest of long term deposit such as 3 to 5 years term?
Regrds,
Dear Sir ,
I have invested in HDFC Focused Large Cap Equity Fund – Gr 2500 per month , my returns on this stands at -2.72% , could you please advice if i need to hold it or switch . I am really new to mutual funds . Could you please advice , as my investment advisor is asking me to wait at least 5 years
Hi, How is Quantum as a Fund House ? I have a short investment horizon of about 1 year; how is Quantum Dynamic Debt Fund and Quantum Liquid Fund ? Please also teach me how to calculate Tax on MF Income using Indexation. Thanks.
great article ! thanks for sharing wonderful article
Hi Suresh,
I am investing in below funds through monthly SIP.Please provide your valuable suggestions about these funds. I am going to invest for 5 years and willing to invest lumpsum if there is any market correction.
IcicI prudential focused bluechip-5k
franklin india high growth companies-5k
icici pru value discovery -4k
franklin india smaller companies-4k
hdfc midcap oppurtunities-2k
Thanks in advance.
Regards,
kavitha
Thanks for sharing this article sir.