New Delhi: With the new fiscal year kicking in, new tax rules have come into play, leading debt investors to revisit their investment portfolios for higher returns. Most investors with a medium to low-risk appetite often gravitate towards debt funds when opting for market-linked instruments. The reason is that they offer a more sustainable and steadier fund growth than their riskier counterparts – equity funds.


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Vivek Jain, Head of Investments Business, Policybazaar.com  in a Q&A with Reema Sharma of Zee Media said, “While debt instruments might have lost some sheen to taxation, you can still get high returns if you smartly work out your investment strategy. If you are among the many investors looking to invest through debt instruments, you must consider insurance-cum-investment plans for your portfolio.”


Jain added that generating high returns depends not only on the rate of return but also on the post-tax calculation of your investment.


“Amid changing tax rules, it’s important to be mindful of the interest rate you are getting as well as the amount you’ll end up paying as tax to determine your actual gains. This is where debt insurance plans like ULIP (unit-linked insurance plan) come into the picture. The tax-free returns in these plans help you achieve wealth maximization along with steady gains,” Jain said.


Mutual funds Vs FD Vs ULIPs


Suppose an average investor plans to invest Rs 20,000 every month for the next 20 years. Here’s an understanding of how one should invest in these plans to gain maximum returns.


Vivek Jain gave an assumptive analysis on how your invested amount will fare under these following options –


Mutual funds


If you invest Rs 20,000 monthly in mutual funds for 20 years, you will be investing Rs 48 lacs over this period. Assuming an 8% return rate, ideally, your maturity amount should be Rs 1.05 crore. However, your net return rate will only be around 5.5% after taxation, which translates to you losing Rs 20 lacs to tax.


Fixed Deposit


You might even turn to other traditional instruments such as Fixed Deposits (FDs) to secure your funds, but the tax rules will have an impact here as well. Considering you invest in FD at a 7% return rate and fall under the 30% tax bracket, you will actually end up getting a 4.8% rate of return after taxes.


ULIPs


On the other hand, if you invest Rs 20,000 monthly or up to Rs 2.5 lacs in ULIPs instead, your returns will not be subjected to any taxation. Your maturity amount will be Rs 1.05 crore in 20 years and you will gain a net profit of Rs 57 lacs from your investment. The USP is that this amount will be absolutely tax-free – a benefit not available in instruments like mutual funds or FDs.