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There are penalties and expenses, and you may even have to sell at a discount in exchange for money and moving the debt early.

With interest rates on the boil, financial planners are insistently recommending debt funds, fixed deposit (FD) and non-convertible debentures (NCDs). For an investor, who seeks the safety of debt, along with good returns, this could perhaps be the best time.

There is a catch. If idle money in the bank, they could easily invest in these instruments. However, if the money must be transferred from existing investments, could be a problem.

For example, the shift towards direct actions will most likely mean a loss of reserves. So the equity diversified funds. In the case of debt instruments, a series of open-debt funds have already started to implement the load output 50-100 basis points, if the investor sells the system within the first year. Although most of the ultra-short bond funds are not charged to leave the loads, there are some who attribute to 25-50 bps, if one starts from three to six months.

For example, SBI MF has revised the structure of the output load for the SBI Dynamic Bond Fund with effect from last week. It has not only increased the burden of one % from 0.25 %, but also expanded the applicability of that charge and one year. Previously, complete more than 90 days have been unloaded. UTI Bond Fund will now be charged with an output load of 1.25 per cent for redemption made within 180 days, against one % in the past.

But if you want an instrument of the existing debt at a higher level of pay, would take the punishment you have to pay or sell for the stock market. You must take this into account because the return must be more than sanctions.

Let’s look at this through the numbers. If someone in the tax bracket the higher income FD breaks a two-year paid nine % in the first months of investing in a fixed maturity plan (FMP), there will be a penalty 50-100 basis points. For a little over a year FMP offers 9.25 %, the party additional 25 bps. But when the tax – double indexation of benefits – gives the investor a higher yield of 8.32 %, this investment would make sense. After deduction of the penalty for, say, 100 basis points, it would have earned 7.32 % return, higher than the after-tax return of the Framework Decisions of 6.25 %.

Similarly, if you withdraw prematurely invest in it to pay 12 % of chronic diseases, in his post-tax return has been 8.47 %. After the penalty, would return to 7.47 %, still more than the tax returns as soon as possible.

If I had to retire prematurely from PGF to pay 9.25 % to invest in FD MNT or pay 10 and 12 % respectively, the picture is completely different. From PGF should be listed, investors can not stop selling it commercially. And that would leave a reduction of 20-30 % even.

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Said Mahendra Jajoo, CEO and Chief Investment Officer (Fixed Income) at Pramerica mutual funds, “Since TFP are highly liquid instruments, they generally trade at a discount. Some PGF go days without any activity. The debt market in India is quite shallow, making it difficult for investors to sell the units at a premium. ”

In such circumstances, even if we move money from one instrument to another FMP, the lack of liquidity means big losses. In other words, the return of any instrument must be much larger, almost impossible for the debt instruments to offset the loss from the outside. Similarly, non-communicable diseases can be sold only in the exchange, which also lack of liquidity.

Source: [Business Standard]