Is it wise to invest in debt funds instead of tax-saving options after the announcement of the new tax regime?

After the new tax regime, the dual benefits that investors gained from investment in schemes like PPF, SCSS, SSY lowered to one, i.e., now they would only act as any other investment (provide returns). These options are generally chosen by the people who need a stable income, have low or NIL risk appetite and are not expecting very high returns.

So, if you are not concerned about guaranteed returns you can consider investing in short-term debt funds which are highly maintained and can be available for a time frame of 3-5 years.

After the recent announcement by RBI regarding the Long-term Repo Operation (LTRO), a tool to enable better monetary policy rate transmission it is expected that specific debt funds would bring benefits to the investors.

Funds like short duration funds, dynamic funds, corporate bond funds, and bank and PSU funds are expected to benefit when yields would come down and the price of the existing bonds will rise. Investors can consider these funds for their core portfolio for the post-tax gains they would generate for the investors. Tax payable on long-term capital gains shall be taxable at the rate of 20% with indexation.

So, if you are not really bothered about stable returns and the risk associated with your investment portfolio it is better to invest in short-term debt funds rather than these schemes as they would provide lesser returns.