You can invest in debt mutual funds, as government issued bonds provide very favourable returns, as is the case for private deposits and fixed deposits as well. The right investment plan is the one where one chooses the debt instruments with varying risk levels. By investing in debt mutual funds you can get an extra income or emergency fund. Debt mutual funds are used as getting regular income specifically. The different bonds and deposits involved in debt mutual funds have varying interest rates applicable. The maturing tenures are also different. These funds can also help in appropriate capital appreciation. People prefer to invest in mutual funds because they give convenience in terms of - 1. Time 2. Small investments 3. Payment frequency 4. Regular income These funds score better than debt instruments because there are more tax benefits there than what you get from interest from debt instruments. Other reasons are capital appreciation and higher returns. The money you can make via capital appreciation from debt mutual funds is very high and you can maximise your profits significantly. You should choose to invest in the topmost mutual debt funds to avail maximum benefits. The capital appreciation happens because these instruments are very liquid and can be traded easily. The bond yield can be higher even as the interest rates prevailing in the market take a plunge. Capital gain means that you sell the mutual fund holdings at a much higher price than the cost at which you bought it. If you have held your mutual funds for more than 12 months then the gains from that is known as long term capital gains and if its less than 12 months it is called as short term capital gain. When a financial year is ending, you can take full advantage of mutual debt funds. You can earn extra benefits during this period. On long term capital gains, you can earn more benefits. Depending on the cost inflation number fixed by the tax authorities each year, you can get the extra benefits where the cost of the investment is raised to account for the inflation for the period during which the investment funds were held. The double benefit can be availed mutual funds can be availed by using the indexation route. There will be two year benefit on a one year investment holding. Suppose you have bought the debt mutual funds units in March 2010, it will be considered as being bought in 2009-2010, and if you sell it April 2011, then it will be considered as being sold in 2011-12. This is how you will get a double indexation benefit on a holding which is just over a year. Credibility of the issuer of debt mutual funds depends on how you have made earlier payments etc. With fixed deposits, you have a fixed rate of return. With debt mutual funds, your returns are not fixed but dependent on the market plus it offers tax efficiency. Read More>>