How you can save tax on old investments in debt funds

livemint.com:

Rebalancing act Putting fresh money in new debt funds or mutual fund folios rather than in old fund is one of the ways in which investors can still keep a large part of their investments tax-efficient. “Investments needed for short-term objectives can go into new funds, so that older funds continue to build up their tax-efficiency with indexation," says Amol Joshi, founder of Plan Rupee Investment Service. Investment advisors often ask investors to adjust their asset allocations in line with market conditions.

This practice is known as asset rebalancing. For example, an investor sticking to 60:40 equity-debt portfolio would be advised to buy more equity if the equity component slips to 50%, or vice-versa. Such asset shifts are also tax events, and investors would be forced to sell their old investments if a new fund or folio has not been created.

“This is the reason we are asking investors to put fresh debt fund money in new funds or folios. So, any re-balancing is taken care of by fresh investments. The investors can allow the older investments to accumulate in a larger and more tax-efficient corpus," says Sumit Duseja, co-founder and chief executive officer of Truemind Capital, which is a Sebi-registered investment advisor.

Some advisors ask investors to rebalance their financial assets more dynamically, wherein they track market valuations and ask investors to switch from debt to equity more aggressively when equity valuations see sharp corrections. This strategy of creating new funds or mutual fund folios can be deployed by investors in their early investment accumulation phase when there are more instances of portfolio rebalancing or even in the middle phase of their financial plan. More years, more indexation Ind