Most of us have a decent amount of cash lying around, courtesy of recent bonuses, increased salaries or may be plain savings. But if you let it idle in your savings bank account, it won’t grow much. You can invest surplus money in an FD but the returns may not be good plus the liquidity is an issue (you would be penalised in the case of premature withdrawal). So where to invest to get better returns than FD, which you may need after a year, or in the case of an emergency? You would be wanting such investment to have high liquidity and fewer tax hassles. So where to find such an investment? Here, on this blog, we will look and discuss a few options available to us.
Liquid Funds Give Better Returns than FD
- Offers 7% to 9% annual returns currently.
- Highly liquid and highly safe. In the case of a withdrawal, you would get your money in your bank account within 24 hours. Some liquid funds offer instant redemption up to a certain threshold.
- Taxation: If you redeem funds within 3 years, then the profits would be added to your income and taxed as per your slab, like if you’re in 20% bracket, then the profits would be added to your taxable income and taxed @ 20%. If you redeem them after 3 years, then it will be taxed with indexation at 20% rate.
- Also, one small point to note is that liquid funds will be taxed in the year of redemption whereas FDs are taxed every year.
Ultra Short Term Funds
- Offers 8% to 10% annual returns.
- Fairly liquid and safe. In the case of withdrawal, you would get your money back in less than 2 days.
- Taxation: Same as that of Liquid Funds.
I would suggest you go for these mutual funds options only when you’re in 30% bracket or higher. In other cases, FD works just fine.
Let me know in comments whether you liked the article and how can I improve it. Questions are welcome.