Savings account [email protected]%....where to park money for short term


(Rohit) #1

Hi ,

Recently SBI reduced their savings account interest rate to 3.5% which is very low. How do you guys prepare strategies in such a low interest rate scenarios. Is it advisable to put your money in the Established large caps / Strong fundamental companies like RIL , HDFC , TATA Motors , L&T , ITC etc. even if it gets 8-9% return in an year , its better than the very low interest offered by bank and later when some good opportunity comes , money can be moved from one stock to another. Or the money can be used for some personal work in short term.

Recently due to high valuations its difficult to find good bargains. But at the same time money kept in the Savings account is not earning anything for you and value of the money is going down. How should we proceed in such environment. How not to make your money sitting idle and not earning anything for you.

Would like to hear what other people think about it.

Moderators please delete the topic if you dont find it suitable.


#2

Rohit,

There is another thread which deals with the same topic. I found it quite useful. You can refer below.


(Ravi) #3

I am investing spare cash in Arbitrage funds as they give 7-8 percent return and treated as shares from taxation perspective. Cheers


(ashit) #4

Retrospectively if you see HDFC Bank price Aug 2016 and Aug 2017
Stock has given near 50% return (one year tax free)
(Dividend not included)
Probably this is one off case due to exuberance of market
Thanks


(sambandham82) #5

This is an appropriate question especially when nifty trades at 25 P/E and Junior nifty at 28 P/E, keeeping 10-30% cash readily available is mandatory. Hence the need to get at least 7% on cash.

Can we go for ultra short-term debt fund with expense ratio of about 0.5-0.7% that generates 8-9% or liquid fund with expense ratio of 0.2-0.3% that generates 7% where Exit load is zero?


(GSApte) #6

You can use ultra short term debt funds or liquid funds.
Look for zero exit load, and low expense ratio from well managed fund houses.
That should give you 7% + returns even in today’s scenario.

I have been also thinking about this and have been using ultra short term debt funds or liquid funds both from time to time.

Also, it may not be bad idea to use saving account of Yes Bank, Indusind bank and Kotak bank where they give close to 6% p.a. to park cash for shorter durations.


(Selvaganesan) #7

Ultra short term and liquid funds are much better. These banks offer higher interest rate of deposit might lock your money… example: need to maintain atleast 1L to get higher interest rate


(Sunray) #8

Your mileage will vary depending on the tax bracket. For example, If in the 30% bracket then you are looking at that tax expense in liquid funds. So your return will drop to 4.6%. Arbitrage is treated as equity and after taxes (15%) should end up at 5%. Ideally all your income should be in dividends :).

Readers, please correct if incorrect.


(GSApte) #9

Yes Liquid funds if exited within 3 years, STCG is taxable at 30% in such case.
All said and done, there are not much tax efficient avenues to park cash for less than a year.


(manjushree) #10

If you sell your funds before three years (36 months), you will have to pay short-term capital gains tax. Short-term capital gains are added to your income and taxed as per the income tax slab applicable to you. If funds are held for more than three years, your gains will qualify for long-term capital gains tax of 20 per cent with indexation benefit on your original investment.


(manjushree) #11

One more thing - If a person is in the lower tax bracket of 10 per cent, he will benefit more in liquid funds. He will be paying only 10 per cent on STCG (Short Term Capital Gains) on liquid funds, whereas short-term capital gains on arbitrage funds would attract 15 per cent taxes. However, if you are in a higher tax bracket (20 or 30 per cent) and want to save on taxes, arbitrage funds would be a better option. With arbitrage funds, Long term capital gains will be completely tax free and short term gains are taxed only at 15 per cent.


(hrushik2) #12

one out of the box solution if you have home loan.

convert your home loan in overdraft home loan. here you will be able to park money even for one day and earn 8 to 9% interest that too tax free.


(Raj) #13

How do you do this in practice? I have my home loan with HDFC


(sumitg04) #14

Ask SBI to convert your account into MOD balance, you will get FD interest rate and you can withdraw anytime just like normal savings account… So your money will earn around 7% interest rate or whatever is the rate of fd is… They normally don’t inform clients about mod features but they will do it if you ask for it


(GSApte) #15

Hi
I agree to this thought.

For people in 30% tax bracket, any Debt Funds would attract tax of 30% where as Arbitrage Fund will attract tax of 15% only, if you redeem with in 3 years since it is STCG.

Even with 30% tax rate if redeemed with in 3 years, Debt Funds have some advantages over FDs.

You may like to read my article:
http://prudentmoneymanager.com/are-debt-funds-more-tax-efficient-than-bank-fixed-deposits/


(ankushb) #16

You can park your fund in NiftyBees also.


(sko5prasad) #17

Can you explain a bit on how NiftyBees is more beneficial.
And its tax and liquidity implications on various brackets.


(hrushik2) #18

Brief understanding on Overdraft home loan:
once loan is disbursed to builder/seller, you can deposit any amount into loan account anytime and also withdraw. interest will be calculated on daily outstanding balance. maximum OD limit will be reduced every month to the tune of EMI.

presently SBI and i thiink hsbc is also providing such loans.


(manivannan.g) #19

(Manoj2108) #20

Kotak Mahindra bank savings account gives 6% interest on the amount above 1 lac and 5% upto one lac. No need to lock the amount elsewhere.