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.
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.
How do you do this in practice? I have my home loan with HDFC
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
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:
You can park your fund in NiftyBees also.
Can you explain a bit on how NiftyBees is more beneficial.
And its tax and liquidity implications on various brackets.
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.
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.
I park my funds in SBI Max gain home loan account. It doesn’t generate any interest but I end up saving 9% on the home loan interest for amount parked. You can withdraw anytime.
You can also opt for MOD or sweep in / sweep out in SBI or IDBI, your money gets FD interest rate and can withdraw at any time.
Balance in Rs.|Interest Rate (p.a.)
|Up to 1 Lakh|6.00%|
1 Lakh to 2 lakhs|6.50%|
2 lakhs to 10 Crores|7.00%|
Hi,how does mod in SBI work? Can you withdraw part of the funds?
Yes, it works like regular savings account. You can withdraw and deposit any amount of fund. You have to set a threshold, lets say 25K/10K/50K, as and when your funds reaches above the threshold, funds automatically swept into MOD balance, and every time it creates a difference deposit account.
So eventually you end up having one or multiple deposit accounts underneath your main account with different amounts. As and when you withdraw funds, funds sweep out to your main account with accrued interest from one or more than one deposit accounts.
Its pretty simple, all you have to ask from your branch is to create “mod balance”.
How about RBI 7.75% interest savings bond?
anyone have any experiance with investment in discounted invoices like from kredx or tradecred ?
Idfc , bandhan, equitas bank gives 7% in savings, also new rbi rules makes this safe as now we have insurance up to 5 lacs
Interest rate in fixed income depends upon the risk one takes with the principal amount.
If some bank is giving higher rate than govt sec, it has to earn a higher rate on the capital to remain solvent. Bond fund giving higher return is taking credit risk investing in low rated bonds.
Principal protection is of paramount importance in fixed income. One should take risk in risky investments like equity where rewards will be proportionate to the risk.
If someone is comfortable with the banks solvency then it’s no problem otherwise one can keep 5 lacs (insured) opening new bank account.
Or change the existing account into flexible deposit account where amount above a certain level will be converted into fixed deposit and if you withdraw then the previous deposit breaks automatically. Interest rate will depend on the bank fd rate.