Categories
Finance

Safety & Liquidity of Debt Mutual Funds

Yesterday I wrote an article about Debt Mutual Funds.

I got a few questions about the liquidity and safety of a particular fund. So, I am adding a few more points.

Many Debt Mutual Funds like Nippon, Axis and HDFC offer instant redemption and you get the money within 30 minutes.

Safety of money means that the fund will not run away with your money. Market risk is there but it is almost zero for short-duration funds invested for a longer term.

In the past, withdrawals have been restricted even in the case of prestigious banks when the banks were facing issues.

Obviously, you should not blindly go for any Debt Mutual Fund just like you do not go for any FD offered at much higher interest rates by various NBFCs and smaller banks.

Similarly, in the case of Debt Mutual Fund, it all depends on various factors like the fund’s category, company, fund manager, duration of investment, past record, etc.

My article is about the overall advantages of Debt Mutual Fund over FDs and of course, both have their share of pros and cons. And there may be exceptional edge cases as well.

Only after considering all the factors should you make your investment decision.

investment #mutualfund #fixeddeposit

Categories
Finance

FDs are destroying your wealth

If you are still making FDs of your monthly savings, you are destroying your wealth.

Interest on FDs is taxable. That means the current interest rate of about 5.5% effectively gives you ~3.8% return on your money (Assuming you fall in the highest income tax slab).

With more than 6% inflation, your money is losing its value.

DEBT Mutual Funds is a better alternative which is tax efficient, gives better returns and is quite safe.

Debt Mutual Funds are different than EQUITY Mutual Funds because they lend your money to government & companies rather than investing it in the stock market.

A good Debt Mutual Fund can give you better returns than FDs, depending on the fund’s category.

A few benefits are-

  • Mutual Funds in India are very tightly regulated, so your money is as safe as it was in the bank.

  • You will be taxed only if you withdraw the money. So, if you do not withdraw the money, you will have to pay ZERO taxes on the return.

  • If you withdraw money after 3 or more years, you get indexation benefit which further reduces income tax to an effective rate of 6-7%.

  • SEBI has defined different categories for Debt Mutual Funds based on the duration of loans and the type of companies to which loans are given.

That means for safer investment, you can go for the funds with shortest duration or those that give loans only to the reputed companies.

  • There is no penalty for withdrawing money early, unlike FDs where you pay penalty if you withdraw the money before completing the term.

  • Debt Mutual Funds are highly liquid & you can withdraw your money in minutes. So, you can avoid keeping large sums of money in the savings account.

So, it seems like a good time to move your money from FDs to Debt Mutual Funds.

Categories
Finance

A useful tip to save upto Rs.15k in tax: Section 80TTB for Senior Citizens

As we are just 2 days away from the last date of filing income tax return, here is a useful tip to save upto Rs.15k in tax.

If you are helping out a senior citizen in filing their Income Tax Return, do not forget section 80TTB which allows Rs.50k deduction on their interest income from both bank FDs and savings.

This can save them upto Rs.15k if they fall in the highest income tax slab.

On the contrary, section 80TTA which is applicable to individuals less than 60 years old, allows deduction upto Rs.10k that too only on the savings interest income.

itr #tax #incometaxreturn