Any better option than saving in Recurring Deposit a/c for annual expenses?


#1

I have multiple RD a/c in my bank for annual renewal services for the following:-

  1. Aquaguard AMC renewal
  2. Washing Machine AMC renewal
  3. Annual Health checkup
  4. Health Insurance Premium Payment
  5. LIC premium payment
  6. Term insurance premium payment
  7. Other Misc. renewal and yearly servicing

So a total of about Rs 8000 is auto-debited every month from my savings account into these multiple RD accounts which have a maturity period of one year. This helps me plan and accumulate funds for my non-avoidable expenses. The bank RD account gives me around 5.5-6% of interest on the principal. Also, TDS has to be considered while filing ITR as overall bank interest gain exceeds Rs 10000 per year.

Once a RD fund matures, I renew that particular service and start another RD to plan for the next year.

Now, I am wondering if there is a better to plan this out? Would you recommend depositing that EMI in a Short-Term Debt fund instead of keeping in RD a/c, and withdrawing when needed to renew the services? Or is there an alternate way to maximise the returns while saving in EMI for the annual expenses?

Please guide.
Thank you.


#2

Debt funds are ok
But consider taxation

Also liquid funds like liquidbees give 5-6%/yr
But the gain is given as dividend and is tax free

That’s another option I know of

Look for liquidity before deciding on a fund


#3

you can use hybrid debt funds like monthly income plans etc where along with bonds there is 15-20 % equity component is there…so it can give you slightly better results along with safety of debt.


#4

Rupesh, Tax exemption is for interest on saving account and not on fixed deposits. So you need to pay tax not just if exceeds 10K but for every rupee of your interest earned based on your tax slab.


#5

Thank you for the advice. Can you please suggest a few MF in this category?
Also, since there would be withdrawal of partial funds from the MF at regular intervals (apart from investing every month as SIP), will there be any exit load applicable to this action?


#6

#7

Stay away from Monthly income MF. They are a honey trap :slight_smile:

Look for Quantum Liquid fund Direct option Growth


#8

#9

why so negative about monthly income plan …can u pls explain…


#10

The monthly “income” from such funds is a misnomer and if it is in the form of a dividend, a 28.875% tax is deducted at source. This is regardless of tax slab and cannot be reimbursed via ITR.

So I could construct a portfolio with 10% equity or 25% equity with a separate equity fund. I have a little more control.


#11

yeah means investing 75% in pure debt fund to get tax benefit along with better returns,
and investing 25 % in pure equity for aggressive returns that can give better control along with returns,
that sounds good idea…but important thing is to must invest 25 % in pure equity.


#12

#13

Please understand this is not a comparison between fixed deposit and debt mutual funds.

I am looking for (if any) better option than investing in RD to accumulate funds on month-on-month basis, to cover my fixed costs of the year.

If investing in MF or any other instrument will give me better returns and also safeguards my invested amount. Wealth creation is not the primary objective, though ideally it should give more returns than RD while not being a risky affair.

The only objective is to plan for my annual fixed expences in form of 8-10k EMI. And redeeming them as and when the annual services need to be renewed.

While suggesting MF we need to consider the frequency of deposits - 8-10k every month. And then withdrawing partial funds at the time of annual renewal of my policies, service contracts etc. At multiple times across the year.

Also please consider exit load charges etc while proposing your idea.

Thanks.


#14

pls consider following points,

  1. Compare to FD debt funds has better returns, and has same taxation ( debt fund withdrawn before 3 years)
  2. go for pure debt funds with no equity component as it will have no equity risk.
  3. Risk in debt fund is there but you can ignore it as its spread over so many bonds in it.
  4. considering direct Debt fund , the better return from debt fund compare to FD can compensate 1-2% exit load while withdrawing before 365 days. ( depends on debt fund)
  5. You can opt for medium term debt fund like dynamic bond fund etc. for that i am posting another link below for better clarity about debt fund.

Pls keep in my mind this is just my opinion and not professional advice, consider visiting certified adviser for better advice.


#15

#16

My bank gives me fixed 6.75% interest on RD and instant start and auto-redeeming of funds at maturity.

Now comparing this with the Mutual Funds you all have mentioned above, I believe they will have exit loads (because there will be multiple withdrawal from them after 1 year period (since the respective date of service renewals are different).

What kind of returns to expect from Debt Mutual Funds. Is there a significant difference between the two, also while safeguarding the invested funds?

That will help me conclude on whether to stick to RD, or consider Debt Mutual Funds.

Please guide.


#17

How about Franklin India Ultra Short Bond Fund?
No entry load.
No exit load.
Around 8-8.5% average annual returns.

More details on the website.

But it is not available on Zerodha.
Any advice?


#18

Yeah! It is good.


#19

Update:
I have ditched Bank RD and started SIP in Franklin India Ultra Short Bond Fund to accumulate funds every month, to pay for my annual subscription of various services.


#20

@rupeshmandal
I think some highly strong fundamental and good dividend giving company like coal India, Castrol and others will be better to think about it for long term purpose.

You can also consider some zero debt and having good management companies before putting your funds.