I’m looking for the best option to park my money, and I’m considering FD, Liquid Funds, or Arbitrage Funds. I do not fall under the 30% tax slab, which might influence the returns I get from these investments.
I’m hesitant to invest in Fixed Deposits (FDs) because of a few reasons:
I usually don’t know when I will need the money.
FDs charge a penalty on premature withdrawals.
They don’t allow partial withdrawals.
Given these constraints, I’m exploring whether Liquid Funds or Arbitrage Funds would be better for my needs. I’d appreciate any advice or insights on which option might be more suitable, considering flexibility, returns, and any other factors I should keep in mind.
Why 20%? Arbitrage funds are taxed like equity so tax would be 12.5%.
Also 1.25 lakh of LT capital gains is tax free, so if there is no other Capital gain it is actually tax free returns
As rightly pointed out by @tallerballer what is the purpose of this money?
I am not a fan of FD, but would like to point out some counter arguments
yes they do, but also they help you in locking the returns. Especially in falling interest rate scenario.
There is high chance in coming year interest rate might fall, in that case liquid / Arb funds will progressively give lower returns, whereas in FD you can continue to get returns at which it was booked.
This can be easy to work out by booking multiple FDs of smaller amount rather than single FD of large amount.
I personally keep my emergency money in Arbitrage fund, mainly due to better taxation. But if taxation is not a concern, FD might be a viable solution in current scenario.
Thanks for the input! I’ve already invested 50% of my net worth in equity, and I’m looking to park the other 50% in a safe, non-equity option to deploy when the market crashes. Liquid Funds seem suitable due to their liquidity, but I know instant withdrawals are capped (around ₹50k).
Given my lower tax slab and need for easy access, would Liquid Funds still be the best option, or is there another better alternative?
Most liquid is a FD. You will get the amount in your account in 10 seconds with banking apps as long as withdrawal is allowed online
Liquid fund can take some time. There is instant withdrawal concept but it is very limited. Upto max of 90% or 50k per funds, and only few funds have. So you have to assume 1-2 days withdrawal time. Cannot invest the same day market crashes.
If you are planning on investing after some days of drawdowns in markets then it is fine.
Liquid funds are tax efficient compared to FDs. Since you will pay tax only when selling and not every quarter like FD. Even in cumulative FDs, TDS is deducted every quarter and you have to pay every year.
Also side note, I think having half of your money just waiting for a crash is a bad idea. I would suggest you have only 10-20% of equity allocation as “waiting for a crash fund”. Rest can be pure debt allocation for safety