FDs vs T-Bills vs LiquidBees

I have a FD maturing next week and I want to park these funds in a relatively safer asset class. I am considering the above three options.
Suppose I have 1 Lac and assuming a gain of 7% pa from each asset, which asset is better from a taxation POV.

what is your target timeframe to hold?

Near interest rate peaks, a longer term FD can lock in rates while the other 2 are subject to interest rate fluctuations.
From taxation pov, they’re the same as indexation benefit is discontinued on LT debt instruments ( in LB case),
no indexation anyway for FD and T-Bills are short. maybe you meant G-Secs but they payout interest twice a year.

I have 1 yr timeframe in mind ie the 364 day T-Bills

then you compare FD return rate vs yield of T-Bill. higher one is the go to.

And could you pl tell how would it compare with LiquidBees held for 1 yr? Returns wise

LB is of shorter term duration debt inst so return will be lesser unless the yield for next 1 year is inverted.
that means less than 90 days instruments are paying more than 1 year but its unlikely. As i said, it depends on interest fluctuations and a guessing game.

Ok thank you so much for the info, I’ll go ahead with the Bank FD giving me 7.1% compared to the 364D T-Bill giving 6.9%

plus FD compound quarterly, so effective yield should be bit higher.

There is only 1 extreme scenario if one is in the highest tax bracket, then taxation is higher for FD against debt instruments but you need to hold for 3 years so i didnt consider this scenario. At that time LTCG is 20% which could otherwise be higher as FD or T-bill semi-annual interest is added to income for that FY.

Equitas sfb gives 8.20 for one year
Ujjivan sfb gives 8.25for one year
Sbi gives 6.8 for one year
Idfc gives 7.75 for one year
Hdfc gives 6.60 for one year
Federal bank gives 6 for one year
Canara bank gives 7 for one year

Hope this helps in ur calculation

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thank you for the suggestions :+1:

a small correction that i am checking. post Apr 2023 budget, i’m checking if 20% is retained or removed bcos i read somewhere it was also removed with indexation benefit.

So in FD, the interest accrued is computed annually and TDS is applied, while in LT debt instruments, you would have benefit of extending time and tax until redemption but both seem to be added to the income.
ofc this is for new purchases post APR and applies to you.

Hi @rutu7355608

Here are the taxation aspects of the 3 options stated by you.

  1. Fixed Deposits: All Fixed Deposits do not attract tax exemptions. There are specific FDs that offer tax benefits. Such tax saving Fixed Deposits are different from normal FDs. The Tax Saving Fixed Deposits allow you to claim a deduction u/s 80C up to Rs 1.5 lakh from your taxable income. However, the interest income earned on the fixed deposit is fully taxable at the slab rate under “Income from Other Sources”.
    A TDS at 10% is also deducted at the time of receiving the interest if the interest exceeds ₹40,000 (₹50,000 for a senior citizen).

  2. T-Bills: T-bills are bought at a discount and sold at par. The appreciation is considered STCG and taxed as per the applicable slab rate. However, you’re not required to pay any TDS upon redemption of these T-bills.

  3. LiquidBees: The dividends received are taxed under “Income from Other Sources” and when you sell these units, gain on such transfer is taxed under Income from capital gains.

Considering all these points, a tax-saving FD is a better option. Though with a tax saving FD, your funds are blocked for 5 years, you can claim the deduction u/s 80C. Even though the interest is taxable, TDS will not be deducted if the interest does not exceed ₹40,000.

Hope this helps.

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and the last part even though not related.
You can pledge debt funds for collateral margin :smiley:
so thats why this is king for me

is there any TDS for ultra short MF that invests in treps?

Hey @raoawesome,

Yes, there is TDS on dividend income from Mutual Funds. The dividend income if in a year exceeds ₹5,000 TDS @5% is attracted.

You can read more on TDS on Dividend from Mutual Funds

Hope this helps!

I am asking for ultra short fund MF growth, is there any TDS like as in liquidbees?

Hello @raoawesome,

Yes, TDS is applicable on any Mutual Funds paying out dividends under section 194K if it exceeds the limits. On liduidbees TDS is deducted as it is considered as dividend income when you receive it.