In current environment what’s the best option to park some extra cash?
I analysed followings-
Gold : prices are coming down since mid last yr
Debt Funds : most of them are not performing even average to their standard on account of concerns of rising yield as most likely interest rate has already made bottom
Equity Funds : market valuations looks very stretched, so don’t feel safe to deploy everything here
Saving Bank Account : miserable interest rate of only 3%
FD : Post tax return almost same as saving account interest because of pretty low rate
I don’t have any specific time frame, my ultimate goal is to move capital to equity market. As and when equity comes down (valuations eases out a bit) I will want to invest in equity.
For short term cash (which I think will be needed in less then a year) - I am putting it in Liquid + arbitrage fund. Returns are not great but better then Saving Bank account and safety is high
For longer term cash (or cash I have no idea when will be needed) - I am parking it in safe debt etfs like Bharat bond, CPSE+SDL, SDL etc. with varied maturity of 3-5-7 years. Returns are slightly higher then FD and more tax efficient then FD.
In both this, i am giving more weight to safety then returns.
OK, in that case Arbitrage Funds may be a good option.
The main pro is that taxation like equity funds. That is:
15% tax on capital gains realized by selling within one year of purchase
The first Rs.1L of capital gains realized by selling after one year of purchase, is tax-free
Capital gains above Rs.1L realized by selling after one year of purchase is taxed at 10%
Capital losses can, as with other instruments, be carried over to future years
(Of course, this Rs.1L is across all such capital gains.)
Cons:
Slightly more volatile than liquid funds: the prices do go up and down a bit each day
Returns over periods of (say) 3 months or more are similar to returns from liquid funds. That is, currently perhaps 3.5% per year or so. Of course, this rate is not guaranteed, but check the chart for the last year for such a fund, and see how it performed around the big collapse.
So the returns, provided you don’t realize them within the first couple of months or so, can be expected to be better than FD or SB after tax .
Timing the market is difficult. Why not start an SIP using smallcase?
Alternatively, start investing, and keep a GTT SL for 25%, you’ll have to update the GTT every week (I wish this a daily thing that could have been managed by Zerodha. What this does, is create a trailing stop for your investments.
Assuming you’re looking at stocks. Options are a different ball game.
Yes they are rated sovereign and administered by RBI. So relatively safe instruments. Their yield is slightly better then Gsec
No they are not available for direct buying off the shelf for retail so can’t be bought on kite.
But there are multiple debt ETF MF scheme which are launched recently investing in these SDL. Most of them are offering 5-6 years term investing in SDL or combination of SDL & CPSE PSU bonds. Indicative yield for such products is around 6.4% and safety is relatively high.
NCDs which are paying 8% to 12% interest monthly/annually. Higher the interest rates, higher the risk. Companies like DHFL has defaulted on their NCDs, previously.
Sweep in FD gives you better returns that liquid funds and the amount is realised immediately. Equity will stablise in a month or maybe 3 months, you never know. So, you may switch from Sweep in FD whenever you feel like.
To reduce the penalty of premature withdrawal, you will need to use low duration FD, which will give low returns… Kotak gives 3.5% savings bank interest, so that is not a bad option during such times, if you need the funds in short notice.
Yes, in HDFC Bank you will get 1% less interest. So, for eg. if you have created an FD for 5 years and 2 days, you will get interest @5.5%. Convert it into Sweep in and withdraw and you will get interest @4.5%.
@Vij in HDFC Bank, the penalty remains same - 1%. So, if you take low duration weep in FD, say 1 year, the interest is 4.9%. After 1% penalty, you will get 3.9%.
And we have to pay tax on FD interest at slab rate. Assuming a 30% slab rate, the post-tax return on this sweep-in on premature withdrawal is just 3.1% . And even if we don’t withdraw, we have to pay tax on the accrued/received interest, so the post-tax return is 3.8% if we do not touch the FD for the entire 5 years 2 days.
At 3.5% SB interest rate, the interest on the first Rs.2.85L is tax-free, because up to Rs.10,000/- SB interest is exempt from tax. So parking Rs.3L or so in SB account makes eminent sense from this point.
So the answer to the question of how/where to park extra cash depends on a lot of factors, including the following:
To the FD experts above , is there any bank FD that provides a decent interest rate and doesn’t have any penalty charges for premature withdrawal in case of emergency (Hope I am not asking for too much )?
I want to park some funds in FD (total 5L) that are maturing next month, and you know the current SBI/ HDFC FD rates have gone south so much.
@ZeroIndian , @Vij - Then, IDFC first bank and Equitas give 6.5% interest on saving account. But make sure that you save only upto 5 L in one account - that’s the limit of RBI insurance on any Bank account.
, is there any bank FD that provides a decent interest rate and doesn’t have any penalty charges for premature withdrawal in case of emergency (Hope I am not asking for too much 
)?