Bank RD Vs Liquid Funds

POSTED BY Raja Mohamed ON April 11, 2012 1:42 pm COMMENTS (8)

Hi,

I have a requirement to pay Rs 55k towards Insurances (2 traditional & 1 Term plan) every year.

My strategy so far, was to park Rs 5k in RD for a year (@8.25%) and then pay off these with the maturity amount.

Just started to learn about Liquid funds and its annualized return being close to 8 – 9%.

So is it better to go with existing strategy of RD or should I try liquid funds?

Please note, am in 30% tax bracket.

Thanks
Raja

8 replies on this article “Bank RD Vs Liquid Funds”

  1. Raja Mohamed says:

    Thanks for the clarification Ashal…will do some research on Liquid plus in Dividends category and narrown on one…

  2. Raja Mohamed says:

    Thanks for all your comments…one clarifcation, is Interest on RDs taxable?

    1. Dear Raja, yes the interest earned from a RD account is taxable but not liable to TDS.

      Thanks

      Ashal

  3. My Two Cents :

    I would go with Liquid Funds. There is one more option you can think off. Considering you are in highest tax bracket, you can have a keep money in savings bank account offering highest interest rate.
    Note : interest earned upto 10 k is exempted.

  4. Dear Raja Mohamed, My take if possible to you, from now on wards, please invest around 10K mly in a Liquid fund. Whenever you need money for any of your requirement, please redeem the same from Liquid fund but keep on increasing your investment in that fund. This way over the period, the STCG tax liability ‘ll not there once your withdraw corpus reaches to around 2Y money.

    Thanks

    Ashal

  5. BanyanFA says:

    If you are in a 30% bracket, then both liquid funds and RDs would hit you badly on tax. However, if you opt for HDFC Cash Management Fund – Treasury Advantage Plan – Dividend Option, then you would get the dividend on this fund after deducting dividend tax @ approx 15%. This dividend would then be tax free for you.

    The current return on the above fund is around 8.5% before Dividend. After deducting dividend tax, the return falls to around 7%. I think it is much better than going for a 30% tax hit.

    regards
    BFA

  6. Check out http://justgrowmymoney.wordpress.com/downloads/ – “Where to park short term funds”. For someone in the 30% bracket liquid funds are so very tax efficient than FDs/RDs.

  7. Raja Mohamed says:

    Please note, its 5k every month for a year in RD…

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