FD or Short Term Fund for 1.5 yr ?

POSTED BY monGenie ON February 28, 2013 12:09 am COMMENTS (9)

Hi there!

I have some savings from from my job which is lying in my bank account under sweeping FDs giving @ 8.25%. Right now, I don’t need that money and can invest it for 1.5 yr. We have a goal to buy 1BHK in 1.5yr. So, I want to invest lumpsum amount where I can get better returns. Now, my choices are FD or Short Term Fund (I am deliberately not including Liquid Funds because I want to invest whole amount at once and not through SIP). 

My query – 

I am a homemaker and living in USA currently. So, I have no income in India / USA. Will I be taxed for Capital Gains from this investment in case I sell them –

 

  1. before 1 yr (short term capital gains)
  2. after 1 yr (long term capital gains)

 

9 replies on this article “FD or Short Term Fund for 1.5 yr ?”

  1. monGenie says:

    Thanks Ashal for your views.. I appreciate your concern here. We will definitely rethink before committing any decision.

  2. Dear Mongenie, 4-4.5K mly ent translates into 50000 Rs. yly rental income. if I deduct the soociety main. charges & property tax, the net rental income ‘ll be around 40000 Rs. to you. Price of your house is 1500000 Rs. Here I assume it’s the naked price you are talking about & there ‘ll be extra expenses towards stamp duty, registration, VAT, SErvice Tax. so final price to you ‘ll be some where around 1650000 to 1700000 Rs.

    So for your house the Price to Earning Ratio i.e. P/E = 1700000/40000 = 42.5

    It’s not at all profitable to you. If you put this 1700000 Rs. amount in a simple product like NRE FD (no tax at all to you on this) @ 9% ROI, you ‘ll be earning around 153000 Rs. yly & due to compounding, your figure after few years ‘ll be very good.

    Now your answer ‘ll be, what about price hike? Yes it ‘ll happen but certainly it ‘ll not the same as it had happened in recent past.

    It’s my personal view only & you have every reason to accept or reject it.

    thanks

    Ashal

  3. monGenie says:

    Current price of the flat is 15 L and rent would be 4/4.5 K pm

  4. Dear mongenie, what’s the price of this 1BHK & what ‘ll be the possible rent?

    thanks

    Ashal

  5. monGenie says:

    I know.. we did mull over it.. and our thought process behind purchasing 1 BHK flat in our home town is –

    We are not buying it from the purpose living in it, but we will rent it.. so the passive income will be generated per month basis and capital invested in property appreciates too.

    In current scenario, no one is sure where their future will take them (at least IT people) so even if we return to India, we are not sure which city we will settle in.. (preferences are sure there), but still owning properties later in big cities will be a costly bet and let’s say even if we buy later whether we will stay there or again come back/switch company is not know at this point of time .. we think it’s too complicated and that’s why the decision.

    What do you think?

  6. Dear Mongenie, if you do not have plans to return to India & to live in that flat, please do not block your money to purchase. You can invest for long term & purchase later on at the time of actual need. It may happen that you people do not return at all & in that case selling this flat may become an issue for you. Think over it.

    Thanks

    Ashal

  7. monGenie says:

    Yes, Ashal.. we want to purchase a flat post mid 2014.. about returning back to India for good, I am not sure.. but we will be visiting India sometime in 2014 for sure.

  8. Dear MonGenie, You mean to say you may purchase by the end of 2014. When are you planning to return back to India?

    Thanks

    Ashal

  9. Yes you will be taxed. How much you will be taxed depends on the interest income and current tax rules (your tax slab)

    If you are going to need the money in the next 1.5 years, higher returns are not going to make any big difference. You can leave them in FDs or invest in ultra-short terms funds for better post-tax returns than FDs

    Liquids funds will also do the job (you can invest a lump-sum in that too). For such short time periods capital preservation and minimum tax outgo are more important than returns.

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