February 1, 2013 9:35 am
I would like to know what would be the best option for tax saving under 80c… Either to open a 5yr FD or go for a HDFC Tax Saver mutual fund. Would love to your suggesions. Thank you.
Dear Sudarshan, the apples should be compared with apples only & not with oranges. Tax saver FDs are pure debt product where as Tax saver MFs are pure Eq. product. On the basis of liquidity i.e. minimum lock in period, tax saver funds are best as 3Y is the time frame but these are associated with a risk of erosion of your capital. In case of Tax saver FDs, the time frame is 5Y & interestingly the interest received by you from these FDs is also taxable.
So please take your pick on the basis of the info provided.
@Vineeth.. I do have a ppf account 🙂 I would like to diversify my investments as well as make sure that I can take the money in certain time frame(you cannot do that with ppf as you have to wait for 15yrs).
The best option for tax saving depends on your goals and when you need the money. If you can take some risk and don’t need the money for at least 3 years (preferably more, much more!) then tax saver mutual funds outperform FDs. If you need the money after 5 years with no risk then go for the FD.
Note that interest income from FD is taxable while tax saver MF is not (as of now).
The point is tax saving should be integrated with goals. The time frame, money required and your risk taking abilities determine which option is the best.
For a five year with very little risk, I will park about 20-30% in tax saver MF and rest in debt mutual funds to reduce the tax out-go and optimize returns.
i think IDBI gives best % interest for tax saver FD..mutual fund is a bit risky as far as i know.( i may be wrong)
what about a PPF ?? in PPF interest is not taxable 🙂
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