Regular sip from liquid fund

POSTED BY kramasundar ON June 4, 2012 10:16 pm COMMENTS (6)

Hi,
Let us consider one is investing XX,000 per month in MFs through sip. Instead of leaving the money in SB account (every month), can one park the money in a liquid fund and do STP from there?
I know that we can do that for _lumpsum_, but is it possible to do the same with regular (monthly) investement as well?
This is to get higher (say 8-9%) return instead of mere 4% from SB account.
Any thoughts?

6 replies on this article “Regular sip from liquid fund”

  1. Dear Ram, please read my another reply given to you fgor the investments to be done under your wife’s name. If you are still in doubt, please come back here & I ‘ll try to clear your doubts.

    Thanks

    Ashal

  2. kramasundar says:

    Ashal and Banyan,

    thanks for your replies.

    I am an NRI.

    1. How is the dividend taxed for NRIs?

    2. Should i go for dividend payout or reinvestment?

    3. Payout means credited to SB account or just it lies in the Liquid fund account? (sorry for this question. I am zero in debt funds 😉 )

    ps: I will have no other income in India other than this dividend.

    Thanks,
    Ram

    1. Dear Kramasunder, Even if you are a NRI, the DDT ‘ll remain same as it is for RIs.

      If you opt to Dividend pay out, the same ‘ll be credited to your bank account. If you opt to reinvest the same, the dividend amount ‘ll be used to purchase more Units of the same fund & thus increaseing your over all units.

      As you said, you do not have any other income in India, in my opinion, Growth option is better for you as the STCG ‘ll remain tax free within the over all limit of 2L Rs. of the zero tax slab. Where as in case of Dividend option, you w’d have to pay DDT in any case.

      Thanks

      Ashal

      1. kramasundar says:

        Hi Ashal,

        thanks for your time and efforts.

        So,

        1. No redemption from Liquid Fund just STP
        SB_Acc -> LiqFund -> STP -> EqFund
        1.1 NRI: _NO_ tax and _NO_ TDS
        1.2 RI: _NO_ tax and _NO_ TDS

        2. SB_Acc -> LiqFund -> Redumption
        2.1 NRI:
        2.1.1 Growth option SCGT: 30% TDS
        2.1.2 Growth option LCGT: ??
        2.1.3 Divide option SCGT: 13.5% TDS
        2.1.4 Divide option LCGT: ??

        2.2 RI
        2.2.1 Growth option SCGT: xx but _NO_ TDS
        2.2.2 Growth option LCGT: xx but _NO_ TDS
        2.2.3 Divide option SCGT: xx but _NO_ TDS
        2.2.4 Divide option LCGT: xx but _NO_ TDS

        In case of 2.2 it is upto the investor to pay the tax. In case if the total income is less than 1,00,000 then we don’t need to pay any tax?

        Please comment Ashal.

        Thanks,
        Ram

  3. BanyanFA says:

    Sounds perfect ! Go for it.

    You may want to consider different payout option of the liquid fund (depending upon your tax bracket). For example, if you are in 30% bracket, go for daily / weekly dividend re-investment option for HDFC Cash Management – Treasury Advantage Plan. This would result in reducing the taxability from 30% on your Capital Gain on Liquid Fund to just below 15% via DDT on Dividend.

    Regards
    BanyanFA

  4. Dear Kramasunder, yes you can do this Liquid – STP – Eq. thing even for your regular SIP amount meant for direct Eq. investing.

    Thanks

    Ashal

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