require advise on short-term invetment for 3-4month

POSTED BY Digamber Tawde ON December 6, 2010 3:30 pm COMMENTS (6)

hi,

my brother have 1 lakhs and that amount will require i month on march 2011. which MF plan he can choose for short-term invetment without any entry/exit load?

thanks in advance

6 replies on this article “require advise on short-term invetment for 3-4month”

  1. Atul says:

    (1) Go for short term FD perferably 6 months.
    (2) Invest in Monthly Income Plan

  2. Ramesh Mangal says:

    @Harichand
    All three options including the FD are subject to taxation.

    For short term capital gains in debt instruments, the “profit” is taxed at 30%. So if you put in 1000 in FD or liquid/short term/hybrid debt/FoF, and get 1100 (and liquidate completely) in less than 12 months, your tax will stand at 33 [(1100-1000)*30%+cess).

    You can opt for Dividend option of the debt funds (where they are taxed at 12.5% at the hands of the AMC) and zero-tax in the hands of investor. This is not available for FDs.

    For over 1 year period, the debt fund taxation is even better. They start getting advantages of indexation, which is not available for FDs again.

    1. trupti says:

      @ramesh

      do you think year interest on saving account which is 3.5 is a better option instead of putting money in either in liquid fund or short term debt instrument.
      here is my explanation
      if on an avg. short term debt fund gives annual return of 5 %…now if we take 33% tax on it which brings down the return to 3.35% which is lesser than saving account interest (3.5% which is more safer than any debt fund)…

      please guide on this front

      1. Ramesh Mangal says:

        @trupti

        On the taxation account, even your bank interest (whether savings or fixed deposit) is subject to 33%. So that 3.5% becomes 2.3%. Now it is your take.

        If you use the dividend payout option of a short-term fund (which has DDT of 12.5% plus cess), you will only be incurring about 14% tax (5-14%=4.3% in hand) while in liquid fund (DDT of 27%) will give you 3.7%

        Ramesh

  3. harichand says:

    @Ramesh,

    The 2nd and 3rd option involves taxation in the profit right ? I am part of 30% tax bracket, so how much percentage i should get profit so that i can be benefitted even after taxation in these liquid funds ?

  4. Ramesh Mangal says:

    1) Keep it in a short term FD.
    2) Liquid fund like HDFC Cash Management Savings fund (G) – no entry or exit loads.
    3) Short-term fund like HDFC HI short term (exit load for 30 days).

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