Short and medium term investment options for 30% tax band

POSTED BY Srinivasan Jambunathan ON January 28, 2013 10:37 am COMMENTS (7)

Dear Forum members,

I seek your opinion and suggestions on investing approx. 5 lakhs for the short/medium time with relatively less tax implications:

1. Could you please advice on some good funds/options for parking funds (approx. 3 lacs) for 6 to 9 months (max). I fall in the 30% tax band. 

2. The balance of 2 lakhs is for a slightly longer duration of 1 to 1.5 yrs, I am planning to put into a debt fund. Kindly advice some good funds for this time frame. 

If you have any better suggestions, kindly let me know.

Thanks,

Srinivasan

 

7 replies on this article “Short and medium term investment options for 30% tax band”

  1. 3sharad says:

    Hi Srinivasan,

    For 6-9 months, Templeton India Low Duration Fund is good. Alternatively, you can opt for:
    1. Canara Robeco Floating rate fund
    2. Birla SL Short Term Opportunities Fund

    For 1-1.5 years, you can consider SBI Dynamic Bond Fund.
    This is a debt fund invested primarily in GSecs and is amongst the best in its category.

    Regards,

    Sharad
    http://www.thefundoo.com
    [Making the right financial choices]

  2. srinivasan j says:

    Dear Ramesh,

    Did you mean April 2014 instead of April 2015.

    Thanks,

    Also appreciate if anybody else has advice, for my scenario.

    1. Ramesh says:

      Yes. Corrected it in the original post. Sorry for the mistake.

  3. srinivasan j says:

    Many thanks Ramesh for your advice.

  4. srinivasan j says:

    Dear Ramesh,

    Could you please correct my understanding on the tax implications for the funds that have been adviced.

    My understanding is:

    1) The fund that has been mentioned for 6 to 9 months will attract a DDT that the AMC will bear. What will be this %? I assume there will be no other tax other than this, that I have to bear.

    2) For the 1 to 1.5 yrs, kindly let me know as to what category of fund is the Templeton Short Term Income Fun. (debt/equity fund?)

    Please let me know. Appreciate any other advice in this regard.

    Thanks,
    Srinivasan

    1. Ramesh says:

      1). For short term (<1 year), you will have to pay a short-term capital gains tax at the marginal rate = 30% for you.
      By adopting a dividend option, the said fund will deduct tax at the rate of 13.5% and pay you the dividend. The dividend in your hand will be Tax-free. So, in total, you will be paying around 13.5% tax (plus some more mathematically in terms of returns, since you are paying that tax more frequently, but you can leave that calculation out since the total time frame is 6-9 months).
      So, no other tax. You just opt for dividend option and enjoy the free dividends.

      2). That fund is a debt fund and if you want it to have the benefit of long term capital gains, then you will need to hold on to it upto the next-to-next financial year (=at least April 1, 2014). In other words, if you buy it today, then if you sell it on or after april 1, 2014 (period of 15 months), then it will be said to be long term capital gains and will get indexation benefits.

      Refer to this:
      http://www.onemint.com/2011/04/11/capital-gains-and-dividend-taxes-on-shares-and-mutual-funds/

      http://www.moneycontrol.com/news/mf-experts/understanding-taxationdebt-mutual-funds_755924.html

  5. Ramesh says:

    For 6-9 months:
    Go for Monthly / Quarterly Dividend option in Templeton India Low Duration Fund.

    For 1-1.5 years-
    Go for growth option Templeton Short Term Income Fund.

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