Should you still invest in a fixed deposit?

There is nothing called as investing in a fixed deposit, because those who keep their money in a fixed deposit are not investing it, they are merely parking it. And to park money, Liquid Debt Mutual Funds are much better than Fixed Deposits.

Here are some comparisons between fixed deposits and Liquid Debt Mutual Funds:

1. You cannot withdraw money in a fixed deposit without severe penalties. A Mutual Fund allows you to invest and withdraw at any time without penalties.

2. A fixed deposit return is guaranteed. A Liquid Debt Mutual fund gives you better returns almost all the time, though returns are not guaranteed. There is no TDS on a Liquid Mutual Fund.

3. A Fixed deposit is taxed at your income tax rate. A Liquid Debt Mutual fund is taxed at the same rate, but the tax reduces after three years of holding.

4. In a fixed deposit you are taxed on ALL the money you invest. In a Liquid Debt Mutual Fund you are taxed only on the part you withdraw at any given time.

So would you like to:

1. Pay more taxes,

2. Lock your money,

3. Pay penalties on withdrawing your own money, and

4. Get less interest?

If you do, Fixed deposits are for you. If, on the other hand, you want to make your money work harder, Liquid Debt Mutual Funds are a better option. You can know more here: click here

Write to us to invest better.

Where can I invest for 2-3 years in a Mutual fund?

For a duration of 2 -3 years you can get returns of approximately 8% to 9% through debt/liquid funds as of 2015. These funds are quite safe and deliver returns slightly above FDs. These funds are

taxable. Any interest you earn will be taxed as part of your income.

You can also look to invest in Fixed Maturity Plans, which give higher returns, but these are illiquid. You will not be able to take out your money before maturity.

You can look to invest in Arbitrage Mutual Funds. There give returns similar to Liquid Debt Funds, but the returns in an Equity Mutual Fund are tax free after one year of holding. Even for sales within a year, returns are taxed at approximately 15%.

If you want to run greater risks for higher returns, then you can try Balanced Funds. These could give you-20% to +50% in two years and will be tax free if you hold for more than 1 year.

To make  good choice you need to understand fund objectives, category, house, manager, holdings, yields, expenses, and history among other things. Knowing exactly which funds to pick, and for how long to keep with it requires deep understanding. We are happy to help you with that if you invest through us at SphereGreen.

What is an Arbitrage Mutual Fund?

An arbitrage mutual fund is a very specialized Equity Fund that makes money by exploiting tiny differences in the prices of shares in different exchanges or the differences in prices between shares and their derivatives.

These funds are not very risky provided they are managed professionally under a good risk management system and they adhere to rules. Which is why it is critical to be invested with a good fund house in these funds. Overall returns are around the rate of an FD, but, and this is what makes arbitrage funds attractive, capital gains on these funds are tax free after a year of holding. On the other hand, taxes on debt funds comparable to arbitrage funds reduce only after three years of holding to 20% with indexation, and gains from FDs are usually added to your income.

The best use of an arbitrage fund is to park large sums of money for the short term. You can write to us to invest at SphereGreen.Investments@gmail.com, or you can contact us through this blog, or simply call us to invest.

Are there any secure Mutual Funds?

Most certainly.

Debt funds are safer than Equity funds, and the safest Mutual fund would be a Liquid Debt Fund. Other debt funds such as Government Bond Funds, Income funds can be risky because they are extremely sensitive to changes in interest rates.

A Liquid Debt Fund is a great place to park money:

1. It provides slightly above the 6 month Bank Fixed Deposit Rate of return

2. You can invest or withdraw money at any time

3. After three years of holding taxation is very low

4. Interest is NOT taxed until you withdraw

5. Tax is charged only on the money withdrawn

6. There are certain specialized Equity Mutual Funds that give returns similar to a Liquid Fund called the Arbitrage Funds, but these are much more complex.

So a Liquid fund is quite safe, but there are no guaranteed returns in ANY mutual funds.

And then safety is a relative concept. With a Liquid fund you can be around 90% certain of positive returns above an FD rate in a year. So it is safe only for a short duration.

Over a period of ten years, the Liquid fund is very dangerous because you can lose a lot of money due to low returns. If you had put in Rs. 100 in a Liquid fund 10 years ago, you would have about Rs. 200 now. If you had put money ten years ago in some of the 'risky funds', such as diversified equity, the money would have grown to Rs. 900 by now. This is how you can lose Rs. 700 in trying to protect Rs. 100.