Let’s do the math- Parking money – INDWealth – Medium

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Parking your money is the act of investing in low risk liquid instruments for a short while, till you decide what you really want to do with your money. You may have recently come into a modest windfall; sold a house or just got that big fat bonus cheque and are still figuring out where to invest next. Why not park those funds for a short time, let your money work for you, instead of sitting idle?

Today, there are a plethora of options available to you besides your savings account or fixed deposit. Liquid funds and arbitrage funds offer similar risk-return and liquidity profiles that would suit the goal of parking money. Let’s crunch the numbers .

Consider an investment of Rs. 10,00,000/- done by an individual at the 30% tax slab. As always we take expenses, exit loads and tax liabilities into account.

Return Comparison for money parked for 1 year
Absolute Return on Rs. 10 Lakhs post tax and expenses

As you can see, leaving your money idle in a bank is, by far, the worst option.

Less than a month

Liquid Funds score highest in ultra short term duration. No Exit loads, one day redemption and attractive yields make this the instrument to choose.

3 Months

Arbitrage funds; funds that take advantages of market inefficiencies to lock in a secured profit, win over the rest. Returns here are taxed at the 15% capital gains rate, giving the investor a significant bump in return .

1 Year

Arbitrage funds take the cake again- lower taxation structures and higher return especially in volatile markets help generate alpha over traditional investment instruments.

In Conclusion

So why would you want to leave your money in a savings account or in a fixed deposit? Broaden your investment decisions by looking past the conventional instruments.

Be smart with your choices. Considering your tax slab and costs associated, find the avenue that gives you the most bang for your buck.

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