Why you Should Shift your Money from Fixed Deposits to Debt Funds.

Fixed deposits have always been regarded as a safe financial instrument by people since they ensure security, provide fixed returns and are comparatively risk-free. However, if one looks at the current tax slabs, fixed deposits may not be as profitable considering the amount of tax incurred on them. Hence, financial experts strongly recommend parking your money in debt funds instead which are essentially a mix of corporate bonds, treasury bills, mutual funds, government securities etc. Here’s why you should give investing in debt funds a serious thought:

1. No worry about capital safety

If you compare credit ratings of fixed deposits and debt funds, you’ll observe that there’s not much difference in the rankings. These are released by independent rating firms which include CRISIL, CARE, ICRA etc. While fixed deposits have a rating of AAA signifying very high capital safety, debt funds have a score of AA implying high degree of money security.

2. Debt funds guarantee superior post-tax returns

Income received from fixed deposits is termed as interest whereas revenue earned from debt funds is called as dividend. Both of them are categorised differently in terms of taxation. For fixed deposits, tax liability is based on the individual’s present tax slab regardless of the duration of the FD.

Debt funds on the other hand attract virtually zero taxation if held for more than 3 years. For the first year, tax liability for both the instruments is the same. But for fixed deposit investors, taxes need to be paid on interest accumulated every year. Therefore, debt funds are more tax-friendly as opposed to FDs. Moreover, individuals who have investment goals for 3 years or more must certainly opt for debt funds and take advantage of the taxation benefit.

3. Debt funds offer higher liquidity and easy withdrawal

Fixed deposits have a set duration and usually offer low liquidity until the deposit period ends. Most debt funds have high liquidity if the minimum holding time has elapsed and conditional on lock-in period as stated. Although some banks let individuals break the FD in part, many of them will ask you to withdraw the entire amount in addition to paying a penalty.

When it comes to debt funds, individuals can enjoy complete liquidity for their investments. Any amount of funds can be withdrawn at any point of time from the total debt fund value. A small sum in the form of exit load might be levied if money is taken out in less than a year.

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Top 4 Reasons You Should Start Investing Right Now

                         

Individuals who have just started working spend their entire salary on parties, entertainment, holidays and designer merchandise etc. They seldom save and in case of an emergency or illness borrow money from friends or relatives. Such habits can certainly spell disaster in future and the best way to change it is to start investing. We list the top reasons how investments can transform you for good:

Makes you aware of financial goals:
Different people have varied goals depending on their personal requirements. These aims can’t be attained by simply snapping your fingers. Once you start investing, your monetary goals start taking form and you know exactly how to realize them with the right financial vehicles.

Inculcate discipline:
A vital aspect which the practice of investing teaches every person is discipline. For example, if you have started a systematic investment plan (SIP) on a monthly basis, you know that you have to keep aside a certain amount of money every month. Such financial plans ensure that you don’t use the money anywhere else and thereby develop effective self-control.

Provide a road-map to realize your goals:
Let’s say you have just started working and aim to buy a car in the next 4 years. The car is priced at 3 lakhs and your current monthly income is Rs.20,000 out of which you save Rs.5000. Merely keeping the money aside won’t help you achieve your goal of buying a car. Investments are ideal tools which help you determine the best way to attain your financial objectives and how to go about doing it.

Taking the example of an SIP, if you invest these savings in a mutual fund plan at 12% rate of return for the next 4 years, you will get approximately Rs.3,10,000 at the end of the term thereby making your car dream come true.

Hinders you from splurging:
When you start investing, you will forego buying an expensive pair of leather boots for Rs.15,000 and invest the same money in buying shares which will reap rich returns in the long-term. You make optimum use of your money and avoid spending too much or purchasing things you don’t really need.

Investing is a process which should begin the day you start earning. Don’t wait till you accumulate a large amount of money. You can even begin with small amounts and watch them prosper. Saving is no doubt imperative but it is the habit of investments which has the potential to transform your hard-earned savings into lucrative financial assets for life.

Happy Investing !!