You work hard to earn money and then let it sit idle in your Savings Account. Did you know that your money can work hard for you too? Read on to find out more.
The happiest day in any month is the payday. If not for all, this is true at least for most of us. And, it should be because we work hard to earn our bread. Strangely, though, many of us don’t have the time to put that money to ‘good use’ by investing it. We just let it sit idle in our Savings Account where it earns interest at a nominal rate of 4% per year. Consider this: Rs. 5,000 in your Savings Account will earn you Rs. 50 every quarter. Whereas, if you invest this sum in better options, you can earn much more. Want to know how? Read on.
Life for a Fixed Deposit holder is not what it was 10 years ago. Now you can auto sweep your Savings Account money into a Fixed Deposit. This is done based on the limits you set. For example, if you don’t want more than Rs. 15,000 in your Savings Account, you can opt for that as the auto sweep limit. Any amount above Rs. 15,000 lying idle in your Savings Account will be swept into a Fixed Deposit. You can choose to withdraw the amount anytime using the sweep out facility. There will be a withdrawal penalty, of course, but you have the freedom to take out your money anytime.
Additional Reading: Top 5 Recurring Deposits of 2019
Now, investing Rs. 5,000 in a Fixed Deposit for a year will earn you interest at 7%. That will come to Rs. 90 every quarter or Rs. 359 for a year. Sounds better than Savings Account returns, right? You can even choose the monthly payout option for your Fixed Deposit to get monthly income. Now, how good is that? Want even better returns? Here’s help.
Scared of Mutual Funds? Don’t be. They are well regulated financial products that can provide you with reasonable returns in the short as well as the long term if you choose the right funds. Did you know that the number of Mutual Fund investors in India has been increasing significantly year-on-year? Want proof? According to the Association of Mutual Funds in India (AMFI), the number of Mutual Fund folios went up to a record 8.24 crore in March 2019, up from 7.13 crores in 2018. Close to 1.1 crore folios have been added in Financial Year 2018-19. What about Mutual Fund returns? Let’s consider the returns of debt funds like Liquid Funds that are great for short term investment. Don’t know Liquid Funds? These are Mutual Funds that invest in fixed income instruments such as bonds and Government securities.
Additional Reading: Liquid Funds Or Savings Account – The Liquid Funds Perspective
The top 5 Liquid Funds have returned 7.2% on an average in the past year, which is higher than Fixed Deposit rates.
Now, let’s compare and find out what returns you are set to receive when you invest in all these avenues.
|Amount Invested||Time period||Savings Account||Fixed Deposit||Liquid Funds|
|Rs. 1,000||1 Year||Rs. 1,040||Rs. 1,072||Rs. 1,074|
|Rs. 10,000||1 Year||Rs. 10,400||Rs. 10,719||Rs. 10,744|
|Rs. 1,00,000||1 Year||Rs. 1,04,000||Rs. 1,07,185||Rs. 1,07,442|
Don’t conclude anything yet. Things work out even better in the long run.
You can invest in Equity Mutual Funds for the long term. These are funds that invest in stocks. If you choose the right funds, you can get great returns over the long term. Consider this: The top 5 Equity Funds have returned as much as 33% on an average in the last 5 years. What’s more? All those returns will be tax-free. This is because long term capital gains from Equity Mutual Funds are tax-free if the gains are lesser than Rs. 1 lakh. When will your capital gains be considered long term? If you hold on to your Equity Mutual Funds for a year. If you sell your funds after one year, you will incur long term capital gains and will not have to pay taxes. Isn’t that great?
Interest from a Fixed Deposit is taxed as per your tax slab and Savings Account interest is taxed if it exceeds Rs. 10,000 in a year. That’s exactly why you should look at Mutual Funds.
Additional Reading: Can Equity Mutual Funds Help You Retire Rich?
Here’s what the numbers say.
|Amount Invested||Time period||Savings Account||Fixed Deposit||Equity Funds|
|Before Tax||Rs. 1,000||5 Years||Rs. 1200||Rs. 1,450||Rs. 1,791|
|After Tax||Rs. 1,167||Rs. 1,301||Rs. 1,791|
|Before Tax||Rs. 10,000||5 Years||Rs. 12,000||Rs. 14,499||Rs. 17,908|
|After Tax||Rs. 11,670||Rs. 13,014||Rs. 17,908|
|Before Tax||Rs. 1,00,000||5 Years||Rs. 1,20,000||Rs. 144994||Rs. 1,79,085|
|After Tax||Rs. 1,16,700||Rs. 1,30,145||Rs. 1,79,085|
Now, you know why your money shouldn’t be in the Savings Account, right? Then, it’s time to check out some Mutual Fund options. You can invest as little as Rs. 1,000 a month in Mutual Funds using the Systematic Investment Plan (SIP) mode. Choose the right funds for good returns.