Bank FD vs Mutual funds

Post Demonetization (abolition of rs 500 and rs 1000 currency notes) Individuals rush to banks to exchange and deposit their old currency notes. As per RBI figures, banks have received deposits worth Rs 4.08 lakh crore .Banks have enough deposits, but they lack investment options to utilize the funds to generate returns. Banks have reduced their FD rates after facing the cash flood.

Demonetization move has left all kinds of savers confused. Stock markets are taking corrections; Investment in Mutual Funds should be best option. People with savings accounts can make intelligent use of money by investing in debt funds. It will help them earn better returns than what a savings bank account offer.

Going by AMFI figures, the Indian mutual fund industry is growing with total assets touching Rs 17 lakh crore in October 2016. Debt-oriented schemes comprise 45.4 per cent of industry assets, up from 44.1 per cent in October last year.

Those currently invested in debt funds are advised to remain invested and people with ample idle money should also concentrate on investing their surplus funds.

Do not invest haphazardly. Your investment decision should be based on your goals. You should always have some cash with you for contingencies, but as cash in paper currency has become a mess, you can keep funds for your emergency in liquid funds.

As far as taxation is concerned, many tax free bonds which are offered till last year have interest year rates are more than 7.5%. However, these are being traded at some premiums now. As we expect bank FD interests to fall in coming quarters to below 5%, one can invest in tax free bonds which are trading in stock market now. In future, banks offer 5% interest rates, but you would still get 7.5% tax free returns. Tax free bonds are one of the safest investment plans to get high tax free returns. You could hire or take the services of a financial planner before investing. 

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