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For 30 months should I invest in Liquid fund or debt fund to get a safer return

I need to reconstruct/repair my home after 30 months approx. Tell me where can I invest 10k/15K monthly, to get a decent safe Tax free return, Liquid Fund, Debt Fund? Suggest fund houses also?

May 9, 2016 by Saikat, Mumbai  |   Mutual Fund

If your investment horizon is 30 months then apart from Liquid Funds you may also invest in Arbitrage Funds and Income Funds.

Arbitrage Funds offer the investors to earn short term returns by taking minimal or no risks. The other advantage of Arbitrage Funds compared to liquid or debt funds is related to taxation. Arbitrage funds are equity oriented funds, therefore, short term capital gains (less than 12 months) is taxed at 15%. Whereas, short term capital gains in debt oriented funds, including liquid funds are taxed as per the investor’s applicable income tax rate. For example - if you are in the highest tax bracket and your investment holding period is less than 12 months, then your liquid fund returns will be taxed at 30%, while arbitrage fund returns will be taxed at 15% only.

However, since your investment holding period is 30 months and suppose you are in the highest tax bracket, then your liquid fund returns will be taxed at 30%, while arbitrage fund returns will be totally tax free. The point to be noted here is that if you are investing in Arbitrage funds through SIP mode, therefore, short term and long term calculation will be based on the date of each instalment. That means, on redemption date, if a particular instalment has completed 12 months than only it will be treated as long term otherwise as short term.

Read this to know more about Arbitrage funds - https://goo.gl/k4sFQo

As mentioned above, for a horizon of 30 months you may also invest in Income Funds. The taxation part of the Income Fund or Liquid Fund has already been discussed in the above paragraph. To know more about Income Funds, please read this https://www.advisorkhoj.com/company/SBI-Mutual-Fund/articles/Demystifying-debt-mutual-funds

To check the returns of Income Funds, please click here https://goo.gl/FiIuiR and to check the return of Top Arbitrage Funds, please check here https://goo.gl/dxQyNw

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