Article | Sip - Sep 01, 2016 | 10:28 AM
As a young working professional, chances are you already have a savings account, and if you’ve switched jobs, you probably have much more. According to the RBI report in 2015, a colossal amount of money to the tune of Rs.26 trillion were lying in saving deposits. With an expanding salaried class, the number will only go up further.
One of the major advantages of a savings account is liquidity. People usually keep money in their savings account because it allows them to withdraw amounts at any time. Also, they receive interest on the deposit between 4-6% per annum depending on the bank which is slightly better than keeping it under the mattress.
Therein lies the problem. With the consumer price index at 5.77% in June 2016, your money has not grown, at best it has been on par. At worst, the value of your hard earned buck has lost its sheen.
You require a savings plan with decent interest rates to beat inflation and also liquidity so that in the event of unplanned expenses you do have the option of withdrawing your money. A scheme where you can get daily or weekly dividends which can ideally be reinvested to get higher returns. These can be explored in an open ended scheme with investments in debt funds and money market instruments which have a relatively lower risk.
For those who neither have the time nor the expertise to deal with the myriad of Mutual Fund schemes, Birla Sun Life Cash Manager (An Open-ended Income Scheme) could be a smart option with a minimum initial subscription amount of Rs.₹1000 and has zero entry or exit load. The scheme invests in low-risk Debt Market Securities and Money Market Securities. Now, debt schemes which are held long-term (more than three years) are taxed at around 20% with indexation. If you withdraw your investment within three years, you will be taxed according to the tax slab you fall under. But there is another option. Birla Sun Life Cash Manager allows you to opt for daily or weekly dividends. These dividends are exempt from tax in the hands of the investors.
In India, many people opt for fixed deposits instead, which can be attractive with solid interest rates at 7-7.5% and zero risks. Why zero risk? Because all fixed deposits up to 1 lakh rupees are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI. And if the central bank is unable to secure this, then you have bigger things to worry about.
However, as the name suggests fixed deposits have a fixed tenure and aren’t liquid enough. Sure you can withdraw the amount before term, but prematurely withdrawing your money could lead to lower interest rate and in some cases a penalty. Not to mention you are taxed on the returns which can be high for those falling in the 20% and above tax bracket. However, Fixed Deposits give guaranteed rate of return.
While Birla Sun Life Cash Manager has many attractive features, the most striking is liquidity. Withdrawing your investment from a typical mutual fund scheme usually, takes 4-5 days. With Birla Sun Life Cash Manager, an ultra short-term income scheme, it takes just one working day without any exit load.
Whether you are planning for a particular financial goal or looking to build wealth, the maxim is to live by is to “grow your money”.
Note-: Past Performance may or may not be sustained in future. The comparison of Birla Sun Life Cash Manager Vs other traditional savings instruments has been given for the purpose of the general information only. Investment in schemes of mutual fund carry higher risk, does not guarantee any returns and any investment decision needs to be taken only after consulting the Tax Consultant or Financial Advisor. Birla Sun Life Mutual Fund / Birla Sun Life Asset Management Company Limited will not accept any liability/responsibility/loss incurred on any investment decision taken on the basis of this information. In view of individual nature of tax consequences, each investor is advised to consult his/ her own professional tax advisor.
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