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A lot of people ask me:“I want to buy a car in next 1 year, where can I invest my money for 1 year?”“I want to save Rs 2 lakh for emergency like medical expenses, where can I keep my money?”“I just want the best option to invest my money where I have freedom to take out whenever I want”Well, this is a classic case where every person want to save some money for buying stuff in few months or just want to save some money for emergency purpose like medical expenses, etc.Most of the people put their money in saving account or make an FD.But is it a good option to invest money? Well, No!I understand that stock market and mutual fund are not suitable for short term investment as it involves high risk.But is their any other option? Well, Yes!Have you heard about Liquid Fund?If not, let me just say that liquid funds are a good alternative to FD and saving account in order to park money for short term.Example with calculation:In August 2013, Rohit and Virat wanted to invest some money. Both were looking for investment option from where they can take out money, if required.Rohit decided to go ahead with FD. Virat decided to go ahead with Liquid Fund.Fast Forward in July 2018, Virat earned 12.8% more than Rohit. In absolute terms, Virat had ₹ 81,628 more than Rohit.(If Rohit would have been in 20% tax slab, Virat would have earned ₹ 62,574 more than Rohit.)Let’s see the calculations:Rohit’s ScorecardInvestment Date: 1st August 2013Invested amount: ₹ 5,00,000Withdrawal date: 31st July 2018Return Rate: 6.75% (one of the highest FD rates)Year 1 return: ₹ 5,33,750 (Invested Amount*(1+Return rate))Interest Income: ₹ 33,750 (Year 1 return - Invested Amount)TDS Deduction: ₹ 3,375 (10% of Interest Income)Assuming Rohit is in 30% tax slab: He has to pay extra 20% on interest income: ₹ 6,750 (20% of Interest Income)Rohit has to pay TDS as well as tax every year on interest income.Hence, at the end of 5th year, Rohit received ₹ 6,33,375 after tax.Virat’s ScorecardInvestment Date: 1st August 2013Invested amount: ₹ 5,00,000Withdrawal date: 31st July 2018Return Rate: 8%Compounded Amount: ₹ 7,34,664 (Invested Amount* (1+Return rate)^5)Profit: ₹ 234,664. (Final Amount - Invested Amount)Tax CalculationInflation index in 2013 : 220Inflation index in 2018: 280Index cost: ₹ 6,36,363 ( Invested Amount * (Inflation index in 2018/ Inflation Index in 2013)Capital gain: ₹ 98,301 (Compounded Amount - Index cost)Tax: ₹ 19,660 (20% of Capital gain)Final Profit After Tax: ₹ 2,15,004Final Amount After Tax: ₹ 7,15,004Did you notice the difference?Liquid Fund is taxed at indexation after 5 years. This is not the normal flat tax like FD.Every year, bank deduct TDS over interest income ₹ 10,000 and hence that amount is not used in compounding whereas as Liquid fund had tax deduction only in last year.Interest on FD is fully taxable. Every year, over and above TDS, you need to pay the interest on income from your FD based on your income tax slab.Conclusion: Liquid fund is better than FD and arguably the best option of investment for liquidity.Edit 3: When it come to investment, there is no “One size fit all” strategy. The above explanation is for illustration and help to understand the difference between FD and Liquid fund. Every individual investment differs based on risk appetite and individual goals.Edit 2: Interest income on FD is fully taxable. If interest income is more than ₹ 10,000 then 10% is deducted as TDS by bank. Over an above tax would be paid based on income slab. E.g. If you fall under 30% income slab and interest income is ₹ 50,000 then bank will deduct TDS of ₹ 5,000 and you have to pay the difference of ₹ 10,000 as 30% of ₹ 50,000 is ₹ 15,000. This is repeated every year.Edit 1 :Liquid Fund Risk: Liquid funds put money in assets with short term maturity of up to 91 days. They invest in instruments such as treasury bills, certificate of deposit, etc. They hold very little risk.For example, look at Axis Liquid fund History:Source: moneycontrol

Good question.It is true that with lowering interest rates, the sheen has been taken off from PPF. The government wants to reduce public debt. It has also introduced the new Income Tax regime with revised rates but no deductions. It has been disappointing to people (like me) who have accumulated a fair bit of corpus in PPF. But falling interest rates are part of life. If lending rates have come down, how can anyone pay higher rates for deposits? It will be a losing proposition.But even at 7.1%, PPF still makes a lot of sense.The interest income is guaranteedThe interest income is tax freeThe PPF investment brings tax relief via 80C (to those who continue to remain in the old regime of taxes).If you are in the lower 10% tax bracket, the effective rate is 7.81%. To those in 20% bracket the effective return is 8.52%. To those in the highest bracket (30%), the effective return is 9.23%. I have not even included the education cess in above. Tell me which instrument gives a guaranteed return of 7.81% to 9.23%?

Do you have a Fixed Deposit [FD] or Recurring Deposit with any bank?Is your interest income from the FD less than or around Rs. 3 lakhs per annum? With no other source of major income?Don't forget to claim your free money by filing a simple income tax return.Well, it's not actually free.Bank deducts 10% of your interest as Tax Deducted at Source (TDS).So if your interest income is Rs.100, bank deducts Rs. 10 and credits your account with Rs. 90.Bank submits it directly to the government on your behalf against your PAN no.At the end of the year you can check how much of your TDS is deducted by all the deductees at this site e-Filing Home Page, Income Tax Department, Government of India. Just register with your PAN and download form 26AS.It looks like this:​​Ask your parents, if they are not filing tax returns and if they are having FDs, 10% of their income is left unclaimed.Here's how you can claim refund.You will not be taxed if your income is <Rs. 3,00,000 for the year.File the return yourself (10 steps to file your income tax return online) or through some agent (they will not charge more than your refund).At the end you can claim how much of your TDS is deducted.But, one thing is to be ensured, if your income is more than Rs 3,00,000 then instead of getting refund you will be taxed.This post is just to spread awareness. If you can't file return yourself or if the concepts are sounding extraterrestrial, hire an agent, he will look after the procedural formalities.Most of the times people don't know about this and many among those who know, ignore.