All posts tagged: tax

Fixed Deposits Versus Mutual Funds

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In our financial space, we come to a state, where we have sufficient funds, and we wish to invest a chunk of it for future plans and goals.
Two very popularly used media for investment are Fixed deposits and Mutual Funds. We will distinguish between the two after we define them properly.

Fixed Deposits
Here we deposit money in a bank for a specific period of time that ranges from 7 days to 10 years. The amount invested earns an interest based on the tenure of deposition. It can be as high as 9% per annum(varies according to the banks and it’s schemes). After the tenure ends, the money is returned to us topped with the interest earned.

Mutual Funds
Mutual funds can be best described as a place where funds are consolidated by numerous investors. The fund accumulated is invested in one or many asset classes like equity, debt, liquid assets etc.
It carries the tag mutual because all the perils, awards, gains and losses in the invested sum are shared by all the investors in accordance to their contributions.

Difference between Fixed Deposits and Mutual Funds

Rates of Interests:
In case of Fixed deposits, the rate of interests are pre-determined and remain intact during the entire tenure of investment. The rates of interest vary for mutual funds as per the market conditions. In case of an uphill in the market scenario, the benefits of mutual funds surpass those of fixed deposits, as the returns are higher. While a downhill situation in the market renders fixed deposits as the winners in terms of the returns that are offered.

Liquidity:
In case of Fixed deposits, the tenure is fixed, and they offer medium and low liquidity options until you complete the entire tenure of deposit. Mutual Funds offer liquidity to the investors but with certain sets of terms and conditions.
There would be some penalty associated with pre-mature withdrawal of our fixed deposits, hence we would lose a chunk of our expected return. For mutual funds, after the minimum holding period is over the liquidity rate is high. However if we immediately withdraw after we invest that is within a year, then we are liable to pay an exit load cost of 1 percent.

Risk Factor
Fixed deposits are for investors with low risk appetite. However mutual funds are for people with high-risk appetite.

Investment Cost
There are certain costs associated with the mutual funds that we invest in, however fixed deposits do not levy any expense on the investor. The expense incurred depends on the kind of mutual fund that we choose. Liquid funds may have a low expense of up to 1% p.a., debt mutual funds may have anywhere between 0.5% p.a. to 2.25% p.a., and the expense of equity mutual funds may be up to 3% p.a. This expense is adjusted in your returns

Tax Scenario
We would all love to receive more amount of money post the tax returns from our investment
In case of mutual funds, you need not pay any long term capital gain tax on your investment in equity mutual funds However for a short term gain, we need to pay taxes at 15 percent. The gains in long term investment in debt mutual funds are taxed at 20 percent with indexation and 10 percent without indexation. For liquid mutual funds, the tax is as per the tax slab.
Regardless of the tenure in fixed deposits, the interest that is earned in totality is taxable according to the tax slabs.

We have drawn a line of differentiation between Fixed deposits and Mutual funds. Hope this helps you out better with investment plans. Happy investing.

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All posts tagged: tax

Tips to Consider before Lending Money to Friends

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Lending money to friends becomes a difficult choice at times. Money has the tendency to create rifts between closely bonded people. Yet money is a topic that becomes unavoidable.

Lending and borrowing between friends can lead to sequences of debts, debt traps, uninvited apprehension and animosity. Situations where the money is borrowed, and half-returned, partially returned or in the worst case scenario not returned creates an unpleasant situation

However we can create a space of clarity in the money matters between friends if we follow some ground rules. They are listed below.

  • 1. Lending should always be a situational process. You should assess the urgency of the situation. . If a friend asks us to open a credit card in our name for their use or asks us to guarantee their loan, then you should consider its consequences. We should not put ourselves in a situation where some one else’s actions can affect our credit. Their wrong usage can disrupt our credit score, thus lowering our chances of getting loans.
  • 2. Lending should be within limits. Even if it is a friend that we are talking about, we need to still evaluate the amount that we lend. Do not nod in agreement for an amount that can push you in a debt trap.
  • 3. It is also imperative to gain access to the details of where the money would be utilised. Here we are not talking about the trust, of course we trust the people here who borrow. But knowing where the money would be spent will give us a better knowledge of whether it is being put in the right use or now. It will also help us in acknowledging whether the situation deserves a loan or not.
  • 4. Discussing it clearly might seem like an awkward idea to begin with. However having the terms and conditions set in the beginning leads to a smoothly painted financial end. Repayment period, interest rates and the loan amount itself should be discussed in detail to avoid any misconception or a possible rift.
  • 5. Draft an agreement. In case you are lending a large sum of money, having a financial agreement worded in paper is always a good idea. Both the parties know the exact details of when, how and why. This just clears the air and avoids conflicts.
  • 6. Also a great option for them is to borrow through the new-age and financially sound institutions.
    EarlySalary is one such platform that provides instant cash at ease without the hassle and obstacles. So refer EarlySalary to your friend and be a friend in need.
  • Image Source:WikiHow