I have a sizeable surplus money in my savings bank account. Can you suggest me an avenue where I can park the money? It should assure liquidity and capital protection, with low or no tax liability?
- Amitabh Mishra
You haven't mentioned why or how long you want to keep a large sum in a liquid and safe avenue like a bank deposit, so we can only offer you a general advice. First, it is not a great idea to keep a large surplus in a bank deposit or similar avenues unless you need the money immediately. This is because such safe avenues would hardly give you anything above the actual inflation rate. This means your money will lose its value over a period of time. Two, they also may not be very tax efficient.
That is why it is important to invest the money you don't need for immediate use. You should pick an investment avenue that would match your investment horizon and risk profile. If you have an investment horizon of less than three years, you should opt for debt investments. You should pick up stocks if you have an investment horizon of five years or more and have the capacity to take risk.
Now, coming back to your query, you are unlikely to find an investment avenue that would match the liquidity and safety of bank deposits. So, if you want the highest liquidity and safety, you would be forced to keep the money in a bank deposit and suffer the consequences mentioned above. If you are ready to take a little extra risk, you can consider parking the money in a liquid scheme. Liquid schemes are not very risky, you can withdraw money in day, and they may give you a slightly better market-linked returns. If you have a slightly higher investment horizon of up to a year, you can consider investing the money in ultra short-term bond funds.
This article was originally published on October 28, 2015.
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