I have a saving of about Rs 1 crore in short-term bank deposits and I'm planning to shift them to ultra-short duration debt funds for favourable taxation. I further plan to opt for the dividend option and invest that dividend through SIP in an equity fund. Would it be safe to do so?
- Vidhya
Selection of an ultra-short duration fund is a good one but investing in a dividend plan may not be a good idea because dividends do not provide any additional advantage. This is because the dividend distribution tax makes it comparable to almost the highest tax bracket.
I would suggest you to go for a growth plan instead and move only the gain component of your investments. Reinvesting the growth of your fund into an equity fund every month effectively amounts to designing a capital protection fund for yourself. This will not just help you to move your gains for growth but also help in retaining your capital constant. If you're in the highest tax bracket this will keep your transaction simple.
This article was originally published on March 14, 2019.
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