r/IndiaInvestments
RedditDiscordGitHubDisclaimers
  • Introduction
  • Disclaimers and Disclosures
  • FAQs
    • FAQs
    • Mutual Funds and ETFs
      • What is the best mutual fund app for investments?
      • Why should I invest in Direct Plans instead of Regular Plans?
      • What’s the best mutual fund I can invest in?
      • Which date(s) is/are best for SIP in a month?
      • I’ve to invest in ELSS for 80C tax saving. Which fund(s) should I pick?
      • Should I get a Demat Account to buy units in Mutual Funds?
      • Lumpsum investment vs SIP/DCA
      • Why are Index Funds in India not as cheap as Vanguard's Index Funds and ETFs?
    • Insurance
      • Should I invest in this LIC policy?
      • Opinions on investing in smart wealth plan by bank?
      • Up to what age should I take term cover?
      • Do I need my own health insurance? Employer already has group policy
      • Should I take top-up policy or super top-up?
      • Is it worth paying extra premium for term insurance?
    • Stocks
      • Should I invest in smallcase?
      • What is the best app for buying or trading stocks?
      • Which screener(s) should I use?
      • The Stock Market Has Crashed. Which Stocks Should I Buy?
    • Foreign Investing
      • Why should I invest in the US markets?
      • How should I invest in US equity?
    • Tax
      • I don't have any tax to pay. Do I still have to file ITR?
    • Miscellaneous
      • Where can I park money for a few days, a few months, or a few years?
      • What are chit funds? Should I invest?
      • Is Gold a good investment now? It has gone up ~50% this year
  • How To
    • How To
    • How to transfer shares from one demat account to another
    • How to move from one mutual fund platform to another
    • How to switch a Mutual Fund from Regular to Direct Plan
    • How to file SEBI SCORES complaint?
    • How to Update Nominee Details?
    • How to rematerialize mutual fund from demat form
    • How to Pay Advance Tax
  • STOCKS
    • Introduction to the Stocks Series
    • Can You Beat the Market?
    • Reading an Annual Report
    • Researching a Sector
    • Financial Metrics and Ratios
      • Profitability
    • Using Screeners
    • Due-Diligence Checklist
    • Work in Progress
      • Diving Deeper into Businesses
      • Efficiency
      • Liquidity and Solvency
  • EXCEL
    • Excel for Fun and Profit
    • Reactive UI & Updates
    • Using External Data : Google Finance
    • Using External Data : Working with CSV Format
      • CSV Format
      • Computing LTCG Eligible Equity Units
      • Process for Estimating Tax
    • Quantifying Returns: CAGR and XIRR
      • CAGR: Point-to-Point Annualized Returns
      • A Gentle Introduction to XIRR
      • A Rigorous Introduction to XIRR
  • BONDS
    • Bond Basics
    • Government Securities
    • Corporate Bonds
  • MISCELLANEOUS
    • Miscellaneous
    • US Investing
    • Recommended Reading
  • New to Investing
    • Zero to Investing
      • Getting Started
      • Part Two - Defensive Setup
      • Part Three - Spending Pattern
      • Part Four - How to Invest
    • Investment Philosophy and Strategy
      • Basics of Investment Strategy Plan
      • A simple Financial Planning Roadmap
      • Various types of Risks in Investments
      • Are you a Stock or Bond?
      • Assets and Asset Allocation
      • Critical Mass
      • Asset Rebalancing
      • Lumpsum or SIP/STP
    • Insurance
      • Life
        • Life Insurance: What it is exactly?
        • How to Evaluate Life Insurance Needs
        • ULIP - Unit Linked Insurance Plan
        • Some FAQs on Life Insurance
        • Links to Answers related to Life Insurance
      • Health
      • Others: Disability / Home
      • Child Plan
    • All About Mutual Funds
      • What is a Mutual Fund?
      • Types of Mutual Funds
      • What and Why of Mutual Fund Ratings
      • How to Select a Mutual Fund
      • FAQs for Mutual Funds
      • SIP and Mandates
      • How to Become Crorepati using Mutual Funds
      • Analysis using long term equity and debt funds in India
    • Retirement
      • Primer on Retirement Planning
      • Why You should not Opt for a Readymade Pension Plan
      • Studies of Long Term Portfolios and Retirement Withdrawal Rate Suggestions
      • Do-It-Yourself Retirement Plan
    • Personal Finance
    • Behavioral Biases
    • ELI5 Series
      • Time Value of Money
      • Inflation
      • Life Insurance
      • ELI5 guide to Selecting an Equity Mutual Fund
      • How do I start investing in mutual funds [ELI5 series]
      • Mis-selling of Insurance Products
  • BEGINNER'S GUIDE TO INVESTING
    • Zero To Investing
      • The First Step - Emergency Fund
      • The Final Step - Mutual Funds
  • Contributors Section
    • How Can I Start Contributing?
    • What is a Contributor License Agreement and why are we using it?
      • Contributor License Agreement
    • How to link FAQ via bot in Discord
    • Style Guides
      • General Style Guide
      • FAQ Style Guide
      • How To Style Guide
      • Excel Series Style Guide
      • Stocks Style Guide
  • Discord and Reddit
    • How to Search the Wiki From Discord
    • I'm unable to send messages to stocks-fundamentals channel on Discord. Why?
Powered by GitBook
On this page
  • Bank Savings Account
  • Bank Fixed Deposits
  • Debt Mutual Funds
  • Arbitrage Mutual Funds
  • DO NOT park money in these instruments

Was this helpful?

Export as PDF
  1. FAQs
  2. Miscellaneous

Where can I park money for a few days, a few months, or a few years?

For shorter durations, few days to few months; Overnight funds / Liquid funds / Money Market funds are alright. High Yield Savings Account (HYSA) are ok. If large amount, consider registered advisor.

PreviousMiscellaneousNextWhat are chit funds? Should I invest?

Last updated 1 year ago

Was this helpful?

First of all, it should be clear what you mean when you say "park money". You intend to keep some money safe somewhere for a requirement that's going to come up in the near future (somewhere between a few days to 1-3 years down the line).

Bank Savings Account

Let's start with the absolute basic thing you can do. Nothing. If you want to park money for a few days or a few months, you can keep it in your savings bank account which, as of Jan 2021, would yield anywhere from 2.7%2.7\%2.7% to 3.5%3.5\%3.5% in too big to fail banks like SBI, HDFC, and ICICI. Axis Bank and Kotak Mahindra Bank are offering upto 4%4\%4%.

You can also park your money in a high yield savings account, if available. Banks may offer abnormally high interest rates for many reasons. For example, ( | ) during Jan 2021. This was at a time when big banks like SBI were offering 2.75%2.75\%2.75% on their saving account. In this case, IDFC First Bank wanted to improve its Current Account Savings Account (CASA) ratio. As their CASA ratio improved, they decreased their interest rates accordingly. For more details, check out () from IDFC First Bank.

As a thumb rule, avoid co-operative banks and small finance banks. Although DICGC insures your deposits in a bank account up to ₹5 lakh, it's better not to rely on it and take unnecessary risks.

Check out the links mentioned below if you want to know how to evaluate the health and safety of banks in India.

  • ( | | )

  • ( | | )

You can get a deduction of ₹10,000₹10,000₹10,000 on earnings generated from interest in savings bank accounts under Section 80TTA. Senior citizens get a deduction of ₹50,000₹50,000₹50,000 under Section 80TTB and this includes interest earned from savings bank accounts as well as bank fixed deposits.

Bank Fixed Deposits

The second natural choice for most people should be bank fixed deposits which have reasonable liquidity and safety for parking money. As of January 2021, most big banks are offering anywhere between 4.9%4.9\%4.9% to 5.5%5.5\%5.5% interest rates on FDs. However, unlike bank accounts which are tax-exempt if the interest amount is less than ₹10,000₹10,000₹10,000, all interest income from a fixed deposit is taxable. The bank will auto deduct TDS @ 10%10\%10% if your interest income from FDs exceed ₹40,000₹40,000₹40,000. You’ll have to pay any additional taxes later if you fall under income tax slabs higher than 10%10\%10%.

Debt Mutual Funds

You can also park your money in certain debt mutual funds. This includes overnight funds and liquid funds for parking money for a few months and money market funds for a few years. However, note that unlike savings account and fixed deposits, debt mutual funds are marked to market which means that you should expect some volatility in day to day NAV. This volatility is mostly negligible in overnight and liquid funds, but we have seen events like the Covid-19 crash in March 2020, when even liquid funds experienced a few days of relatively high volatility.

Here are the NAV graphs of HDFC Liquid fund, the biggest liquid fund in India in terms of AUM, and Parag Parikh Liquid fund, during the covid crisis.

That being said, investments in debt funds don’t incur TDS or taxes until you redeem money from them. Many liquid funds also offer instant redemption up to ₹50,000₹50,000₹50,000 at any time of the day although the reliability of the instant redemption depends on the AMC website.

Indexation benefits and taxation

Prior to the 2023 Budget, debt funds used to enjoy indexation benefits when it comes to taxation if they were held for 3 years or more. This is no longer the case for debt fund investments made on or after 1st April, 2023.

The below example showcases indexation benefits applicable if you had invested in a debt fund prior to 31st March, 2023.

As an example, let's consider ₹1₹1₹1 lakh parked for 1 year in a bank account, a fixed deposit, and a liquid fund. The interest earned and the actual interest earned after taxes, assuming 30%30\%30% tax slab, are mentioned as follows:

Since the interest earned from Savings Account is less than ₹10,000₹10,000₹10,000, this is tax free income. FD and Debt Mutual Funds are taxed at the applicable tax slab.

Let's see what happens when we park ₹1₹1₹1 lakh for 3 years. This is where indexation benefits come into the picture in debt mutual funds.

(₹1,00,000×301280)=₹1,07,500(₹1,00,000\times\displaystyle\frac{301}{280})=₹1,07,500(₹1,00,000×280301​)=₹1,07,500

The indexed gains are ₹12,162−₹7,500=₹4,662₹12,162-₹7,500=₹4,662₹12,162−₹7,500=₹4,662 and this is taxed at 20%20\%20%. The taxes payable are ₹4,662×20%=₹932₹4,662\times20\%=₹932₹4,662×20%=₹932. This gives us our actual realized gains of ₹12,162−₹932=₹11,230₹12,162-₹932=₹11,230₹12,162−₹932=₹11,230.

Arbitrage Mutual Funds

At the end of the day, when it comes to parking money in arbitrage funds, buyer beware.

DO NOT park money in these instruments

Now that we've covered where you can park your money, we'll list some instruments where you probably shouldn't park money for planned redemption in the near future.

  • any debt mutual fund with somewhat significant interest rate or credit risk This includes credit risk funds, dynamic bond funds, gilt funds, banking & PSU funds, ultra short, short, low, medium, and long duration funds, and corporate debt funds.

  • hybrid mutual funds

  • index funds like UTI Nifty index fund

  • any other sort of equity mutual fund

  • stocks

Savings Account []

Fixed Deposit []

Liquid Fund []

Savings Account []

Fixed Deposit []

Money Market Fund []

We've considered the , which are 280 and 301, respectively. The indexed cost of investment, at the time of redemption in FY21, becomes

Last, but not least, there are arbitrage funds. These debt MFs are taxed like equity MFs so you don’t have to pay any taxes if you park your money for more than a year and your gains during redemption don’t exceed ₹1 lakh. This might sound good on paper but arbitrage funds are significantly more volatile than liquid funds and don’t offer instant redemptions either. The returns from arbitrage funds also depend on the availability of arbitrage opportunities and this has started to come into question. For more details, check out this ( | ).

2.7%2.7\%2.7%
5%5\%5%
3.3%3.3\%3.3%
₹2,700₹2,700₹2,700
₹5,095₹5,095₹5,095
₹3,300₹3,300₹3,300
₹2,700₹2,700₹2,700
₹5,095×(1−30%)=₹3,566₹5,095\times(1-30\%)=₹3,566₹5,095×(1−30%)=₹3,566
₹3,300×(1−30%)=₹2,310₹3,300\times(1-30\%)=₹2,310₹3,300×(1−30%)=₹2,310
2.7%2.7\%2.7%
5.3%5.3\%5.3%
3.9%3.9\%3.9%
₹8,320₹8,320₹8,320
₹17,111₹17,111₹17,111
₹12,162₹12,162₹12,162
₹8,320₹8,320₹8,320
₹17,111×(1−30%)=₹11,977₹17,111\times(1-30\%)=₹11,977₹17,111×(1−30%)=₹11,977
₹11,230₹11,230₹11,230
Cost of Inflation Index (CII) values between FY19 and FY21
article
archive.org link
archive.is link
IDFC First Bank was offering upto 7%7\%7% interest rate
archive.org link
archive.is link
page 42 of the Q3 FY21 investor presentation
archive.org link
How to see if a bank is risky for placing your deposits? [A guide from a banker]
old reddit link
archive.org link
archive.is link
Indian [private] Banks - Health scorecard
old reddit link
archive.org link
archive.is link
HDFC Liquid Fund's NAV graph during the covid crisis
Parag Parikh Liquid Fund's NAV graph during the covid crisis