8 LOW-RISK Short Term Investments to Park Money during Uncertain Times

Summary

This video script discusses various options for 'parking' money during uncertain market conditions. It suggests safe and liquid options like bank fixed deposits, corporate FDs, and post-office time deposits, as well as more dynamic choices including arbitrage funds, conservative hybrid funds, and dynamic asset allocation funds. The speaker also emphasizes the importance of considering safety, liquidity, and taxation when choosing where to invest during times of market volatility.

Takeaways

• 🚗 Finding a safe parking place for money is a common concern, especially in times of market volatility and uncertainty.
• 🏦 Bank fixed deposits are a traditional and safe option for short-term parking of money, offering high interest rates and liquidity.
• 📚 Corporate fixed deposits offered by NBFCs and PSUs can provide better rates than bank FDs but require caution and understanding of the investment's details.
• 🏪 Post-office time deposits are a secure option with government guarantee, offering interest rates similar to banks.
• 💧 Savings accounts in banks provide high liquidity and are tax-efficient under Section 80TTA, with competitive interest rates from smaller banks.
• 💼 Debt mutual funds offer various options based on safety and interest rate sensitivity, with short-duration funds being suitable for short-term parking.
• 🛡️ Term insurance is recommended as a safeguard for families, with KlarifyLife offering personalized advice and a Term Guide for policy planning.
• 🌐 NPS Tier 2 accounts offer flexibility without lock-in periods and low expense ratios, making them an attractive option for parking funds.
• 🔄 Arbitrage funds exploit price differences in cash and futures markets, offering returns irrespective of market direction and are tax-efficient.
• 🔄 Conservative hybrid funds invest in both debt and a small portion of equities, suitable for investors looking for a balance but with debt-oriented taxation.
• 🌡️ Equity savings funds and dynamic asset allocation funds offer varying degrees of equity exposure, suitable for investors with different risk tolerances and market views.

Q & A

What is the primary concern discussed in the video script?

The primary concern discussed in the video script is finding safe and secure options for parking money during times of market uncertainty, high volatility, and upcoming elections.

Why might someone consider parking money in a bank fixed deposit according to the script?

Bank fixed deposits are considered a safe and liquid option for parking money for a short period, offering a fixed interest rate, and are available with high-interest rates from many banks.

What are the tax implications of interest earned from a bank fixed deposit?

The interest earned from a bank fixed deposit is taxable as per the individual's marginal tax rate.

What are corporate fixed deposits and how do they compare to bank fixed deposits?

Corporate fixed deposits are offered by NBFCs and other financial institutions, similar to bank FDs, but they may offer slightly better rates. It's important to ensure the paper invested in is AAA-rated and understand the tenure, yield, and taxation involved.

Why might someone choose a post-office time deposit over a bank fixed deposit?

Post-office time deposits are guaranteed by the government of India, offer interest rates close to what banks offer, and provide a secure option for parking money.

What is the benefit of parking money in a bank savings account as mentioned in the script?

Bank savings accounts offer super-liquidity, allowing access to funds at short notice, and under Section 80TTA of the Income Tax Act, interest up to 10,000 rupees is tax-free. Some banks offer high interest rates on specific balance tiers.

What are the two main criteria for selecting debt mutual funds according to the video?

The two main criteria for selecting debt mutual funds are safety, with a preference for funds that have a lower credit risk, and interest rate sensitivity, with short duration funds being less affected by changes in RBI’s repo rates.

Why might the taxation benefit on debt funds have changed?

The taxation benefit on debt funds changed due to new rules implemented by the finance minister from April of the previous year, which removed the long-term capital gains tax benefit.

What is KlarifyLife and how does it help with term insurance?

KlarifyLife is an initiative of HDFC Life that simplifies the process of planning for a term insurance policy. It provides personalized advice and a Term Guide to help individuals understand what they should and shouldn't do when choosing a policy.

What are the advantages of using an NPS Tier 2 account for parking money?

NPS Tier 2 accounts offer no lock-in period, no exit load charges, no minimum balance requirement, low expense ratios, and quick withdrawal processing times. They also provide safety and flexibility in investment tenure.

How do arbitrage funds work and what makes them advantageous?

Arbitrage funds exploit price differences between cash and futures markets. They can make money from mis-pricings regardless of the underlying stock's price movement, offering a unique advantage in times of market volatility.

What are conservative hybrid funds and their taxation implications?

Conservative hybrid funds invest 75 to 90% of their assets in debt and the rest in equities. They offer returns between 6 to 11% but are taxed as per the investor's marginal tax rate, which may not be favorable for higher tax bracket investors.

Why might equity savings funds be a preferable option for parking short-term money?

Equity savings funds offer a mix of equity, debt, and arbitrage, providing decent downside protection and inflation-beating returns. They also have equity-oriented taxation, which can be advantageous for post-tax returns.

What is the strategy behind dynamic asset allocation funds or balanced advantage funds?

Dynamic asset allocation funds adjust their portfolio allocation between equity and debt based on market valuations, increasing equity exposure when markets are undervalued and shifting towards debt when valuations are high.

How can systematic investment plans (SIPs) and systematic transfer plans (STPs) be used to deploy parked money?

SIPs can be used to move money from savings accounts or fixed deposits into equity schemes, while STPs can be used to transfer money from debt, arbitrage, or hybrid funds into pure-equity funds, providing a structured way to re-enter the market with clarity.