How to Manage Your Savings and Investments When You Have a High Credit Score
Isn’t saving the most important thing we can do with our money? We all try to save some of the money we make for future expenses and life chores.
And since both savings accounts and liquid mutual funds are seen as similar avenues to keep money aside, many of us get confused and don’t choose the right one. This is especially true if we already are well versed about what credit score is and even have a good credit score, and want to get the most out of our savings by putting them in the right instruments.
Let’s talk about and compare these to see which one would be best for you.
Liquid funds are debt mutual fund plans that invest your money in short-term money market instruments, like commercial papers, certificates of deposit (CDs), treasury bills, etc., with a maturity date of up to 91 days. There is no lock-in for these funds. The NAV of these funds is calculated for 365 days, which is different from other debt funds. They also don’t have any load coming in or going out. And if you’re wondering where to check cibil score calculation, you can download their app or visit a website.
Savings accounts are the most basic type of bank account, and they pay you interest on the money you put in them. As of April 1, 2010, the RBI told all scheduled commercial banks to figure out interest based on their daily product. Since RBI stopped regulating savings account interest rates, banks have been free to set their own rates, as long as they don’t treat different deposits of the same type of account differently on the same date.
Returns generated-
Since the RBI let banks set their own interest rates on savings accounts, banks have been able to offer competitive returns. The interest rates on savings accounts are usually between 3.5% and 6%.
Knowing what is credit score is vital, and you also have to find a suitable cibil score calculation site to check your credit score. Similarly, the returns on liquid mutual funds are different because they invest in market instruments whose NAV depends on the market price of securities. In general, liquid funds have been giving returns of 6-7 percent per year. Even though the returns on liquid funds may seem higher than those on savings accounts, it’s important to remember that the returns on liquid funds change based on how the market is doing.
Degree of Risk: Just like when you’re looking for ways to improve your credit score, you need to be aware of the factors and habits that could put you at risk. The same is true for your savings account and debt funds.
When it comes to risk, liquid funds are more dangerous than savings accounts. Like other mutual funds, liquid funds put their money into securities that have a price on the market. Your fund’s NAV goes up and down based on how the market prices of these securities change. When you put money into a savings account and get money back, there isn’t much risk involved. The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures bank deposits up to Rs.5 lakh in the form of FDs, savings accounts, current accounts, and RDs for banks that are part of its scheme. This is true even if you have more than one account or deposit.
With interest rates of up to 6% p.a., a savings account may be a better choice, especially for someone who doesn’t like taking risks and wants to park money and build up an emergency fund.
Also, make sure to completely understand what is credit score; keep checking your credit score on the cibil score calculation website to check your credit score so you can get a loan or credit card when you need one.
Gains are taxed- Capital gains on liquid funds are taxable. If the liquid funds are sold before 36 months (3 years), the gains would be taxed as short-term capital gains (STCG). Since these gains are added to your income, they are taxed based on the investor’s income tax bracket or “slab.” And if you keep the money for more than 3 years, the gains are considered long-term capital gains (LTCG) and are taxed at 20%, but you get an indexation benefit on the original investment.
But if you have a savings account, you can get a tax break. Under section 80TTA, you can claim a tax deduction for interest gains of up to Rs.10,000 in a financial year. If you make more than this amount in interest, you have to pay taxes on it and show it on your tax return under “income from other sources.”
Convenience/easiness to use
Due to the impact of digital transformation on the financial sector, just like cibil score calculation is prominent and quick now, customers can even open accounts, manage them, deposit and withdraw money instantly through online banking, any time and from anywhere. Anyone can open an account and close it whenever they want, without having to pay any extra fees.
When it comes to liquid funds, if you invest in them before 2 p.m. on a business day or ask to get your money back before 3 p.m., you’ll get the closing NAV of the day before the day your application was received. If you do this after 2 p.m. (for investing) or 3 p.m. (for redeeming), the units will be given to you at the NAV at the end of the next business day.
After you cash in liquid funds, it usually takes about a day for the money to be sent to your bank account. This rule is only for liquid funds and not for any other types of mutual funds. Facilities like RTGS or NEFT can make it easier to deposit money.
Overall, whether you opt for a savings account or liquid funds, do not forget the importance of what is credit score and how it affects your credit health. While managing your investments, don’t compromise on your credit score in any way, and keep a balance of everything to remain financially healthy!
With a solid foundation in technology, backed by a BIT degree, Lucas Noah has carved a niche for himself in the world of content creation and digital storytelling. Currently lending his expertise to Creative Outrank LLC and Oceana Express LLC, Lucas has become a... Read more