Ask ET Mutual Funds: Where can I invest Rs 30,000 for two years?

I have my small savings of Rs 30,000. I want to invest it in debt mutual funds. I want to redeem it within two years. Can you guide me?
--Nisha Saklecha

Since you are investing with an investment horizon of a little over a year, you can consider investing in debt mutual funds. You can park the money in an ultra short-term fund.

However, debt mutual funds work the best only when invested with an investment horizon of more than three years. If debt mutual funds are sold after three years, the returns are taxed at 20 per cent with indexation benefit. The indexation helps to bring down the taxes.

If debt funds are sold before three years, returns are added to the income and taxed as per the income tax slab applicable to the investor. This taxation is similar to bank deposit where interest is added to the income and taxes according to the applicable income slab.



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