Pay For A Year’s Utility Bills By Keeping Spare Cash Away From Savings Account

Here’s a familiar little story. Two buddies Sanjay and Ramesh bump into each other at the neighbourhood park. As usual, Ramesh complains about pay hikes not keeping pace with inflation and the major amounts he is paying for utility bills like electricity. Ramesh then asks Sanjay how he is managing. So far the story has been predictable. Many of us have the same problem as Ramesh.

Now, imagine a twist in the tale. Sanjay tells Ramesh that he has figured out an investment that pays him enough to pay for a year’s utility bills from surplus others park in bank savings accounts. What do you think Sanjay’s investment was?

Well, if you think we are going to mention stocks or equity funds, the story would become predictable to a certain extent. In any case, it would be inappropriate for a higher risk investment like equities to meet a short-term need. And then, we had set out to give a twist in the tale. Luckily, Sanjay’s investment allows us to give a twist to the story.

Introducing Ultra short term funds Sanjay and Ramesh spend about Rs 36,000 annually on utility bills or Rs 3,000 per month. That’s also what Sanjay earned from Ultra short term funds from an investment of Rs 4 lakh last year, instead of letting his money hibernate in a bank savings account paying 4 per cent annually. Just in case you are wondering what Ultra short term funds are all about, here’s a brief lowdown on them.

As the name suggests an ultra-short term fund invests in highly rated securities of lower maturity. This makes the investment less volatile in nature. In terms of liquidity, it scores high since the money is available at your disposal the very next day after you make a request.

Moral of the story If you are impressed with Sanjay for making his surplus funds work hard to pay for his utility bills, you need to take a close look at Ultra short term funds category. It provides you the convenience of your bank savings account in terms of liquidity with the money available on the day after you place a request. However, it also has the potential to earn higher post-tax returns. Typically, a bank saving account gives you return of 4 per cent annually and that too, taxable.

So, now you have enough information from the story of Ramesh and Sanjay to start a cheerful new story for yourself. Clearly, the smart way of managing money is not just about earning more money but making your money work hard for you too.

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When does mutual fund come into play in your life? It is the moment you are ready to achieve following in your life: Create wealth from your investments, achieve various financial goals in your life and/or save tax.

Before you start investing in mutual fund, you should answer two questions: What is the objective (goal) you want your money to achieve for you? And how long can you keep your money aside to grow?

For achieving short term goals like buying a car, going on a family vacation etc. you can invest in debt funds. For achieving long term goals like child's marriage, retirement etc. you can invest in equity funds.

So if you want to achieve a goal, say child's education, in 2 years, then your investment should be in debt schemes (2 days - 4 years). If you want to achieve this goal in next 10 years, then your investment should be in equity schemes (5 years+).

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