The Tribune, Chandigarh, India

Why is it better to invest in FDs than mutual funds?
Vikram Kaushal

As the years are passing by, the options for investing money are continually increasing, yet every single investment vehicle can be easily categorised according to three fundamental characteristics — safety, income and growth — which also correspond to types of investor objectives. Today, comparison between mutual funds and fixed deposits has become a long debate due to which even the most risk-averse investor is led to think twice before investing.

The prime task of any investor is always capital protection. This drives most savers in our economy to park their hard-earned money into bank deposits. And the number is increasing. While it is a personal choice for an investor whether to invest in fixed deposit or mutual fund — depending on risk-taking abilities, return expectations and investment horizons — let us try to analyse some key factors that will help us decide as to why it is better to invest in fixed deposits than mutual funds.

Short term & long term

While mutual funds are known to provide good returns over a long tenure, they do not shine when it comes to providing short-term investments. Because mutual funds depend on the market fluctuations, sometimes the investor might receive less than the invested amount in the short term if the market is not performing. Fixed deposits, on the other hand, provide guaranteed income for both short term and long term tenure as the investment earns fixed interest rates over the period. ‘Loss’ is never a word in the fixed deposit language and it is always a win-win situation for the investor.

Higher & consistent return on investments

Bank deposits offer a fixed percentage of return, as would be agreed upon by the investor and the bank at the time of the investment. For example, if you put Rs 50,000 in a fixed deposit for 5 years and the agreed interest rate is 9% per annum, you will continue to enjoy the same interest rate throughout the tenure. On the other hand, debt mutual funds have no assured rate and the return on investment for debt mutual funds depends completely on the market and the performance of the fund. Fluctuations in the money market impact the NAV of the fund, thereby altering returns. Thus, a great advantage of bank fixed deposits is that you will continue to earn the same interest rate even if the market goes down.

More liquid

Fixed deposits are actually meant for long lock-in periods, but most banks allow premature withdrawals with a nominal penalty (usually 1%).

The interest rate calculation for bank fixed deposit withdrawals is done on how long the money was parked. It is possible to take out any number of units of mutual funds within a couple of days. The return for premature withdrawal of mutual funds units is done on the prevalent NAV of the fund, but there is an exit load of 1% for premature withdrawals before 1 year for mutual funds.

Less risk

Returns from investments in mutual funds are subject to the volatility of the market, and may result in low or even negative returns. Risk factors play a crucial role in the decision taken by an investment.

Fixed deposits pose no risk to the investor and provide regular income to the investor, whether he/she is salaried or retired personnel.

No associated cost for investing

Investing in bank fixed deposits does not cost anything. On the other hand, there is a minimum charge for mutual fund investments management and fund distribution, borne by the investor irrespective of returns.

In other words, no matter whether your return on mutual fund investments is positive or negative, you have to bear an expense as the fee of fund management. Unlike mutual funds, fixed deposits bear no expense to the investor and its sole responsibility of providing positive returns to the investor.

Fixed deposits continue to be the safest mode of investing the hard-earned money for an individual. It provides short term as well as long-term capital protection and helps to keep the individual/family financially secure.

The author is President — Relationships, Bajaj Finance Limited. The views expressed in this article are his own

Tax advice
Non-senior citizens can also file form 15 G
SC Vasudeva

From the clarifications made from time to time by you, I understand that a senior citizen, in case his total income goes above the provision of exemption limit and is brought down under Section 80C, can file form 15H for non-deduction of tax at source, whereas an individual (not a senior citizen) cannot avail this facility by furnishing 15G in similar circumstance once his total income exceeds the exemption limit. Am I correct? Please clarify.

For opening a new account with bank it is mandatory to furnish the resident proof along with other requirements. I understand that this provision has been relaxed by the RBI recently. A person can now open an account by giving his permanent residential address and local address at which he is residing. Is this correct? If so, please clarify. — VN Bhatia

The understanding raised by you with regard to the filing of form 15H by a senior citizen is correct.

However, your understanding with regard to the filing of form 15G is not correct. Form 15G is applicable to an individual even if he is not a senior citizen where the income on which tax is deductible under Section 193 (interest on securities) or Section 194A (interest other than interest on securities) or Section 194K (income in respect of units) credited or paid does not exceed the maximum amount which is chargeable to tax. Therefore, an individual whose income under any of the above sources is less than the maximum amount not chargeable to tax can file form G.
I am not aware of any such relaxation provided by the RBI. According to information available with me, resident proof is required to be submitted for opening a bank account.

My query is regarding Section 195(6) which requires companies to submit online information regarding payments to non-residents.

Our query is whether this procedure is applicable to all payments whether TDS is applicable or not? Like payment of overseas commission, payment against imports or any other payment where payee is having no place of business in India. — Amarjeet

The requirement of Section 195(6) of the Act applies to those payments which are covered for deduction of income tax under Section 195 of the Act. Accordingly, whatever payments are covered under Section 195 for deduction of tax at source i.e. any interest or any other sum chargeable under the provisions of the Act (not being income chargeable under the head ‘salaries’), the information with regard to such an income shall have to be filed in the form and manner prescribed by the Board. In this connection, Form 15CA and 15CB prescribed under Income-tax Rules 1962 may kindly be referred to.

While serving in a college as a senior lecturer, in addition to my regular duties, I also acted as editor of a journal published by a society based in the college. At the time of my retirement, I was asked by the society to continue the responsibility of editorship on honorary basis. I agreed and have been continuing the same without charging any money from the society for more than a year. Most of the editing work is done by me from my residence, using my own computer. However, on some days I have to go to the office of society to attend to journal/society work. Depending on necessity, I visit the office once/twice a month. I use my car to visit office of the society.

My residence is quite far off from the office of the society and I am paid for my car expenses (TA) and I am also given certain amount of DA on such visits. Will this amount be considered as my income, in addition to the pension I am getting? If yes, how will it be reflected in return of income? — RL Bhatia

The amount paid to you towards meeting your car expenses as well as DA for going to office of the Society is not taxable as the same is not in the nature of an income. The above reply is based on the presumption that these amounts are being paid so as to compensate you for meeting the expenses incurred by you for visiting the office of the Society.

Safe haven demand could drive gold prices higher
Nitin Nachnani

After rising for six straight weeks, gold prices fell for the third week in a row as several bearish forces strengthened, the most important being an improving US economy that has led many investors to think the Federal Reserve will raise interest rates sooner than later. Though the disappointing labor report on Friday casts new doubt on the pace of the recovery and led to a gold market rally, data released earlier in the week on economic growth and wage increases pointed to a less accommodative central bank and a stronger dollar later this year and early in 2015.

Safe haven demand continues to be one of the very few positive near-term catalysts for precious metals and, given recent developments in Ukraine and the Middle-East, this could drive prices sharply higher at any time. But the lack of Asian buyers over the summer and the ongoing weakness in broad commodity markets will make it difficult for metal prices to rise in the month ahead and positive seasonal factors may not help either.

Gold is now up 7.4% so far in 2014, still one-third lower than its record high of over $1,920 an ounce almost three years ago. Safe haven demand stemming from geopolitical concerns is the only short-term bullish driver for precious metals at this time. Much of the June gains for gold were driven by violence in Ukraine and Iraq and, when combined with more recent developments in Gaza, conditions are clearly getting worse, not better. However, after months of negative news headlines from half way around the world, this just isn't having the same impact on US investors and traders as it is being more than offset by positive news on the US economy and what this implies for monetary policy.

Demand from Asia is unlikely to provide much support for metal prices at current levels in the month ahead. Wedding season buying in India will soon rise but it remains unclear what, if any, rollbacks to import curbs will be enacted by the new government. The Reserve Bank of India saw fit to, effectively, eliminate instalment buying of gold at banks and this will reduce overall demand for the world's number two buyer. Indian and Chinese gold buyers are said to be waiting for prices to fall even more before making bigger purchases and they just might see that in the weeks ahead.

After three years of disappointment, gold and gold stocks remain two of the best performing asset classes this year and this has not escaped the notice of institutional investors and hedge funds who, in recent months, have been buying gold stocks when the broad stock market falters. If this carries over into the underlying market for gold and silver, a return to following very positive seasonal trends this fall could be in store.

The US has still tightened its grip on the monetary policy. Situation is volatile in Russia, Ukraine, Israel and Gaza strip. The US and Europe have jointly imposed trade sanctions on Russia. All these developments would determine the future move of gold.

The author is Research Analyst, Geojit Comtrade Ltd. The views expressed in this article are his own

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Source: Apnapaisa Research Bureau; www.apnapaisa.com