Cash Allocation for High Tax Bracket Earners
For conservative investors and those parking short-term capital (1 to 3 years), bank Fixed Deposits (FDs) are the traditional default.
However, interest on bank deposits is added directly to your taxable income and taxed at your marginal slab rate (up to 30% + surcharge and cess). For high earners, a nominal 7.50% FD yields barely 5.16% in real post-tax returns—often trailing inflation.
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1. The Arbitrage Fund Alternative
Arbitrage funds deliver steady debt-like returns with equity taxation: - How It Works: The fund simultaneously buys stocks in the cash market and sells them in the futures market, locking in a risk-free spread while eliminating market directional risk. - Taxation Advantage: Because they hold 65%+ gross equity allocation, gains held over 12 months qualify as Long-Term Capital Gains (LTCG) with preferential tax rates, whereas FDs are penalized at 30%+.
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2. When to Stick with Bank Fixed Deposits
Despite taxation, bank FDs remain irreplaceable in specific situations:
