Four ways to place ₹30 lakh
Safety, liquidity, return and tax, side by side — for an investor in the 30% slab, illustrated at a 5% surcharge. Figures below are indicative, move with markets, and are not a recommendation.
Working assumptions
30% × 1.05 (surcharge) × 1.04 (cess) = 32.76%, used consistently below. For reference, the surcharge slabs actually notified for FY 2026‑27 (new regime) are 10% (₹50L–1Cr), 15% (₹1–2Cr) and 25% (above ₹2Cr, capped) — swap in your own slab if 5% was meant illustratively rather than literally.
At a glance
| Instrument | Safety | Liquidity | Indicative return | Tax basis | Illustrative post‑tax* |
|---|---|---|---|---|---|
| RBI FRSB 2020 | Sovereign |
7‑yr lock |
8.05% p.a. | Slab, accrual (paid out) | ≈5.4% |
| TSIICL 9.35% bond | AA(CE), guaranteed |
Thin, listed |
7.9–8.3% YTM | Coupon: slab, accrual | ≈6.3% |
| NBFC / HFC FD | Issuer rating only |
Penal exit |
6.9–7.45% | Slab, accrual | ≈4.6–5.0% |
| Ultra short debt fund | AAA paper, diversified |
T+1, no lock‑in |
7.1–7.5% YTM | Slab, on redemption |
≈7.3%*
|
*Post-tax figures apply the 32.76% rate to one year's income, for comparison only — not a forecast of what ₹30L will actually earn. Fund figure assumes the investor draws only the running yield as income (see page 04) — most of each draw is return of principal, not taxable gain, so post-tax lands near pre-tax.
RBI Floating Rate Savings Bond, 2020 (Taxable)
A direct, unsecuritised claim on the Government of India — the reference point every other row in this note is measured against.
Key terms
Liquidity — the one number that matters
The bond cannot be sold, traded, or pledged. Early exit exists for senior citizens only, on an age ladder: age 60–70 may exit after 6 years held, 70–80 after 5 years, and 80+ after 4 years — each surrendering 50% of the last coupon due as a penalty. Everyone else's capital is locked for the full 7 years; the only other way out is transfer to a nominee on death.
Taxation
Interest is paid out (not accumulated) every 1 January and 1 July, and is fully taxable as income from other sources in the year received — there is no capital-gains leg and no indexation question, because the bond is never sold. TDS applies once annual interest crosses ₹10,000.
The 7-year average will differ from 5.41% — the rate resets twice a year with the NSC rate, so this is a snapshot, not a forecast.
TSIICL 9.35% Guaranteed Bond · ISIN INE1C3207065
Telangana State Industrial Infrastructure Corporation Ltd — a secured NCD carrying an unconditional Government of Telangana guarantee.
Instrument, as filed with the depository
Security stacks three deep: an unconditional and irrevocable state guarantee, a debt-service reserve plus bond-servicing escrow holding roughly two quarters of debt service, and an exclusive mortgage over a ~400-acre land parcel in Kancha Gachibowli valued to give ~1.5× asset cover. The rating's (CE) suffix — credit enhancement — flags that AA rests on the guarantee, not on TSIICL's own standalone balance sheet.
Price, and why it's not 100
The bond trades above par — roughly ₹105–106 per ₹100 of face value, cheaper (lower premium, higher yield) for a larger ticket and dearer for a smaller one. A same-day market check on a listed platform showed ₹105.30 clean / 7.98% YTM; the desk quote on this deal ranged 7.9–8.3% depending on lot size. All of these are legitimate — corporate-bond pricing moves through the day and by counterparty, and more so with an MPC review a month out.
Liquidity
Listed on the NSE/BSE debt segment, so a sale is possible in principle — but the corporate-bond secondary market is thin, particularly for large lots, and the realistic plan for a holding this size is to run it to the December 2030 maturity, roughly 4 years 4 months from now.
Taxation
Quarterly coupons are taxed at slab every year, on accrual — there's no deferral here despite the bond not being sold. Because the entry price sits above the ₹100 redemption value, maturity itself books a capital loss (the premium paid, unwound) that can offset other capital gains. If sold before maturity after a 12-month hold, gain or loss is long-term at a flat 12.5% (no indexation) — this is a plain secured NCD, not a market-linked debenture, so it keeps the older capital-gains treatment that debt mutual funds lost in 2023.
Approximate post-tax carry on the coupon leg: 9.35% × (1−32.76%) ≈ 6.29%, before the maturity-time capital loss is even used as a shield. Treat this as a sketch, not an IRR — ask your CA to model the actual cash flows against your other capital gains.
NBFC & Housing Finance Company Deposits
Mahindra Finance and LIC Housing Finance, set against the wider board of AA/AAA-tier company deposits quoted around the same date.
Rates quoted, highest slab
| Issuer | Highest rate | Tenure for that rate | 1‑yr | 3‑yr | 5‑yr |
|---|---|---|---|---|---|
| Mahindra Finance | 7.45% | 48–60 months | 6.60% | 7.40% | 7.45% |
| LIC Housing Finance | 6.90% | 60 months | 6.70% | 6.85% | 6.90% |
| Shriram Finance | 7.50% | 3–5 years | 6.85% | 7.50% | 7.50% |
| Sundaram Home Finance | 7.40% | 4–5 years | 6.70% | 7.25% | 7.40% |
| PNB Housing Finance | 7.25% | 60 months | 6.70% | 7.10% | 7.25% |
| ICICI Home Finance | 7.35% | 45 months | 6.85% | 7.10% | 7.20% |
| Manipal Housing Fin. Syndicate | 8.25% | 1–3 years | 8.25% | 8.25% | 7.75% |
| Muthoot Capital Services | 8.95% | 36 months | 7.90% | 8.95% | 8.50% |
Company deposit rates as quoted; each carries its own credit rating and none is deposit-insured — the higher the headline rate in this table, the more that rating deserves checking before booking, not less.
Safety
These are unsecured deposits with the company itself, not a bank. DICGC insurance (up to ₹5L) covers only bank deposits — an NBFC or HFC deposit's safety is entirely a function of that issuer's own current CRISIL/ICRA/CARE rating and balance sheet, reviewed at the time of booking, not assumed from the brand name.
Liquidity
Premature withdrawal is typically allowed after a short lock-in (often 3 months), but at a penal rate — commonly 1–3 percentage points below the contracted rate. The deposit itself cannot be sold or transferred to a third party.
Taxation
Interest is taxed at slab every year on accrual — including on cumulative (reinvestment) deposits, where the investor receives no cash at all until maturity but still owes tax annually on the interest deemed to accrue. TDS applies above just ₹5,000 of interest per financial year under Section 194A for company deposits, versus ₹40,000 for bank FDs.
Ultra Short Term Debt Mutual Funds
Four schemes from the shortlist, spanning fund size and rating — the only row in this note where tax is a choice, not a date.
| Scheme (Growth) | AUM (₹Cr) | 1‑month, ann. | 3‑month, ann. | 6‑month, ann. | Avg. maturity | YTM |
|---|---|---|---|---|---|---|
| HDFC Ultra Short Term | 18,420 | 5.11% | 7.82% | 5.82% | 1.65 yr | 7.39% |
| SBI Ultra Short Term | 13,394 | 5.35% | 7.86% | 5.76% | 1.49 yr | 7.07% |
| Kotak Ultra Short Term | 12,083 | 4.87% | 8.18% | 5.88% | 1.04 yr | 7.42% |
| Aditya Birla SL Ultra Short Term | 9,914 | 4.50% | 7.66% | 5.50% | 1.15 yr | 7.45% |
| Nippon India Ultra Short Duration | 7,804 | 5.60% | 8.14% | 6.04% | 1.28 yr | 7.44% |
Narrowed to Kotak, HDFC, SBI, Aditya Birla and Nippon India, from the scheme data shared, cut as of 3 Sept 2026. 1/3/6-month figures are simple-annualised (period return × 365/days) — a short window scaled up, not a forecast. Category is fund-house-labelled "Ultra Short to Short Term" within Debt: Low Duration; 97–100% of each portfolio sits in debt/money-market paper, not equity.
Safety
Underlying paper is overwhelmingly AAA/A1+ rated and average maturity is short (about 1–1.7 years across the four above), which keeps interest-rate risk low. None of this is a guarantee, though — NAV is market-linked and can still dip on a credit event or a sharp rate move. This is the one instrument in the note with no sovereign or state backstop of any kind.
Liquidity
Open-ended, redeemable on any business day, proceeds in T+1, and most of these carry no exit load. Nothing else in this note comes close on liquidity.
Taxation — the structural difference
Since April 2023, these are "specified mutual funds" under Section 50AA: gains are taxed at slab rate regardless of holding period, with no LTCG rate and no indexation. What's different from every other row in this note is when tax falls due — on redemption, not year by year — and on how much. Each unit redeemed is part return of the investor's own principal and part gain, in the same proportion the fund's NAV has actually appreciated; only the gain slice is added to slab income. Resident individuals also face no TDS on redemption itself (Section 194K only bites on dividend/IDCW payouts).
A scenario, not a formula — the taxable slice of each withdrawal grows as the fund's own accrued gains build up over the holding period, so ₹14,899 is this year's figure, not a constant.
*Because tax applies only to the gain slice of each withdrawal, not the full amount, and only in the year money is actually drawn. If the investor's total taxable income for that year stays under ₹12L, the Section 87A rebate under the new regime can reduce tax on this income to nil — debt-fund gains are taxed at slab rate rather than a special rate, so they aren't on the short list of gains this rebate excludes. Confirm eligibility for your own return with your CA.
Accrual vs. cash basis — the annual tax gap
Why three of the four instruments above tax income every year and one doesn't, and what that structural gap is worth on a like-for-like annual cash flow.
The accrual / cash-basis line
The RBI bond, the TSIICL coupon, and every fixed deposit above are taxed on accrual — the tax office treats the interest as income the moment it's earned, whether or not it's been paid out, and whether or not it's ever spent. Even a cumulative FD that pays nothing until maturity is taxed every single year on the interest it's quietly compounding. A debt mutual fund is different: gains are only recognised — and only taxed — on the cash basis, the day units are actually redeemed, and only on the gain portion of what's redeemed, not the whole amount.
What that difference is worth, every year
Line up what each option actually costs in tax on a comparable annual cash flow from the same ₹30L, and the accrual/cash-basis gap stops being theoretical. For the fund, this uses the income-only-draw scenario from page 04: a ₹2,19,000 withdrawal in which only ₹14,899 turns out to be taxable gain.
| Option | Annual cash flow | What's taxed | Tax paid | Net in hand |
|---|---|---|---|---|
| RBI FRSB (8.05%) | ₹2,41,500 | Entire interest, on accrual | ₹79,115 | ₹1,62,385 |
| TSIICL bond (9.35% coupon) | ₹2,65,877 | Entire coupon, on accrual | ₹87,101 | ₹1,78,776 |
| NBFC FD (Mahindra, 7.45%) | ₹2,23,500 | Entire interest, on accrual | ₹73,219 | ₹1,50,281 |
| Ultra short debt fund (income‑only draw) | ₹2,19,000 | Only the gain slice, on redemption | ₹4,881 | ₹2,14,119 |
Same ₹30L, four different tax bases, using the illustrative rates quoted throughout this note. The fund's tax bill isn't small because of a special rate — debt funds are taxed at slab rate like everything else here. It's small because most of what's drawn this year is a return of the investor's own capital, not income; the taxable slice grows as the fund's accrued gains build up over the holding period.
Sources
- RBI FRSBRBI Retail Direct — FRSB FAQ
- RBI FRSBPaisabazaar — RBI Floating Rate Savings Bond
- RBI FRSBBusiness Standard — FRSB rate held at 8.05%
- MPC5paisa — RBI MPC schedule & August 2026 decision
- TSIICLNSDL Bond Information system, ISIN INE1C3207065 (screenshots supplied for this note)
- TSIICLIndia Ratings — TSIICL press release
- TSIICLAcuité Ratings — TSIICL rating rationale
- TSIICLBondsKart — INE1C3207065 market quote
- TaxClearTax — debt mutual fund taxation
- TaxTaxGuru — slab & surcharge rates, AY 2027‑28
- TaxClearTax — Section 87A rebate, FY 2025‑26 onward
- Fund dataScheme shortlist as supplied (AUM, returns, YTM, rating), cut 3 Sept 2026
