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In 3 months time I have to pay my income tax, and I need to accumulate some money for that from my salary payouts, since I've invested my savings in debt and mutual funds and taking it out will invite capital gains tax.

I also have a 12 month recurring deposit (interest rate of 7.25%, maturing in October) into which I have been putting in some money.

While accumulating this money for paying taxes, I don't want it to sit idle in my savings account, so I considered creating fixed deposits with it each month. These are the interest rates:
7 - 14 days 3.50%
15 - 29 days 4.25%
30 - 45 days 5.50%

While I could create fixed deposits each month that mature by July, I'll also have to pay interest on the money I make from the fixed deposits.

So would it be more sensible to park the money in 3 separate fixed deposits created each month or to invest this money as usual in debt and mutual funds and instead just liquidate the recurring deposit and use it to pay my taxes in July?
Alternatively, is there a better way to manage the money?


ps:

The recurring deposit has these rules:
Premature Liquidation:
Effective 01st Dec'06, the interest rate applicable for premature closure of deposits (all amounts) will be lower of :

  • The original rate at which the deposit has been booked OR
  • The base rate applicable for the tenure for which the deposit has been in force with the Bank.
  • The base rate is the rate applicable to deposits of less than Rs.15 lacs as on the date of booking the deposit.

With effect from Oct 24, 2015, the following changes would be applicable to all Recurring Deposits.

  • Interest on a Recurring Deposit will be calculated from the date the instalment is paid.
  • The method of calculation of interest on RDs will be on Actual / Actual Quarterly Compounding.
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So would it be more sensible to park the money in 3 separate fixed deposits created each month or to invest this money as usual in debt and mutual funds and instead just liquidate the recurring deposit and use it to pay my taxes in July?

Most taxes would already have been paid by March 31. So what you are talking here is less than Rs 10,000/- of taxes. The optimization you are looking at is very small and you are better of choosing one that is more convenient.

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