any better option than FD with 10.35% interest considering 5 years view

POSTED BY ainvest ON November 8, 2011 10:10 pm COMMENTS (5)

I have just invested 13 lacs in Fixed Deposit(FD) for 5 year. My father has invested this amount in his name because he is a senior citizen and retired employee of a bank because of which he is getting 1.5% more interest which comes to total of 10.35 % per year. Also, he does not have to pay TDS on this FD because his income does not exceed the tax bracket. So I get benefit of 10.35% interest as a full without further taxes.
And I am the nominee for this FD and this FD is cumulative. Interest gets added to the amount without withdrawal.
I have two questions here,
1. I am not in need of this money for another 5 years. I have also thought of other options like putting in mutual fund MIP plan like reliance MIP but not sure whether the returns from MIP will beat my existing return(which is 10.35%) after calculating taxes on MIP.
Same goes with FMP(Fixed maturity plan)
Putting in good index fund also does not look like good option because 5 year is not so good tenure for investment into stocks…
any other suggestions…
2. After 3 years if my father returns this money to me in full will it create any problem from tax point of view ?

5 replies on this article “any better option than FD with 10.35% interest considering 5 years view”

  1. Dear ainvest, if possible to you, out of full 13L, make arrangement to get mly interest pay out for at least 1/2 amount i.e. 6.5L Rs. Invest this interest amount in HDFC Prudence fund though SIP.

    This way, your basic capital is intact, you are investing only interest generated by the FD but over the 3Y period, this ‘ll also become a good amount (in terms of basic investment in HDFC Prudence). Which you may keep intact for next 7 years or so. You may add more after that 3Y period.



  2. ashal jauhari says:

    Dear Ainvest, Please keep money in this FD if you are risk averse person. In case you can take a bit of risk, my take ‘ll be to go for a balanced fund like HDFC prudence for the mentioned 5Y period. Although no guarantee of return here but from the past history we may assume at least 12% if not more.

    If the FD term is 5Y, how you ‘ll get money back after 3Y?



    1. ainvest says:

      thanks ashal…
      5Y was written by mistake…the FD term is 3 years…

      anyways, I would like to know your opinion…
      I have evaluated that out of this 13 lacs I would not need 5 lacs at least for a duration of 10 years. Do you think putting this money in good balance fund like HDFC prudence makes lot of sense…can I expect 15% annualized return for 10 years ?

      As I know that 10 years a quite long term so risk will be almost to zero…still just want to take another opinion on more points that I should be aware of.

      just want your views


  3. ainvest – Answer this: Is this your only investment ever? If you already have invested in Stocks and MF and want to add Debt to your porfoilio this may be a healthy option. If not I would recommend you diversify this money into MFs and stocks (that is if you are comitted to learn how to invest).

    In general the allocation to debt must be the same as your age. If you are 30 years old your allocation to Debt must be 30%. However since you appear to be a little risk-averse I would recommend a 50-50 mix for you to try. 5 years is a a reasonable horizon for the market to return well. Again when investing in MFs make sure you do that through SIP or STP, preferably a STP from a Short term debt fund (which itself currently yields ~8.5%). Dont do a lump sum investment.

    Taxation: Any amount given/gifted between several blood relatives are tax free if consumed (= assets should not be created). Any income generated from such a gift will have to be added to the gift donor and taxes must be paid, technically. However if the amount is consumed, say, on a vacation or never invested it is tax free!!!

    1. ainvest says:

      thanks for your reply

      This is not the only investment I have. This is the money I have accumulated over some time and do not foresee any need for at least 5 years.
      I am already investing Rs. 18000 per month into 3-4 MF’s through SIP route and also have kept aside money for emergency requirement.

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