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POSTED BY ON January 5, 2013 11:06 pm ONE COMMENT
Manish,
First of all I want to thank you for the wonderful job that you are doing, it helps people like me to understand finance better.
Now I have read a lot that equity is better than any other type of investment (over the long term) which I agree with, what I want to check is – Is a NRE deposit where I get a fixed 9% return better or investing in a SIP better where in albeit the returns be better but the risk involved is higher as well.
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The answer depends on when you need the money
risk and volatility should not be confused.
Risk is loss of capital or loss of purchasing power. Volatility is fluctuating returns
SIP in the short term less than 5 years is risk in terms of loss of capital due to high volatility
A FD has no volatility but is risky in terms of loss of purchasing power since it will not be able to beat inflation.comfortably, even at 9%. Longer the FD duration higher is the risk
SIP in equity for more the 5 years, the volatility in returns will be there but the risk comes down quite a bit since the average return has historically been well above inflation and therefore SIP is the preferred choice (as a major component not only part) for long term investments