Investing interest of FD into mutual funds

POSTED BY praveen ON November 28, 2012 12:13 pm COMMENTS (5)

I’m great fan of this blog and have learned many fincial knowledge.

I have question related to mutual funds. I have been talking about some of my friends who had been invested in mutual funds for long time. There was suggestion that it better park the money FD rather than investing in MF as markets not doing good for the last 5years, even in long term let say after 15 years when you ready to redem the MF amout for your need and if there is recession at that time then will get very low or even negative returns. I know as theory Equity based mutual funds should give good returns in long run if this is true why inflow of MF in market is low compared to outflow MF amount in each quater. 

http://www.business-standard.com/india/news/mfs-lose-equity-assets-for-fifth-month-inrow/492086/

I’m long term investor, wanted to start the SIP for the following goals. Please suggest good funds for these goals. I’m planning to park amout in the FD and invest the interest earned into Mutual funds, Is it a wise decision ?

1. child’s Higher eduction after 15 years

2. Child’s marriage after 25 years

3. Retirement after 15 years

5 replies on this article “Investing interest of FD into mutual funds”

  1. praveen says:

    Thanks for information. I have started the PPF this year with maximum limit. I’m planning to start another PPF account on wife’s name next financial year so that there is gap b/w maturities.

  2. I have the sensex returns in an excel file Happy to give it to anyone. you can judge for yourself.
    pattu [AT] iitm.ac.in

    What Vikash refers to the starting date of investing matter in stock IF you dont wait long enough (at least 10 years). I have a sensex return simulator
    at
    freefincal.wordpress.com
    Check it out.

    No one is saying invest 100% in stocks. You need to have debt exposure too. FDs are taxable and can be significant for a large period.

    A well diversified portfolio is key to financial success.

  3. Vikash says:

    This is incorrect information.

    Sensex has given a CAGR return of only 7% in last 20 years. (1992 to 2012). It is not that easy to beat benchmark index all the time. 80% MF has under-performed in last 5-6 years.

    In Last 20 years, Bank FD returned a CAGR of 8% (post tax). 100% safe too. Even Gold and Real-estate has done quite well.

    In last 5 years, Sensex gave negative return whereas Bank FD 9%, Real-estate and Gold 25% .

    The problem is that most of the people calculate Sensex from base price. Today, market is mature enough. One should expect 12% CAGR return only over 10-15 years. Anything more bonus. If one can time, Return could be better 15%-20%. It’s myth that people make money in equity only in long run. On contrary, I have seen more people making money in Gold/real-estate with less volatility.

    Regards,
    Vikash

    1. Ramesh says:

      Why don’t you give specific values according to which you have calculated these returns?
      7% from 1992 to 2012. Really. Since you are trying to show CAGR total returns. Show us the calculations.

      Bank FD = cagr of 8% (post tax). Amazing data again. Let us see some facts there too.

      Also, why 5 years and not 4 years. 😉

  4. Dear Praveen,

    people who exit MFs during markets lows have no clue about investing. The idea of investing in MFs or stocks is to beat inflation comfortably. In a 15 year period sensex has never given a negative return. The average 15 year return is 15% and the lowest 15 year return is about 10% which is still good to keep pace with inflation. Discipline investing in MFs will give you good returns. You can exit your MFs a couple of years before your goals.

    first choose a large cap fund like Franklin India Blue Chip and a
    balance fund like HDFC Balanced or Prudence and begin SIPs
    learn how they behave and then you could add 1 large+midcap fund.

    For a goal which is 15 financial years away you could begin a PPF.

    Your money in the FD if meant for these goals will vegetate, if the amount is large you could make a systematic transfer plan to the MFs listed above. Learn more about it.

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