Is this the correct way of investing smartly to play safely with low risk and to beat inflation?

POSTED BY Chakri ON January 20, 2011 9:50 pm COMMENTS (8)

Hi guys,

I’ve read some where in some website related to investment :

1.Investing in PPF is waste of money, since the inflation on avg is 10.5% and the PPF is giving only 8% and the net loss is 2.5%.

2. To achieve 20,00,000 in 10yrs span, we have to invest 9,683 monthly in SIP by expecting a 10% return at the final [- may be after inflation adjustment].

Here my question is “To beat inflation and to play safe with minimal risk, Can we split Rs.9,683 [make round fig as 10,000] into two parts like Rs.5000 which will go to PPF and Rs.5000 into MFs per month to achieve the above goal in #2?”

Thanks,
Chakri

8 replies on this article “Is this the correct way of investing smartly to play safely with low risk and to beat inflation?”

  1. Dont forget the tax implications at the time of maturity/withdrawal for debt products.

  2. The net return on any investment is calculated as actual return – inflation. So, as per this rule, fixed deposit, RD, NSC, KVP are obsolete now. Yes, Sec80C benefit & compound interest on PPF makes it attractive. But the only way to beat inflation is to take equity path. Invest via SIP in equity diversified mutual funds. That’ll be tax-free (as per tax rules of today) and provides liquidity also.

    You can invest some money in Gold ETF to hedge against inflation and downfall of stock market.

    Mukesh, the limit in post office MIP is 4.5 lacs (individual) and 9 lacs (joint account).

    Hope it will help you.
    InvestmentKit.com

    1. Mukesh Agarwal says:

      @MoneySavingHelps

      Ya sir i know that POMIP max limit is 4.5 lakh(single) & 9 Lakhs (jointly).iI have written wrong & didnt elobrate it ,but I calcalute just for an example as ,Asumining that if they are 4 members then he can open 4 account of 4.5 lakhs (@ 8% pa + 5% bonus on maturity now ) each , otherwise if his age is above 60 years then he can also invest in SCSS in postoffice which gave 9% pa maxmum limit 15 lakhs individually.

      Mukesh
      Hare Krishna

  3. sainath says:

    PPF is not taxable (as of now) and you can claim deduction under Income Tax..so i dont agree with your argument that it provides only 8% return. Just a thought.

    1. Ramesh says:

      I will just like to add here. Many times I have seen this argument of increasing the “apparent” yield of PPF for highest bracket tax-payers as 8*(1/0.7)=11.4%.
      I have never seen this kind of 42% bumpup in the returns of the equivalent instrument of ELSS. Why? do not know

    2. sainath says:

      and to add to it, the savings from tax (for example 10-30% if you invest in MFs) can be invested in different instruments and this also can be taken as notional yield from PPF investments. I am not advocating PPF is better than MFs but investment in PPF is not as bad as it is made out to be.

  4. Ramesh says:

    I fail to understand the pseudo-concept of “low-risk + inflation-beating”.

    Since the last 10 years, a SIP in the worst performing equity MF has also delivered much better returns than any debt instrument.

    ref:
    http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/even-a-bad-sip-is-a-good-bet/articleshow/7297311.cms

    So take 1/2 multicap equity funds, and invest in them continuously.

  5. Mukesh Agarwal says:

    @Chakri
    Hello
    If you want Rs 20,00,000 in 10 years with garunteed returns then i can give you some sugestion, but the investment will be little more than you said. It will be Rs 1200 more. You can save monthly Rs 11,200 in Postal Rd Scheme for 10 Years its maturity value will be
    Rs 20,00,050. You can also divide this amount into two part Rs 5,600 per month.
    This Money can be utilised for Children Education, Marriage, Retirement, Regular Income etc. Then after ten years if you dont need this money then you can deposit in MONTHLY INCOME PLAN in Post Offfice which gives you Rs 13,333(approx) Monthly Income If rate of intrest is 8% at that time. If you want more than 8% then you can invest in Equity through SIP but it has Some risk.

    Mukesh
    Hare Krishna

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