POSTED BY November 17, 2010 12:54 pm COMMENTS (11)

ONHi,

I want to invest Rs 70000 of my mom (senior citizen). I was thinking of investing in post office or bank fd. Time span may be about

Kindly let me lkow the other options better than the above.

Thanks

Hitesh

The PO is giving you a simple interest. And the final calculation is also a simple interest. By reinvesting your monthly interest, you are trying to compound it, but that would not boost a 8% interest to suddenly 11%. 🙂

Suppose, the PO gave 36% return per year. A simple interest will double the money in 3 years while a compound interest will double it every 2 years.

Ramesh, you are not getting the concept of 11% returns.

If I am investing 70K in MIS, then i will get Rs 467/- monthly interest.If i open RD of this 467/- for 6yrs

then the cumulative returns of MIS + RD + maturity bonus of MIS comes out to be 11%

Yogesh

I still dont get it how its 11% , can you give the basic working ! . I assume its 11% CAGR return on the investments !

Manish

What yogesh is telling right. You can refer to the interest calculator provided by the INdiaPost on their website [http://www.indiapost.gov.in/Netscape/MIS_Int_Cal.html#MIS_Interest_Calculator], MIS + FD will yield 10.95% ROI PA.

Thanks,

Chakri

Rs. 10,000 invested for 6 years will give:

@10.95% per annum compounded annually = Rs. 18,653.6

@8.26% per annum compounded annually = Rs. 16,100

There is a lot of difference between a simple interest and compound interest.

which type of interest will be used by PO? whether it is Simple or compound interest ?

Thanks,

Chakri

Investment of monthly interest in Recurring deposit will only yield 8.26% CAGR. 11% is arithmetic interest rate and not a correct measure of yields.

Monthly Income Scheme offered by Post Office is also a good option. This is 6yr investment plan with 8% annual interest and 5% bonus at maturity.

http://www.indiapost.gov.in/Netscape/Banking.html

If u invest monthly interest in Recurring deposit then you will get 11% returns

http://www.indiapost.gov.in/Netscape/MIS_Int_Cal.html#MIS_Interest_Calculator

If you buy MIS through agent then he may offer you 1% of commission he will get.

Yogeshb

Even though it looks good to get 1% commission back from agent ,we should not encourage this thing , this commission giving back to customers has weaken the whole system of agents and because of this agents face lot of issues later when customers start asking for commission back and with thin commissions in mutual funds (from customers directly) , its becoming tough for them also 🙂

Lets not encourage it , 1% cant do anyone’s good or bad other than boosting ego’ and gratifying someone instantly !

Manish

Though you havent mentioned the time frame or the risk profile. In order of increasing risk/return profile, I suggest the following:

Option 1: Complete safety of the principal- Think Senior Citizen’s Savings Scheme or Post Office MIP. Refer to this article- http://economictimes.indiatimes.com/features/investors-guide/Senior-Citizens-Savings-Scheme-offers-regular-periodic-income/articleshow/5521404.cms

Option 2: The money is spare and you want to have a reasonable growth- Invest in a pure debt scheme and start a STP (Systemic Transfer Plan) to a balanced or pure large cap equity oriented fund. Or put the money in a debt plan and invest the dividends into a pure equity plan.

Option 3: Put money in a Debt oriented Balanced fund.

What do others have to say?

Hitesh

You can look at senior citizen savings scheme which will give 9% interest atleast for some years :0

Manish