RD or FD or PPF

POSTED BY sonadhi ON January 16, 2013 10:48 am COMMENTS (19)

My baby girl is about to complete her three years.My target is min.25 alcs at her age of maturity i.e.at the age of 20 yearsI am not sure on how to invest for her.Confused to go for Rd/FD or PPF.Also interested in Mutual funds,but no knowledge.Think for LIC plans for children but they have very high rpemiums with less benefits.Confused between what is difference between ELSS & SIP.Also read great article on how to create child policy by Manish-Jagoo investor.Not able to have the financial planner at this stage.Also paying heavy EMIs.Who can guide me.

19 replies on this article “RD or FD or PPF”

  1. dear Kamlesh, are you asking for preclosure of 5Y bank Fd for 80C? Sorry my dear friend, this is not possible in any situation. You have to wait till maturity.

    Thanks

    Ashal

    1. kamlesh patel says:

      Thanks :).

  2. kamlesh patel says:

    Hi Ashal,

    Please let me know is there a way to close 80 cc FD which is for 5 year. If I could do that then it will save me from paying EMI of 4 years.

    Thanks in advance.
    Kamlesh.

  3. Sonadhi

    Lets quickly do your financial plannng . Based on your information till now here is what you need to do

    1. First step is to restructure your finances, Restructuring is required because cash flow is important to be planned,. Unless your cashflow is planned properly , things will be tough . So first ask why you are paying that 5,000 per month in LIC , how old it is ? What benefits are you getting out of it . The way I see is , You are taking lot of pressure each month for a bad outcome at the end, its not going to give you returns of more than 5-6% at the end, so better make the policy paid up . This way you will release 5,000 per month .

    2. Your RD of 5,000 is fine , let it go so that at one side , some money is secured. The 5,000 which is release out of LIC should be redirected to 2 good mutual funds through SIP . You said you do not understand Mutual funds, and hence not able to act . Trust me , Mutual funds are mainly for those who do not understand stocks and markets that well , there is nothing to understand there much , More than knowledge you need “descipline” here . All you need to do is start a SIP of Rs 2,500 per month in 2 funds . like HDFC prudence , DSPBR top 100 , HDFC Equity etc . Any of two will do .

    3. Better take a Term plan first for a good amount , like 50 lacs or 1 crore . Premiums will be a lot smaller compared to what you pay in LIC right now and it will be a yearly committment which you can do .

    4. I think over next 6 months , you should also create your emergency fund, because right now your EMI is 21,000 , but because of movement in interest rates, it might go up and down , so you should factor in for that !

    5. Wealth will get created over a long term , short term focus should not be too much on what is performing in which manner , more than returns , right now just focus on your descipline and how you can increase your investments overtime .

    I hope you got some good answers and value out of this thread .

    Let us know if you feel more relaxed and did it serve you ?

    Manish

  4. Dear Sonadhi, please stop your LIC policies right now. Purchase a good term cover for you say 10-15 times of your yly income. @ 45000 Rs. mly it translates into nearly 6L Rs. yly income. So you should have a term cover of around 1Cr. Rs.

    The prem. ‘ll be very less for this, if you are purchasing online. Please check some online term covers from Aegon Religare, Aviva, HDFC, Kotak, Metlife, IPru…..

    These are indicative names only & not the order of selection.

    Start investing the sved prem. into Eq. MFs as well as divert a part of your RDs also into MFs. On yly basis you can easily invest more than 1L Rs. as of now in MFs which is around 9000 Rs. mly not bad to start with. later on as & when your cashflow permits, increase your investments.

    Thanks

    Ashal

  5. sonadhi says:

    In totality, I pay LIC premium of 47945/year.those r not ULIP based.general insurance for my nominee that is my baby.And per month,I pay Rs.5000/- in her RD account.
    Don’t know how u r going to guide me
    Thanks,
    Sona

  6. Dear Sonadhi, May i knwo the details of your LIC policy for that 4000 Rs. & RD for 5000 Rs. ?

    Thanks

    Ashal

  7. sonadhi says:

    Dear P.M,
    You are right.Bit for ease of understanding, I hv considered 20 years.Gone thru the link but nt understood “what is RoI of current invest.” good calculator.Thanks for the practical approach.
    Sona.

    1. Thanks. RoI is rate of interest corresponding to investments already made.

  8. sonadhi says:

    Yes Ashish,
    but you will be surprised to know that how m managing 🙂
    My intake salary-Rs.45000/-/month from which Rs.21000 goes for EMI,
    Rs.13000/-expenses monthly
    LIC-4000 monthly,
    Rd-5000/monthly
    Income Tax-1500/-probably
    NO other source for income.
    In coming months,willing to have a Term Plan.But the priority will be for my baby’s future.
    Still gotta guts na.. 🙂
    Thank you for the concern.
    Thanks,
    Sona

    1. I am curious as to why you have set the maturity date when you daughter turns 20. Assuming you are planning for her education you would need the money in 14 years when she completes her 12th std.

      You need to save 6500 each month at 12% interest for 14 years to get 25 lac when she completes school.

      Start a SIP in HDFC prudence as recommended by Vikash.

      You can use this child planner to plan better

      http://freefincal.wordpress.com/comprehensive-child-planner/

  9. Dear Sonadhi, may I know the current EMI, mly expenses, mly income & mly investment details from you?

    thanks

    Ashal

  10. Vikash says:

    Yes, MF has some risk but for 15-20 years, risk is very little. Also, IDFC Premier Equity is not small cap but mid-cap fund.

    If you don’t want any risk, then go with PPF. It is better than FD/RD since it’s has no tax implication. You can expect around 8% return over a period of 20 years.

    Even Inflation is 8%. Hence, you will not able to gain more than inflation.

    if you can take some risk, then go with HDFC Prudence (Balanced) or/and HDFC 200/Quantum long term equity (large Cap). You can expect 12% or more return over a period of 15-20 years. Risk is negligible due to SIP.

    Now, It’s depends on you what you decide.

    Regards.

    1. sonadhi says:

      Thanks Vikash for the in detail explainations!
      Certainly,SIP seems to be good for me at this initial stage.Will get back to you.
      Great answer1
      Thanks,
      Sona

  11. sonadhi says:

    Dear Vikash,
    I agree on what you have rightly said.but I believe that to choose large cap fund is a bit risky as compared to the small cap.Being a small investor,I am thinking for SIP.I appreciate your knowledge & thank you for your valuable time.& thanks to jaggo Investor Team for the great platform for us.Thanks Vikash & Manish!

    1. Ramesh says:

      Explain your statement – “I believe that to choose large cap fund is a bit risky as compared to the small cap”. ?

      How.

      1. sonadhi says:

        Dear Ramesh,
        I already mentioned that I have a poor knowledge on MF.The things might be exactly reverse sometimes.I mean even sometimes the small cap can be of high risk but with high value returns.But by seeing the last year,the investment in the large cap was with less returns comparatively for the small investors.Off-course,this is my personal understanding!The great people on the dashboard can have more mitigations on this.Thank you for your time.
        Regards,
        Sona

        1. Ramesh says:

          Then, please increase your understanding of finances.
          Some links for that:

          1. You can start with a few books.
          2. Check this video too: http://www.youtube.com/watch?v=WEDIj9JBTC8
          3. Then you can go through this forum.
          4. http://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

          And understand this, it is your money and you need to understand how to manage it in a good manner and be responsible for the good and bad of that. There is no alternative to self-learning. The above video is less than an hour.

          Keep learning and investing.
          Ramesh

  12. Vikash says:

    For long term (15-20 years), Equity outperforms other asset class. Also, do remember if you need 10 lakhs now, then it means you might need close to 40 lakh after 20 years due to 8% inflation year after year.

    Therefore, Invest money in equity oriented MF.

    Choose 2 funds like HDFC Prudence (Balanced), Quantum long term equity (Large Cap) and IDFC Premier equity fund (Mid/Small Cap). Choose growth option. Invest some money every month. Choose Systematic Investment Plan (SIP), so that you don’t have to time the market and risk will reduce.

    If you invest 4,000 every month, after 20 years at 12% return will become 40 lakh. You can also invest some money in PPF as it also give you tax benefit.

    Regards,
    Vikash

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