POSTED BY October 23, 2012 1:54 pm COMMENTS (6)ON
hello sir.. i am a 36 yr old marine engineer with an annual income of 40 lkhs per annum..i wish to start investing my money for my retirement and also for my 2 kids education + marriage etc..( till now liabilities like owning a flat and car and my education etc).. going through different schems i found investment and insurance should not be together.. but now while going through different schemes came to understand that even top performing mutual funds like HDFC top 200 gave only 7.9 % returns annualy for the last 5 yrs.. considering most of the banks gives 9 % intrest for NRE FD’s is it wise to deposit the hard earned money in FD’s rather than to invest in not so sure performing mutual funds and not to waste hard earned money?? for the insurance purpose i would like to go to a pure term plan only…
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6 replies on this article “which is wise…mutual fund or fixed deposits??”
Dear Sareen, w’d you have only Rice in your meal on daily basis or only Dal or only Chapatis or there ‘ll be a combination of all these?
Fortunately both instruments are there for a purpose.
For long term investors, the extraordinary years of 2008-2012 came up as a shock. Never in the history of mankind it would have come that even countries would default – and if such situations happen, the equity markets would be reacting negatively. But like every news, the current situation would have an end life. After that the markets would stabilise and go north – it is then when Equity MFs would score ahead of FDs.
I definitely agree that NRE FDs are a good options, but you need to remember that even if you go for a 5 year FD, the max return is pre-determined – i.e. 9%. After 5 years, if the interest rates are quoting at 6%, you would have no option but to invest at just 6%. Contrary to that, Equity Markets don’t quote a maximum return and hence even after 5-10 years, they would continue to perform at an average rate. In my opinion this rate should be around 1.5 times of the average interest rate in the economy – else why would the businesses be doing their business. They would rather shut down their shops and invest into FDs and earn 9%.
Hence, a prudent financial planning would be to invest in a mix of FDs and MFs. The mix depends upon individual circumstances. One way to play with NRE FDs and MFs is also detailed in my note on http://insight.banyanfa.com/nre-fixed-deposit/
Banyan Financial Advisors
You do not understand how equity works in that case, I would recommend you also look at the same fund return from 2003 to 2007 . you will see that its return is above 20-30% per annum, so you are looking at a very biased time frame , which is nto a true reflection of what the fund can do in very long term .
I also invite you to read the 3rd chapter of my Book jagoinvestor which will clear the myth of equity and debt . http://www.flipkart.com/books/9380200415?affid=INManish2
further to question..my doubts are cleared in that section..just today i received ur book also..but lets say a 10000 monthly SIP to same plan …after 10 yrs whatever the returns how is it getting taxed…and also whatevermoney i invested for next 10 yrs can i just stop depositing and wait for “n” number of years without investing for a good return??
Neither is dearer from the other, a defensive investor should try to balance 50-50 in stocks and bonds both. Still based on the mindset of the investor, he may increase bond component to not more than 75%
stocks beat inflation and are potential for better returns but have a risk factor. bonds provide safety/guarantee but provide flat rates.
Mutual Funds give very good return in long run. If you have longterm vision like 10-20 years then MFs are definitely better. If you have gone through the articles then its not suggest to do FDs for long term as they can beat inflation. But your portfolio should be divesified. Put 60% in good MFs and rest in debt fund/PPF, gold/silver, etc.