Short Term Investment with good Interest ?
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State Bank of Patiala offering 9.75 % for 555 days for normal FDs. Comes out to about 10.11% annual after compounding. Rate is even more for senior citizens. Highest FD rates I've seen till now.
honest1: I had a substantial portion of liquid fund invested recently. I considered Debt Mutual funds and apart from the tax benefit, they do not, IMO, offer any benefit over the FDs. Even FDs are very liquid and most bank charge just 1% interest as penalty amount for premature withdrawal. Whats more, you can have the bank make a limit for you against your FDs which you can use as and when required by paying nominal interest, in my case about 0.5% above FD rate. This option is not available with Debt Mutual Funds. And as far as returns go, debt mutual funds also invest in a mix of FDs and corporate short-term debt so the rate of return is almost similar to that of a FD.
honest1: I had a substantial portion of liquid fund invested recently. I considered Debt Mutual funds and apart from the tax benefit, they do not, IMO, offer any benefit over the FDs. Even FDs are very liquid and most bank charge just 1% interest as penalty amount for premature withdrawal. Whats more, you can have the bank make a limit for you against your FDs which you can use as and when required by paying nominal interest, in my case about 0.5% above FD rate. This option is not available with Debt Mutual Funds. And as far as returns go, debt mutual funds also invest in a mix of FDs and corporate short-term debt so the rate of return is almost similar to that of a FD.
diversification makes sense when you are making a portfolio for investment, if I was investing my first 20K I would opt for the safest option.
Regarding the same advantage of MF - diversification, ITS A BIG DISADVANTAGE for me as someone else is playing with my money (the fund manager)
I have had experience with some SBI MF's where the fund manager kept changing every 2 years and the returns would have been higher in a FD in 5 years.
@honest1 The decision to choose MF and FD is a personal choice, based on profits you have made or stories you have heard from financial advisors.
Regarding the same advantage of MF - diversification, ITS A BIG DISADVANTAGE for me as someone else is playing with my money (the fund manager)
I have had experience with some SBI MF's where the fund manager kept changing every 2 years and the returns would have been higher in a FD in 5 years.
@honest1 The decision to choose MF and FD is a personal choice, based on profits you have made or stories you have heard from financial advisors.
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honest1
Herald
On what basis you are saying that FD is the safest and MF Liquid is less safe?
Fund Manager dont play with your money, they are much more qualified to make better investment decision than me and to all those who dont have expertise in this field. ( you may be qualified to make investment decision for yourself).
And please dont compare any fund with FD. Equity funds are very much different from FD and have different investment horizon and risk profile.
What kind of logic is that? Please don't use similar logic while investing in mutual funds coz you will only buy the one with smallest NAV.
Don't EVER think in terms of quantity of units you can buy. Only think in terms of percentage of returns expected.
For example, lets say one unit of gold is Rs. 3000 and one unit of silver is Rs. 50. You have Rs. 3000 with you and you can invest in either. In gold you can buy only 1 unit where as in case of silver you can buy 60 units (OMG! /jk). Lets say after 6 months Gold appreciates by 10% and silver appreciates by 5%. So investment in gold will become 3300 and that in silver will become 3150. Get it? it all comes down to % increment and it does not matter how many units you held during that period because the investment amount is equal in both cases.
I'd suggest invest in Gold. Gold has surged more than 33% in the last 1 year and with the volatile markets, gold would be extensively used for hedging.
Get a 5gm gold coin from reputed jeweller (or chain) who would take the same back and return as per the prevailing rate when you try to sell it. This is the best bet. remaining amount of approx 4k, you can keep in FD.
Get a 5gm gold coin from reputed jeweller (or chain) who would take the same back and return as per the prevailing rate when you try to sell it. This is the best bet. remaining amount of approx 4k, you can keep in FD.
Basically till a bank does not collapses, my FD is safe. But a MF liquid fund can invest in corporate FD's (Shriram transport, etc) that are less risky in comparison to equity but the reason for higher interest rate is higher risk in comparison to a banks FD
I agree they are more qualified, but I stated an instance where fund manager kept changing for a fund and this brings instability to a fund. This is an exmaple and I am not generalising.
The aim is to make profit on money, so I have the right to compare two money making instruments.
Exactly, so my recommendation is an FD and yours is an MF. I believe we both can have different opinions.
honest1
Herald
You are putting your money in only 1 bank. So if it collapses, you money is gone. Here comes the diversification in MF, even 1 Company or bank got busted in MF, there are other investments also and thus you are not going to loose all your money. Even if MF invest in some risky avenues, they make sure that they balance it out with investment in less risky assets too.
Moreover, the money which you put in as FD, is also going to be given as loan to people/organization of which many dont fully return it back. So its a myth that FD is a secure investment.
Nothing is secure except Government securities, and that is why MF dont put money in one kind of security. They DIVERSIFY.
(Now G-Secs are also not secure, Countries are defaulting too nowadays :scared14
Right, it cant be generalized.
No, you cant do that. You need to compare investment with respect to their risk and maturity profile. Going by your logic, we should never put money in FD as Options or forex trading have given many folds folds return as compared to FD!
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Right, we may have different opinion but facts cannot be different!
And banks have a much much bigger profile than any MF, and even they do diversify - Personal loans (high risk, high interest), Home loans (low risk, low interest).
And banks have NPA's and they set it off their way but never go back to customer and say that since we had a loss we wont be paying you the promised interest rates.
Basically I have seen every few months theres a new fund thats top ranked and older funds can lose performance, but with an FD I am assured a interest rate. I prefer peace of mind instead of shuffling my money into various MF's
Risk and maturity profile decides what instruments I should use, but the aim is always same - Making money. (So I would still compare them
)I never said you should not invest in options/forex trading, lets keep our discussion limited to the OP's need (First time investor)
You are putting your money in only 1 bank. So if it collapses, you money is gone. Here comes the diversification in MF, even 1 Company or bank got busted in MF, there are other investments also and thus you are not going to loose all your money. Even if MF invest in some risky avenues, they make sure that they balance it out with investment in less risky assets too.
Moreover, the money which you put in as FD, is also going to be given as loan to people/organization of which many dont fully return it back. So its a myth that FD is a secure investment.
Nothing is secure except Government securities, and that is why MF dont put money in one kind of security. They DIVERSIFY.
(Now G-Secs are also not secure, Countries are defaulting too nowadays :scared14
Dude even putting all your money in just mutual funds is not correct. And contrary to your beliefs, a mutual fund has a higher chance of failing to deliver returns vis-a-vis a bank FD. Just pick up any mutual fund, go through their last 4 years track record and see for yourself, they have not given very stellar returns. And if you were one of the unlucky ones who invested at the height of the market in Jan'08, you would be lucky if you even have your principal back till now forget about the returns, no matter how "diversified" the mutual fund was. A mutual fund has no implied guarantee of return. At the end of the day, even if it loses your principal you can't claim anything from the mutual fund company (yes it has happened and you can google it) but a FD is an instrument guaranteed by the bank and the bank, if big enough, is in turn guaranteed by the government.
You should invest in mutual funds for higher returns and it is definitely a better option than investing in individual shares. But there are no guarantees on returns of even your principal. An FD whereas guarantees your principal and offers a fixed return at the end of its tenure but then the returns are low. Investing depends on your risk appetite and bent of mind.
P.S: you started your discussion with Debt mutual funds which is definitely a better option than FDs from a tax perspective but now you have moved your argument to Equity Diversified mutual funds which is a totally different asset class all together. You simply cannot compare a FD and an Equity Mutual Fund on any level.
P.P.S: Liquid or Debt mutual funds do offer diversification but only on paper as they generally invest in AAA+ to AAA rated bonds and deposits, which offer the same or slightly more rates than FDs. Infact in some liquid funds, your total outlay would be even lower than the FD as the funds also deducts its fund management fees from the returns. The only benefit of these funds is that dividend is tax free and after one year you get LTCG or indexation.
honest1
Herald
LOL, Where I compared equity MF with FD? Are you reading my comments ?
Since the discussion has started, I repeatedly mentioned that investment should be made by keeping in mind the risk profile and maturity profile!
Govt does not guarantee your funds of the bank s BIG enough! Please dont spread any myth.
And where I mentioned to put all the money in Mutual Funds only? Since the amount is less to be diversified, I have suggested the OP to put money in Liquid Fund.
FYI.... Reserve Bank of India
And please also name any major bank which has failed in recent history and the government has not stepped in to bail it out...just name one. And forget about banks, governments have bailed out big corporations for the simple reasons of job protection. Anyway we are going way off topic here, suggest you start a new thread where you can share your immense knowledge of personal finance with the rest of us
NinByChoice
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