“Early bird catches the worm”
Dear Friends,
I reproduce below an article appearing in ET edition dated 4th Nov’16.
This article highlights alternative investments for Fixed Deposits.
This is exactly what I had advised though about a year back.
The idea is, one needs to preempt the happening and act accordingly in order to maximize the returns.
I give below a small note on the same.
The point to note here is that returns in Balanced funds are tax free while in Debt funds it is taxable. Hence even if an investor gets only 8 % return in balanced fund, he is better off as the same is tax free vis a vis FD investment which is taxable.
SO NOW WHAT SHOULD AN FD INVESTOR DO:
RBI has already reduced interest rates, and my expectation is another 50 bps reduction in next 12 months from now. FD investor has the following choices:
- Invest in NCD of companies – Return High- Risky –Not Recommended.
- Invest in Balanced funds in MF – Returns will be avg approx. 10% pa. But since large part of investment is into equities there would be periods where returns would be negative; hence it is only for people who have risk-taking capacity.
- Invest in Debt MF – This is an ideal alternative investment. Invest in long-term Accrual Debt fund.
Happy investing,
With warm regards,
Samrendra Tibarewalla, CFPCM
PS: You are the best manager of your money. Please take informed decisions only.
Disclaimer: The author in no way will be held responsible for losses incurred on the basis of above recommendations. The investors are advised to take independent decisions after verifying all facts.
FAQ: Alternative Investments to Fixed Deposits
1. What does the article dated November 4, 2016, from ET edition suggest about Fixed Deposits?
The article from the ET edition dated November 4, 2016, suggests looking into alternative investments for Fixed Deposits, aligning with the advice previously given by the blog about a year back.
2. Why is it important to act preemptively in investments?
Acting preemptively in investments is crucial to maximize returns by adapting to market changes and economic trends ahead of time, as highlighted by the investment strategies discussed.
3. How do the tax implications differ between Balanced Funds and Debt Funds?
Balanced Funds offer tax-free returns, making them more attractive compared to Debt Funds, where returns are taxable. This distinction is vital for investors comparing options to Fixed Deposits.
4. Why are Balanced Funds considered risky?
Balanced Funds, while offering potentially higher returns, invest a significant portion in equities. This can lead to periods of negative returns, hence they are recommended for investors who can tolerate risk.
5. What makes Debt Mutual Funds an ideal alternative to Fixed Deposits?
Debt Mutual Funds, especially long-term Accrual Debt funds, are considered ideal due to their structured returns and tax efficiency, making them a preferable alternative for investors seeking stability similar to Fixed Deposits.