Mutual Funds an Alternative for Fixed Deposit Investors

Fixed Deposits are one of the most preferred traditional investments in India. We have seen our parents & grandparents use to park their money in Savings Bank A/c & Bank FDs as millions of people in India still put their savings into Bank FD’s because they think it’s one of the best investment option available. But, do you really think it is as lucrative option today as it was before?

If you are still looking to invest your money in outdated term deposits, it’s time to check out the returns!! The interest rates are less than 7% which further gets eroded after Tax & inflation.

Must read: Buying a Life Insurance is all about Buying a Term Plan

As you can see from the data below where State Bank of India’s current FD rates are 6.25% That means if a person who falls under highest tax bracket (30%) + applicable cess where Post Tax returns will come to around 4.168%

SBI Fixed Deposit Rates

(Image Source: SBI )

NOTE: The interest you earn on your bank FDs is added to your income & get taxed as per your income Tax Slab. And what if we consider inflation which is hovering around (6-7%) after that the effective real rate of return is 0 (zero) or may be negative.

That means you are actually not generating any returns post tax & inflation on your investments if you are investing it in Bank FDs, So to make your money work for you, you need to find better investment options that have a potential to generate you a descent real returns (post tax & inflation). The time has changed and with the change in time your investment habits should also get changed.

Its high time to take a prudent look for better investment avenues that can generate a descent real returns on your investments for you. As there are better investment options available in the market such as Mutual Funds which one must consider it as alternative to their existing investment options.

What are Mutual Funds?

What are mutual FundsMutual Funds are pool of funds where all the investors invest their money and then that money is further managed by Fund Managers who are expert in security selections and their aim is to find the best securities to generate better returns on investments of their investors.

You might have heard this famous disclaimer, “Mutual Funds investments are subject to market risk, please read scheme related documents carefully.”

I must tell you because of this line many investors have lost the opportunities to create wealth from one of the best investment options available.

Do Not Let this statement scare you, because Mutual Funds Sahi Hai… So stay relax and be rest assured because You have took the best decision if you have chosen Mutual Funds as must investment option in your portfolio. It is one of the best financial product available in the market.

But do not try to make easy money out of it because Investing in Mutual Fund is not a child play like most people think it’s just as easy as you see recommended funds based on past returns on famous financial portals and put your hard earned money into them without even analyzing your risk appetite.

Before investing in Mutual Funds, It is very important to know the basic concept & fundamentals.

If you are beginner don’t just get lured by the performance of equity mutual funds. However, Investments in Mutual Fund should be decided on the basis of:

  • Financial Goals
  • Time Horizon of Goals
  • Asset Selection
  • Risk Appetite

On the basis of different time horizon’s there are different funds.

For example:

  • 1-90 Days – Liquid Funds,
  • 91-180 Days – Short Term Debt Funds,
  • 6M – 3 Years – Debt Funds
  • 3-5 Years – Hybrid Funds
  • 5 Year & above – Equity Fund etc.

Note: These are just a general process not any advice or recommendation. Please contact financial advisor before taking any financial decision.

On the other hand, it requires knowledge, skills & certain level of expertise.

Investing money in a good fund with a perspective of long term doesn’t mean your job is done.

It requires a timely review as well as rebalancing based on asset allocation as per your investment needs which is one the most important actions need to be taken to make sure your investments are aligned as per your goals and generating descent real returns.

I even figured out that people have questions like these…

Have I picked up the right scheme or shall I change my portfolio?

I have seen people investing on the basis of returns as they just get lured from the performance of the fund which they figure out by exploring different financial portals on the internet and also Many people start investing directly in Mutual Funds without having any clue about what they are picking and putting money into.

You might pick a great scheme but it may turn useless for you if it does not match your risk profile & investment horizon.

Mutual Fund is a beautiful tool which if used properly helps you to achieve all your financial goals.

On the other hand, it is very important to know What are Mutual Fund and How they actually work…Otherwise you may end up with disappointing results when it comes to achieving your financial goals.

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