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Ramalingam Kalirajan |7720 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Apr 17, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by Raja on Apr 17, 2024Hindi

Sir, i have 25 lakh in FD and another 18 lakh FD which has OD limit. In such case what would you suggest combining both and making a fresh FD @7.25% or Mutual fund equity based @ %?. bank FD will incurr some 27000.00 per month and equity based mutual fund will incur 33000.00 per month, which will reflect in my savings a/c. What would you suggest?

Ans: I can offer a breakdown of the two options and some factors to consider when making your decision:

Option 1: Combine FDs and Make a New FD @ 7.25%

Pros:

Safety: Fixed deposits are considered a low-risk investment with guaranteed returns.
Regular Income: You'll receive a fixed monthly interest payout.
Liquidity: You can typically break FDs before maturity (though with penalties).
Cons:

Potentially Lower Returns: Historically, equity mutual funds have offered higher potential returns than FDs over the long term. 7.25% might not outpace inflation over time.
Taxation: Interest income from FDs is taxed as per your income slab.
Option 2: Invest in Equity Mutual Funds (SWP)

Pros:

Potentially Higher Returns: Equity mutual funds have the potential for higher returns compared to FDs over the long term (10+ years).
Growth Potential: Your investment can grow over time, potentially outpacing inflation.
Cons:

Market Volatility: Equity investments carry market risk, and your returns can fluctuate.
No Guaranteed Returns: Unlike FDs, there's no guarantee of returns in equity markets.
SWP Set-up: Setting up an SWP (Systematic Withdrawal Plan) might require planning to ensure enough liquidity for your monthly needs.
Additional Factors to Consider:

Investment Horizon: A longer investment horizon (10+ years) generally favors equity mutual funds for potentially higher returns.
Risk Tolerance: Equity markets can be volatile. Consider your comfort level with potential fluctuations.
Financial Goals: Are you saving for retirement, a child's education, or a short-term goal? This can influence your risk tolerance and investment choices.
Emergency Fund: Ensure you have an adequate emergency fund outside of this investment to cover unexpected expenses.
Here are some suggestions:

Consult a Financial Advisor: A qualified advisor can assess your risk profile, financial goals, and recommend a suitable investment strategy combining FDs and equity mutual funds (through SWP) to meet your needs.
Consider a Hybrid Approach: You could invest a portion (say 60%) in equity funds for growth and the remaining (40%) in FDs for regular income and stability.
Start an SIP in Equity Funds: Instead of a lump sum investment, consider a Systematic Investment Plan (SIP) in equity funds to rupee-cost average and potentially reduce risk.
By carefully considering these factors and consulting a financial advisor, you can make an informed decision about how to allocate your 43 lakhs between FDs and equity mutual funds to achieve your financial goals.

Asked on - Apr 20, 2024 | Answered on Apr 22, 2024

Thank you.

Ans: Welcome :)

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