investment in FD is better or investment in mutual funds

Ans: This will entirely depend on your risk profile, investment horizon, liquidity requirements and your tax bracket.

If FDs and MFs are being compared, then Debt Mutual Funds would be comparable from risk-return perspective to FDs. If you choose the correct category of Debt MFs, then from the perspectives of returns, liquidity and flexibility, Debt MFs would score better. If you stay invested for more than 3 years, you would save a huge amount of tax vis-à-vis FDs. As far as safety is concerned, please choose the correct category like Banking & PSU Funds, and similar categories if you want similar sfety to FDs.

Ans: Evaluation of Current Investments

Your current savings of Rs 1.22 crore is commendable. Having investments in mutual funds and fixed deposits shows a balanced approach.

However, evaluating the need for fixed deposits is crucial. Fixed deposits offer safety but low returns compared to mutual funds. Since you are retiring soon, it is essential to assess the balance between safety and growth.

Fixed Deposits: Pros and Cons

Pros:

Fixed deposits provide guaranteed returns.

They are safe and secure investments.

Liquidity is available but may come with penalties.

Cons:

Returns are lower compared to mutual funds.

Interest earned is taxable.

Inflation can erode the real value of returns.

Mutual Funds: Pros and Cons

Pros:

Potential for higher returns compared to fixed deposits.

Diversified investments reduce risk.

Flexibility to choose funds based on risk appetite and goals.

Cons:

Returns are market-linked and can fluctuate.

Requires regular monitoring.

May involve higher costs if not chosen wisely.

Assessing Your Needs

Given your retirement plan next year, stability and income generation become essential. Fixed deposits provide stability, but mutual funds can offer growth. A mix of both can provide balance.

Strategy for Retirement

Consider maintaining a portion in fixed deposits for safety. This portion can cover short-term needs. The rest can remain in mutual funds for growth. This strategy ensures a balance between safety and potential returns.

Final Insights

Your proactive approach is commendable. Maintaining safety with fixed deposits and growth with mutual funds can serve you well. Regular reviews with a Certified Financial Planner can ensure alignment with your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in