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Short-Term Investment Advice for a 12-18 Month Period: Fixed Deposit or Low-Duration MFs?

Ramalingam

Ramalingam Kalirajan  |8204 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 04, 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
Asked by Anonymous - Nov 04, 2024Hindi
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Hi, Which option is better for short term investing for a period of 12 to 18 months? Fixed deposit or Low duration MFs? Thanks in advance.

Ans: Your question highlights an important choice for short-term investments. Both Fixed Deposits (FDs) and Low Duration Mutual Funds (MFs) are viable options. Each has unique advantages and suitability for different goals and preferences. Below, I’ll provide a detailed analysis of both to help you make an informed choice.

1. Safety and Stability
Fixed Deposits: FDs offer guaranteed returns. They provide fixed interest, making them stable and secure. This makes FDs highly reliable for risk-averse investors. The deposit insurance up to Rs 5 lakh adds extra security.

Low Duration Mutual Funds: These funds invest in debt securities with short maturity. Returns fluctuate slightly based on interest rate movements but are generally stable. While they are low-risk, they carry a slight market risk due to interest rate changes.

2. Potential Returns
Fixed Deposits: FDs typically offer returns between 6% to 7%, depending on tenure and bank. While stable, they might not outpace inflation over the long term.

Low Duration Mutual Funds: These funds have the potential to offer slightly higher returns than FDs. Historically, returns range from 6% to 8%, though past performance doesn’t guarantee future returns. Their returns are not fixed and depend on prevailing market interest rates.

3. Liquidity and Flexibility
Fixed Deposits: FDs can be liquidated, but they usually have penalties for premature withdrawal. Partial withdrawals are generally not allowed, meaning the entire deposit may need to be closed. This could limit liquidity if funds are needed urgently.

Low Duration Mutual Funds: Low duration MFs are more liquid. Redemption is simple, and the funds are usually credited within a day or two. This makes them ideal if you anticipate the need for quick access to funds. However, check for any exit load, as some funds may charge a small fee for early withdrawal.

4. Tax Implications
Fixed Deposits: Interest earned on FDs is fully taxable according to your income tax slab. This taxation reduces the effective return, particularly for individuals in higher tax brackets.

Low Duration Mutual Funds: Gains from low duration MFs are taxed based on your income tax slab if redeemed before three years (short-term capital gains). For holding beyond three years, long-term capital gains tax is applicable, with indexation benefits. This taxation difference can make MFs slightly more tax-efficient if held for the medium term.

5. Inflation Protection
Fixed Deposits: With fixed returns, FDs might not keep pace with inflation over time. Their real returns (after adjusting for inflation) could be lower, affecting purchasing power.

Low Duration Mutual Funds: Due to their exposure to market-based returns, low duration MFs may better adjust to changing interest rates. They have a higher chance of outpacing inflation, providing better real returns over 12-18 months than FDs.

6. Investment Horizon Suitability
Fixed Deposits: FDs are ideal for short-term goals if stability and security are priorities. If you’re highly conservative and prefer fixed returns, FDs might be suitable.

Low Duration Mutual Funds: If you can handle slight market fluctuations, low duration MFs can provide competitive returns. They offer the potential for slightly better returns than FDs, along with better liquidity.

7. Expenses and Charges
Fixed Deposits: FDs don’t involve any charges apart from possible penalties on premature withdrawals. This makes them straightforward and cost-effective.

Low Duration Mutual Funds: MFs incur a nominal expense ratio, generally between 0.3% to 0.5%, for fund management. This cost is often covered by the fund’s returns but should be factored in as part of your investment planning.

Final Insights
For short-term investment over 12-18 months, FDs are best for stability and predictability. However, if you seek slightly higher returns and are comfortable with minimal risk, low duration mutual funds could be a good option. Reviewing your risk tolerance and goals will guide you in choosing the right path.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Asked on - Nov 05, 2024 | Answered on Nov 05, 2024
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Thanks a lot Sir for your reply.
Ans: You're welcome! If you have any more questions or need further assistance, feel free to ask. Best wishes on your financial journey!

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ans: Hi Sammer,

An adviser/company to be categories as good or not is a bit subjective. I say this because you may find people who have had a good experience with them and those who did not have a good one.

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...Read more

Anu

Anu Krishna  |1585 Answers  |Ask -

Relationships Expert, Mind Coach - Answered on Apr 09, 2025

Asked by Anonymous - Apr 06, 2025Hindi
Relationship
Hi Anu! Am a 55yr old Telugu NRI Male. Father of 3 daughters (27, 23 & 18). I luv all 3 of them more than my life. I have struggled extremely hard in my life to reach this position. And, have given my best to them always. They know about that. But, what they have done has broken me. All 3 of them r NRIs like me, and Engineers. Elder one is a Masters from USA. Younger one still studying. I had planned the marraige of my elder one when she was 23. I had already conveyed this to her in advance, for which she agreed. I clearly conveyed to her, that, having 3 daughters, I cannot afford any experiments. Only, if I plan to settle off all 3 of them in a proper and phased manner, I can finish off my duties for the youngest, by the time Im 60. Else, things will become challenging if any one of them delays for any reason, and being in a Gulf Country, I loose my job anytime, or, if I have to return due to health issues, we cud become challenged financially. Effecting the settling of my daughters. So, when I went to India around 4yrs back to initiate the plans for her match making, she stunned me by conveying that, she likes someone (a Telugu but from a different equal caste). Though stunned at her reversal, I went along, and decided to approach the Boy's father, who was a close friend. But, I was in for a bigger shock, where, the Boy's father (my friend) himself approached me, and conveyed in quiet an abrupt manner, that, he is against an intercaste marraige. I conveyed this to her (my daughter) and my wife, in front of my other 2 daughters. To my surprise, i found all my 3 daughters totally silent on this subject. Except my wife, who supported me on the insult I had to face from the Boy's father (my friend). None of my daughters felt pricked at the way he conveyed his message to me. Until this incident, my wife too was supporting my daughter, despite fully knowing that she had reversed from he initial agreement. But, this incident took her away from her support and towards the family respect. This was resented by my 3 daughters against my wife. So, after this, I started to build pressure on my daughter, conveying that, lets put this behind us, and lets proceed with seeing matches for u. She conveyed that, she needs time to heal. I asked her how much time? 1month, 2 months, 6months a year? She wasnt clear about that, which made me upset. And defeated, I left back to my job outside India. Suddenly, out of the blue, I was informed by my wife, that, she has done GRE, and got a very good score of 325/340. And, she plans to go to USA for her Masters on Scholarship. I was surprised, that, I had spent Rs.40K to join a Guidance Class to help her get a good score, which she cud not the 1st time. But, this 2nd time, how cud she get such a good score without any gudance? What was her motiivation? Whatever be the case, I felt proud of her achievement, and agreed to fund her (close to 60 Lakhs). I felt that, getting such a good score, she shud seek admission in a prestigious University, whatever be the cost on me. I had conveyed to her thro her Mom (as we werent on speaking terms), that, this money is for her's and her Sisters marraige expenses, whenever their marriage comes. I had kept aside 20 lakhs each for each of my daughters exclusively as marriage expenses. And, she has to return that amount once she starts earning. This is usually what all kids going to USA for their Masters do. They return back the money taken from their Parents, or pay back the Bank Loans. But, I payed off the Bank Loan (full 60 lakhs), so, that, the interest doesnt burden her, and asked her to pay me back when she can. Condition being, she has to pay back a min 20 lakhs in time for her marraige expenses. I was further stunned and shocked by 2 more reveals. One that, she took the step to do Masters, as the Boy too was in USA, and she followed him there with his concurrence. Which again, she hid from us. 2nd being, she also took this step to escape the marraige pressure from us in the aftermath of the Boy's father's insult to me. All these 3 yrs, she never bothered to even ask or enquire about the Financial Burden her expenses has caused to the Family. Let alone trying to convey how she plans to repay them back. Worse these 3 yrs, she doesnt attend our calls (specially her mother's, as I dont call at all), talks to her Mom in a haughty tone. Seeing her, my other 2 daughters too behave with their Mother, and at times with me to the same way. As if, it is our duty to ensure that, we provide everything to them, and when they ask. Now, it has also become clear thro my 2nd daughter that, my elder one is going to marry the same guy. Where, frankly, me and my wife dont care much about at this stage. But, this betrayal by her and the following her footsteps by her Sisters is eating me day and out. And I feel my life slipping away from my hands. I lost my only Sister, around 25yrs back. Then my Mother around 16yrs back, and my father around 4yrs back. Im alone with just my wife as my Companion. Im financially well off, but, seem to have lost my will to live. I want to live only till my 3rd daughter settles in life. And bid good bye. But, each time I think in such a way, my wife's picture comes in front of my eyes. Me and my wife luv each other a lot. I have not been a perfect husband to her. But, she has always loved me with her full heart, despite her initial mistake in supporting my elder daughter on her actions. The purpose of this query, is not for guidance, but just for sharing my pain, which, I cannot share with anyone. Not even my wife. Else, she will be devastated. She too is extremely pained with the attitude of my daughters.
Ans: Dear Anonymous,
Since you have mentioned that you don't seek guidance but just wanted to share the pain; thank you for writing in and sharing and I wish you well in life and can only hope things get better for you...

All the best!
Anu Krishna
Mind Coach|NLP Trainer|Author
Drop in: www.unfear.io
Reach me: Facebook: anukrish07/ AND LinkedIn: anukrishna-joyofserving/

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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