Hello sir, regarding previous question on 3.5 cr corpus and wants return of 1lakh per month. Why cant he simply keep it in FD @7% interest and get 2lacs income monthy.
Ans: Your question raises a valid point about the simplicity and perceived safety of Fixed Deposits (FDs). While FDs offer a guaranteed return, there are some aspects to consider when opting for them as a primary source of income:
Inflation: The 7% FD rate might seem attractive now, but inflation erodes the purchasing power of money over time. A higher FD return might be necessary to combat inflation and maintain the real value of the invested amount.
Taxation: Interest income from FDs is taxable as per the investor's income tax slab. For someone in the higher tax bracket, the post-tax return might be significantly lower than the pre-tax return, reducing the effective yield.
Liquidity: FDs typically come with a lock-in period, and breaking them prematurely might attract a penalty. This could impact liquidity, especially in emergencies.
Interest Rate Risk: In a falling interest rate scenario, locking into an FD at a lower rate might result in missed opportunities for higher returns from other investment avenues.
Diversification: Putting all the corpus in FDs exposes the investor to concentration risk. Diversifying across different asset classes can help in spreading the risk and potentially enhancing returns.
While FDs offer safety and guaranteed returns, it's essential to consider the impact of inflation, taxation, and liquidity needs. A Certified Financial Planner can provide personalized advice considering the investor's financial goals, risk tolerance, and income needs. They can help in designing a well-balanced portfolio that meets the income requirements while ensuring capital preservation and growth over the long term.
Remember, while FDs can be a part of the investment strategy, relying solely on them might not be the most efficient way to generate a monthly income of 1 lakh from a 3.5 cr corpus, especially when considering factors like inflation, taxation, and investment opportunities in other asset classes.
