7 Replies to “Which is better for monthly investing,mutual funds or rd account?”

  1. It seems that you want to invest for a long period. It is suggested that u should invest in PPF (Public Provident Fund) with some banks or Post Office. It is for minimum for 15 years. The maximum amount you can deposit in this account is Rs. 70000 per year and minimum amount is Rs. 500. You are allowed to avail only 12 deposits maximum in a year irrespective of amount . You also get income tax rebate on it,

  2. I believe you are a young man below the age of 40, so you may take some risk on your investments in order to gain some.Go for 4 very good, well performed MF for SIP of Rs.500/m each, in Growth option. You may expect your return after 10 years @ 15%. Market is down, this is the time to invest in MF.
    Wish you very good luck.

  3. Mutual Funds through the SIP route are your best option. They beat inflation, are strong in cost averaging and benefit from the power of compounding. Historically, equities have given returns of 12-15% pa.

  4. ICICI is offering 8.50% for fixed deposits for a period of 10 years (from http://www.ratekhoj.com). You can get more than 10% return for 10 year fixed deposits in other banks. I would consider splitting the money between SIP and RD for a balance between risk and return.

  5. Re: Tax implications

    1. Mutual funds are exempt from long term capital gains tax, currently. Long term capital gains apply if you dont sell your units before 1 year of investing in them. If you do sell in less than 12 months of investing in a MF, you pay short term capital gains tax, which is now @15% of the profits made. PPF investements are also exempt from tax currently when you withdraw the funds.

    2. Recurring deposits, FDs, or NSCs or Post Office deposits all have income tax implications and are added on to your taxable income

    Re: Possible returns after 10 years of staying invested

    1. If you play completely safe and say invest all your money in PPF @8% compounding, your Rs 2000 invested every month or RS. 24,000 invested annually will grow to 11,86, 150. This amount is guranteed by the way, unless the govt tinkers with the PPF rate. You can do this calc simply in excel by multiplying 24k * 1.08, and adding 24K to the previous years value and again multiplying by 1.08. Do this for 20 yrs and you will see the above value of Rs. 11,86, 150.

    2. If you can take slightly higher risk and split the available 24,000 equally between PPF and a reputed mutual fund like HDFC Prudence for example. You will get 8% compounding with your PPF and say 15% compounding with HDFC Prudence. PPF will grow to Rs.5,93,075 and HDFC Prudence may grow to Rs.14,13,721; Totally, a nice sounding Rs. 20,06,796!!

    Now I am sure you see the benefits of taking slightly higher risk. You may almost double your money, by taking on slightly higher risk. And it is not that you are gambling away with the other half, this is one of the safest funds with the highest track record of low risks and decent returns. You should have read all about it by now:)
    The answer lies in understanding the power of compounding! but also your own risk profile. How comfortable are you in investing your money with higher levels of risk?

    Obviously compounding at 15% (reputed 5-star mutual funds) is far better than compounding at 6-8% (bank FD/RDs). And the implications of investing at a higher compounding rate are enormous when your time horizon is long, say 10 yrs. Consider this excellent article on the power of compounding, to appreciate what it means to start Now!
    Power of Compounding

    Now having understood that, all of us want our money to be safe. And we can put everything in RDs/FDs and sit tight! But is our money growing enough to beat inflation! Will a 2 lakhs amount be sufficient for say a childs higher education even 5 years from now. Obviously not, you will probably require upwards of 5-7 lakhs.

    So what are the alternatives. Consider the suggestions below, depending on how you see your tolerance for risk! for e.g. my wife couldnt see even temporary loss of capital, so I put all her money in PPF and FDs. And in last 5 years she has seen me compounding my money at 15-20% in my mutual fund SIPs! Seeing that, she has moderated her risk tolerance a bit to accept very very safe MFs like HDFC Prudence. Read about HDFC Prudence here at http://www.valueresearchonline.com/funds/fundanalysis.asp?schemecode=600

    So educate yourself a bit more, only FDs will not work for you, thats for sure. A judicious mix should work better. Consider my suggestions below:

    You can invest in a mix of the following strategies, depending on your investing risk profile, as indicated below. Invest only those funds that you do not need. Use these funds to invest wisely. You need to remain invested for the long term, since you want capital growth.

    Conservative Risk Profile (you seem to be of this type; someone who wants his principle to be secure and is looking for a decent growth over the long term)

    1. PPF (Public Provident Fund) – account can be opened with any State Bank of India branch. This gives you a compounded 8% return per year, is currently tax free, and is the safest instrument available. Invest 50% of sparable funds in that

    2. A Balance fund like HDFC Prudence Fund – This Mutual Fund invests in both equity (65%) and debt (35%) instruments. This is one of the safest funds with a great track record of over 14 years, and has been giving a compounding return of around 20-25% per year. This fund has one important virtue: it manages to lose less than the category average in periods of downside. Couple this with its tendency to top charts & you get a safe & sure fund in HDFC Prudence. Invest 30% of the funds in HDPC Prudence.
    check out HDFC Prudence fund analysis at

    3. Equity Diversified MF -like SBI Magnum Contra, Reliance Growth.
    These are funds having a very good long term record in delivering great returns with low to average risk. They have figured among the top fund ratings for a very long time. Invest the balance 20% in funds like these
    Check out more on the top rated funds at http://www.valueresearchonline.com/toprated.asp

    Moderate Risk Profile (someone who can take a little more risk with some of his money)
    PPF -40%; HDFC Prudence -30%; SBI Contra or Reliance Growth fund -30%

    Aggressive Risk Profile (someone who can take higher risks with some of his money)
    PPF-20%; HDFC Prudence -30%; SBI Contra or Reliance Growth – 50%

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