DEBT MF or FD for a period of 3 years 1000 rs p.m

[jmh]

DEBT MF or RD for a period of 3 years 1000 rs p.m
This is my output from scripbox: I can see RD & Debt has only 300 rs margin. Is it worth the risk ?

Here's how much you savings will become
You invested
Rs. 36,000
Bank Deposits
Rs. 40,325
Public Provident Fund
Not suitable; has 15 years lock-in period.
Debt Mutual Funds
Rs. 40,625

 

[mb57]

@jmh RD.

 

[jmh]

@mb57 Yup I noticed , but I can't edit title. So still RD better in my case?

 

[mb57]

@jmh Yes, I meant RD is better, in my opinion.

I didn't ever notice the title error.

 

[jmh]

@mb57 So , I am convinced that equity doesnt sound right for a period < 5 years and also Debt doesnt seem good for a amount of 1000rs. So , how much amount of investment monthly for a period of 3 years will Debt actually overpower RD ? If this 300rs is going to be the margin , I am asking where is the use case of Debt funds?

 

[mb57]

@jmh To be honest I don't invest in debt because I don't find it interesting. Equity oriented balanced funds are like the safest one I have in my folic. Maybe I'm playing too risky. Don't know.

Edit: So I did a little calculation, I don't know what roi you took in your calculation, but I took 6% for Rd (Digibank showed me around that, ymmv) and it was 39.5k. And debt fund if 8% will be 40.7k and if 10% then will be 42k. Again I don't know much but I read somewhere that 8% is considered average and more than that is good for a debt fund.

I would invest it in a balanced fund but again I don't have a problem if by chance my 36k becomes 30k. For me it's like I took a risk and it didn't work out. But everyone's risk appetite is different.

 

[jmh]

@mb57

folic

what is the duration for your funds? do you have anything

 

[mb57]

@jmh I don't have a goal in mind so I don't have a certain duration.. I'm just a recent pass-out and I invest 5k every month from my savings (that's my whole savings). I'll keep increasing the amount proportional to whatever my income is. So yeah, you can call it long term and certainly more than 10yrs.

 

[jmh]

@mb57 Alright, thx. I will await for other members responses.

 

[steelernation]

@jmh 8-10% is not accurate in today's scenario. With the interest rates being so low - good quality debt funds have been offering 6.25-6.75% return in the last 9 months.

Source: have recurring monthly investments in debt funds

 

[jmh]

@steelernation This is confusing , as per my description from scrip box there is a margin of only 300rs . So is it still visible to go for debt ?

 

[pinky1993]

@jmh if you are ok with 6.75% go for RD.

 

[jmh]

@pinky1993 I am with LVB and I get 7.2 right now .

 

[pinky1993]

@jmh discussing over 200 rupees

 

[jmh]

@pinky1993 Well for me , it is matter of gaining experience on new modes of investments.

 

[pinky1993]

@jmh you can read and learn , starting RD is not difficult.

 

[jmh]

@pinky1993 Nope RD aint a trouble for me. It is about MFs and the process.

 

[steelernation]

@jmh What's your tax slab?

Edit: sorry, missed that this is a recurring investment. Debt funds only make sense if your holding period is greater than 3 years and you are in the highest tax slab as the profits get taxed as LTCG (Long Term Capital Gains) at 20% + indexation.

In your case, go for RD. If possible - look for an option that allows for premature withdrawal at no charge. This is just in case interest rates rise in future - you shouldn't be stuck at a low rate.

 

[jmh]

@steelernation My actual aim is to have a experience with funds , I have been putting my money for 2 years in RD and I am looking for new window to invest. So < than 3 years definitely bank investments? Not debt?

 

[steelernation]

@jmh If you are in 0, 5% or 20% tax slab:

Don't bother with debt funds. Hardly any difference in returns - rather live with the peace of mind with RDs.

If you are in 30% tax slab AND plan on holding for more than 3 years:

Instead of 30% you will be taxed at 20% plus you will be allowed the benefit of indexation.

In your case it doesn't make sense. Let's assume you start investing on 1 Jan 2018 and plan to sell in say 15 Jan 2021. Only the first investment you made on 1 Jan would have crossed the 3 year mark. Every investment you made every month after that will be taxed as per your current tax slab.

Coming to RD - it doesn't matter when you redeem - you will be taxed at your current tax slab.

If you want to invest in debt funds just for learning - go ahead. Maybe don't put the entire money in debt funds. But it will not give you more than 0.5% better returns than RD so make sure you have the right expectations.

Do read up more before investing - I found the entire series on debt funds on this site very good:

https://eightytwentyinvestor.com/2016/07/26/a-primer-for-investing-in-debt-mutual-funds/