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  • Category: Investments

    What are the best choices for investment for mid term?


    Wondering which are the best options for investment? Check out this page for advice from our experts.

    I want to invest Rs 500000/- for the midterm purpose only. I want the safety of investment, reasonable and tax-free returns. The investment can be in mutual funds or equity. For tax purpose, I have already made an investment of Rs 50000/. I want suggestions from the members as to how the money can be invested keeping in view my requirements.
  • #148148
    Mutual funds are one of the best ways to invest money who have less knowledge or no knowledge in stocks. This is very good savings method which has a compounding effect. Though they are very good option to invest money in, they are not popular enough because people are not aware of it or it has a very complex mechanism to understand. Although it sounds easy on paper (to invest) it is very hard to select the fund you invest in. There are thousands of schemes that have variable options of interest as well as compounding effect.

    Debt mutual funds offer steadier but lower returns. They also have low risk-low and return profile. Whereas equity mutual funds invest in shares which can earn far higher returns but can also fluctuate much more in the short term. They are suitable for time horizons of five years or more. The chances of incurring losses from equity investments fall drastically over longer investment horizons. If you are a beginner in mutual funds I would suggest you invest in equity fund shares. I would also suggest you invest in a regular plan rather than a direct plan. The difference between direct and regular plan is that you will do by yourself (everything) in a direct plan whereas ana agent will do everything for you in regular plan. First, invest in regular plan and once you have enough knowledge you can invest in the direct plan. Note that regular plan has commission charges and distributor fees. Alo opt for dividend option rather than growth option. Dividend plan will give you best returns and makes the best compounding. Since you have already bought 5 funds, I will not go deep into how to select a fund. One simple rule to select a fund is tract its performance on a long run. Analyze its performance for at least 5 years in past.

    Keep monitoring your investments daily. Make a note of when they are performing well and when they aren't. If your fund is consistently performing poorly then it is better to sell it off. Once you have met your financial goal, then exit your funds over 2-3 years and divert your money to debt funds. The goal here is to withdraw money systematically. This is to avoid any drastic drop in shares. But if you have invested in debt fund, you can withdraw all at once.

    Regarding your financial target of 10 lakhs, it would take nearly 7 years for you to achieve this. This is calculated considering the investment as 5000 (5 funds X 1000 per fund) per month and average interest return of 25% on all funds. This is a rough figure and it may vary. It is best to take the suggestion of the investment agent.

    Thank You
    Dr. V. Shashikanth

  • #148171
    I have gone through the question carefully. You have not explained what is ''mid-term'' for you. For the sake of convenience, I am taking 5 years as mid-term. So, you want safety of investment, reasonable and tax-free return. In my opinion, for 5 years, you have three options. Let us discuss.

    (a) The first option is Public Provident Fund. Currently, the rate of interest is 7.6% p.a. (from January, 2018). The maximum limit of investment is Rs. 1.5 lakh annually. The amount will be blocked for 5 years. The interest rate is linked to the market and it is decreasing. The amount is entirely tax-free.
    (b) Senior citizens'saving scheme offers a return of 8.5% p.a. It is also going down. It is not entirely tax-free.
    (c) Considering these two options, I find that investment in Debt-oriented hybrid mutual funds, commonly known as MIPs, is the best option as per your given criteria. From the Value Research Online website, the category average of this category of mutual funds is 11%-12% for a period of 5 years. This is not tax-free, but you will get indexation benefit if you hold it for more than 3 years. This type of fund is safe because it keeps more than 65% of the corpus in debt instruments. It invests around 25% in equity instruments.
    (d) Invest in direct mode instead of investing in regular mode. It will give a better return of 0.25%-0.50% annually.
    (e) You can check good MIP funds from the websites of Value Research Online or Morningstar India.

    Beware! I question everything and everybody.

  • #148263
    You are looking for a safe investment, want reasonable returns and have a choice of equity or mutual funds for a medium term.

    Medium-term can be anywhere between 5-7 years. We should realize that equity and mutual funds are not entirely risk-free. Every 8 years, the Indian market has seen a drastic fall (1992,2000,2008). By the end of 2017, a major drop was anticipated by some but it didn't happen. So, if your investment is caught at such odd times when you want to encash, then you need to be prepared to accept a loss or hold on for a longer time. In your case equity would not be feasible, unless you can monitor it.

    If you are not prepared to take any major risks, then you have to look at bonds, PPF etc, these instruments yield less but the risks would be minimal.

    If you are willing the take a little risk, then you can opt for hybrid mutual funds or debt based MFs.Here anywhere from 16-30% is invested in equity and the rest in debt options(bonds, deposits, and securities). In simple terms, debt MF is better than fixed deposits for people who are not willing to take a medium or high risk.

    You can check from (http://www.moneycontrol.com/mutual-funds/best-funds/hybrid.html)

    If you want the money back in say 2023-2024, for a mandatory commitment which you have to honor at the end of the investment period, it would be safer to encash a few months earlier and keep it safe because one can never predict the market. If the market drops significantly it would reflect on the NAV of the mutual fund, the next day.


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