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  • Category: Miscellaneous

    Regarding Investment in SBI Mutual Fund

    Respected Webmaster,

    I have some investment related query for which I want very quick answer. After the answer which I get against my question, if I put further question, that should also be answered very quickly. Because there is an urgent need for me. So where should I put my question?
  • #598651
    Madam, you can submit it here. I can try to answer as quickly as possible.
    Non-violence is the greatest Dharma; So too is all righteous violence.

  • #598653
    My very near relative had an FD of Rs 10,00000 ( Rs Ten lakhs) with SBI which will mature tomorrow. Her age is 58+. She had invested for the FD in the year 2014. Then the interest rate was 9%. She had to draw the interest on monthly basis to support herself. So to say, she was partially very much dependent on the interest which she had to draw monthly. This FD would mature tomorrow. But as the interest rate is reduced drastically (6.5%), now she is in a fix whether she should renew this FD. Her many well wishers advised her to invest half of the amount, i.e., Rs 500000/- for the FD for 1 year from where she could get near about Rs 3500/- as monthly interest. For the rest Rs 500000/- they advised to invest in SBI mutual debt fund which is risk free. Moreover the interest she will earn will be between 8 to 10%. But the point is that she will get the interest quarterly, for which she has to take pains to adjust for the first three months. But after the first three months are over, she will get the benefit. Previously she was earning Rs 7444/- as monthly interest. But now the monthly interest of FD of Rs 500000/- together with the interest which she will earn from SBI Mutual Debt Fund will be very near to the previous amount (Rs 7444/-).

    My question is, this investment will be feasible for her? The half, half ratio which I mentioned above is OK? Or ratio should be changed? Please study her situation carefully and answer me right now. I will be awaiting your valuable answer. What exact amount she will earn monthly by investing Rs 500000/- for one year at the current rate of interest? Is it right that Mutual Debt Fund interest will be between 8 to 10%?

  • #598654
    Madam, there aree various types of debt funds. And the debt funds are not fully risk-free. What does it mean? It means that the return is not uniform. However, the advice of the relative is very sound, although I have sound about the ratio. I would advise you to suggest your relative to keep the amount in the ratio of 60:40 in favour of the mutual fund. This means you can keep 60% in a debt fund and 40% in FD considering the abysmal rate of interest offered by the bank.
    So far as SBI debt funds are concenrned, your relative can consider investment in SBI Magnum Gilt Short-term Direct-Growth. It is a five-star rated guilt fund of SBI mutual fund group. It has given a return of 11.92% p.a and 11.49% CAGR during last three years.

    Non-violence is the greatest Dharma; So too is all righteous violence.

  • #598658
    As per your advice if she invests in SBI Magnum Gilt Short-term Direct-Growth which can give her a return of 11.92% p.a., she can draw the interest monthly or quarterly? Is it totally risk free? Her principal will remain intact in any situation? This five-star rated guilt fund of SBI mutual fund group facility is available in all SBI branches?

  • #598659
    There is no question of interest in case of mutual funds. Your relative can withdraw the profit generated every month. In this particular scheme, the lock-in period is only 15 days.
    Non-violence is the greatest Dharma; So too is all righteous violence.

  • #598660
    There is no question of interest in case of mutual funds, I did not understand this point very well? Would you kindly explain it?

    So her final decision should be 40% of total amount in SBI FD and the rest of the amount in SBI Magnum Gilt Short-term Direct-Growth? My question is this five-star rated guilt fund of SBI mutual fund group is totally risk free? Is this fund tax free also?

  • #598663
    Madam, the concept of mutual fund is totally different. So far as debt mutual fund is concerned, you invest in debt mutual fund. Many other investors invest it in debt mutual fund. The asset management company (AMC; In this case SBI MF) purchases Govt. bond/private bond. It gets interest from this bond or earns profit by selling this bond in bond market. Then it divides/distributes the profit among the investors. You can take out the profit every month, just like earning interest from FD every month. But the amount would not be uniform. It varies as per the market rate of bond.

    Altthough the profit varies, it would be definitely more than the interest accruded from the FD.

    Non-violence is the greatest Dharma; So too is all righteous violence.

  • #598664
    Please don't mind. My another question is this five-star rated guilt fund of SBI mutual fund group is risk free? It has tax free benefit also like ordinary debt mutual fund?

  • #598665
    Risk is defined in a different manner. We, who invest in mutual funds, don't consider risk like the investors in fixed market instruments. According to you, risk means protection of your capital. In this regard I can assure you that if you keep the amount for more than 15 days (i.e., the lock-in period), the capital invested is secured.

    But again I am clarifying that the rate of return would not be uniform in case of mutual funds.

    Non-violence is the greatest Dharma; So too is all righteous violence.

  • #598679
    Thank you very much Partha for your valuable and prompt advice. So finally it turned that the investment should be, 40% of the amount in the ordinary FD in SBI and the rest 60% in SBI Magnum Gilt Short-term Direct-Growth fund. The later one will also be helpful for her like ordinary FD; as she will be able to draw interest for every month excepting that lock-in period.

    I, very urgently, needed this advice right today. That's the only reason, why I am such a great admirer of ISC and all participating ISCians. I finish again with my grateful thanks to you.

  • #598680
    You are welcome, Madam. But please reemember that there is no concept of iterest in mutual funds. This is monthly withdrawal of profit accrued.
    Non-violence is the greatest Dharma; So too is all righteous violence.

  • #598682
    I don't know whether I am late in responding. I saw this thread just now.
    Even if it takes one or two days to finally decide also there is not going to be much problem. It is better than taking a hasty decision and then land in some problem.
    I would first suggest, to instruct the bank tomorrow morning itself, to split the total maturity proceeds tomorrow into three deposits . Why I say so is :
    (a) You will get the interest without break on your fund if renewed on maturity without delay.
    (b) Make three deposits for the minimum period for which interest is maximum now.
    (c) Some banks take penal interest on premature closure of deposits of 5 lacs and above. In your case, if after some time (before maturity) you need the money or you want to invest in some other way, you will not lose any amount as penal charges. This you enquire and ensure from bank.
    You may need to visit the bank ad fill up new deposit opening forms and KYC documents.
    The other alternative I suggest is:
    You now decide how much amount is essential for her monthly expenses. By working in reverse method, find the amount of deposit which can fetch that much as interest. If it is more than 5 lacs, make two deposits for reason(c) stated above.
    As she is 58+, in less than two years she will be a senior citizen and can utilise the Senior citizen S Savings Scheme, which fetches higher interest.
    At this age the risk taking should be less. Even Mutual Funds have higher risk than bank deposits. There is a risk of capital erosion in MF. But let us be optimistic prudently. So invest in MF that amount which is residual after keeping the optimum essential amount in FD. One or two percent difference in interest may not matter because the main consideration should be minimum risk and easy liquidity.
    Not just interest, but at this age, there will be many other practical issues in day to day matters, and a bank can be of much use and help in these than a Mutual Fund organisation. Hence I suggest once more that you keep an amount in Bank FD which can fetch the essential minimum monthly need as interest. Take risk on the residual amount only doing more homework, and investing in one or two different MF which has a history of reputation and investor satisfaction by return on investment.

  • #598710
    Mr. Venkiteswaran has given very prudent guidance. You may kindly note his advice. At the same time, I would also request your relative to have basic understanding of functioning of mutual funds. Investing without understanding the concept is not good.
    Non-violence is the greatest Dharma; So too is all righteous violence.

  • #599181
    My heartfelt thanks to both Mr Venkiteswaran & Mr Partha Kansabanik also. My relative invested her Rs 1000000/- on 20.5.17. She split the matured amount into two parts. The first part of Rs 500000/- she invested in ordinary FD; she invested this amount for one year whereby she could earn interest of 6.9%. Because for longer period the interest is lower. The second part of Rs 500000/- she invested for SBI Mutual Debt Fund. First she approached the bank manager to invest this amount in SBI Magnum Gilt Short-term Direct-Growth fund as suggested by Partha. But the bank manager and other senior officers told her that the suggested fund is very volatile in nature. Though this fund performed well for the last three years; still the manager and others told, "ordinary Mutual Debt Fund performed very well for the last 15 years. And for our customers, we would suggest to invest in this fund rather than go for Magnum Gilt Short-term Direct-Growth fund, as its nature is volatile. Of course if you want to go for this fund, we can't deter you, but our faith and suggestion would be for Mutual Debt Fund". So she accepted their suggestion and invested in Mutual Debt Fund.

  • #599182
    Madam, kindly let me know the exact name of the scheme in which your relative has invested.
    Non-violence is the greatest Dharma; So too is all righteous violence.

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