Pls guide on selecting MIP or FD?

[bharadwaj05]

Dear All,

I have around 1 Lakh INR to invest; which I would require after 12 months.

Without taking higher risk; is it advisable to invest my money in some MIP schemes and expect atleast a better return than normal Bank FD?

Also kindly correct me in one of my understanding i.e. in case of MIPs there's generally no exit load on most MIPs; if redeemed after 1 year but there's 10% capital gain tax or 20% with indexing (What does it mean by indexing?) tax while redeeming..So considering all these and uncertain outlook of market dynamics; will it be wise to still go ahead with some MIP investment; if investment horizon is 12-15 Months only?

If yes; Could you suggest for some good MIPs?

Thanks in advance for kind feedback.

rgds,

 

[nikrod]

Dear All,

I have around 1 Lakh INR to invest; which I would require after 12 months.

Without taking higher risk; is it advisable to invest my money in some MIP schemes and expect atleast a better return than normal Bank FD?

Also kindly correct me in one of my understanding i.e. in case of MIPs there's generally no exit load on most MIPs; if redeemed after 1 year but there's 10% capital gain tax or 20% with indexing (What does it mean by indexing?) tax while redeeming..So considering all these and uncertain outlook of market dynamics; will it be wise to still go ahead with some MIP investment; if investment horizon is 12-15 Months only?

If yes; Could you suggest for some good MIPs?

Thanks in advance for kind feedback.

rgds,

Most of the MIP's levy 1% exit load if you redeem before 1 year. For 1 year time frame, it would be best for you to go for FD's.

 

[bharadwaj05]

Most of the MIP's levy 1% exit load if you redeem before 1 year. For 1 year time frame, it would be best for you to go for FD's.

Nikrod,

Thanks for your suggestion. I think it would be wise to keep atleast 50% of the total sum in bank FD...However considering the consistent good return perfromance delievered by many MIPs now a days; need your opinion about HDFC MIP Short Term Plan ( G) which invests only 11% in Equities ; still gave more than 10% return in last one year..Also it has got lock in period which is just 6 months.

Unless there's any major global economic downturn for next few months; it would be relative profitable to invest in such low risk MIPs...

However I may be wrong..Would appreciate if any expereinced ppl can guide me in taking a right decision.

Rgds

 

[URPradhan]

I'm also somewhat same boat as you but my time horizon is 3-5 years. I have done some research comparing Bank FDs, POMIS, MF MIP and MF Hybrid-Debt Oriented schemes.

1. Now bank FDs interest rates are at lower level and its not wise to keep money there. But fortunately I have subscribed for one FD @ SBI with 1000days scheme with 10.5% interest (this was my best decision)

2. POMIS is suitable if you have bigger time horizon and the return is guaranteed of 10.9% if you will invest the monthly interest in PO RD a/c. But I'll put my 50% of investment in POMIS with interest putting in a diversified-equity MF scheme. It is not suitable for you as per your requirement.

3. MF MIPs are nothing but Hybrid-Debt oriented MF schemes. So its better to select one from Hybrid-Debt scheme (ex: HDFC Multiple Yield Plan 2005) than MIP schemes. Though its not guaranteed but it has consistent performance on which you can bank upon.

4. Also you can select one from Hybrid-Equity oriented like HDFC Balanced, if you can take little more risk


Again, I'm not aware of tax on MFs after 1yr. But definitely should not be more than bank FDs, as interest from bank FDs are taxable.

 

[nikrod]

Nikrod,

Thanks for your suggestion. I think it would be wise to keep atleast 50% of the total sum in bank FD...However considering the consistent good return perfromance delievered by many MIPs now a days; need your opinion about HDFC MIP Short Term Plan ( G) which invests only 11% in Equities ; still gave more than 10% return in last one year..Also it has got lock in period which is just 6 months.

Unless there's any major global economic downturn for next few months; it would be relative profitable to invest in such low risk MIPs...

However I may be wrong..Would appreciate if any expereinced ppl can guide me in taking a right decision.

Rgds

HDFC MIP Short Term Plan is MIP which focuses on short maturity debt papers. This is considerabley good funds and is rated 3 star by Value Research. But there are better MIP's in market. If you want safer MIP option, Birla Sun Life MIP II Savings 5 and L&T MIP are options you can consider. Reliance MIP & HDFC MIP Long Term are aggressive MIP's seeking to generate higher return with more risk.

 

[yodlee99]

Split it into 3 parts -
1) FD in a nationalized bank - pick one that you bank with already & change the amount according to your taxes (50%)
2) Reliance MIP (25%)
3) HDFC MIP - Long term plan (25%)

 

[bharadwaj05]

Thanks experts for all of your valuable comments.

Appreciate if you could guide me through a few further Qs:

1. Dear yodlee99; could you pls advise what do you mean by " change the amount according to your taxes (50%)" ---- in case of opening a FD?

2. In order to optimise returns; is it adviseble to park some part of my money in a good MIP ( say HDFC Long term MIP ) and then do a STP per month to a balance fund; like HDFC Prudence?

Though the 2nd option is advised by some of my friends; I am worried as Entry and exit load of each time STP; would actually be not very effective at the end. Or I shall just park 25% of my money in a good MIP; considering that my investment horizon for this investment is only for 12-15 months.

Kindly guide, thanks a ton !

Rgds,

 

[colpranab]

There are many ways of investing this amount (One Lakh) as suggested by many,but not worth it as the period is just about 12-13 months. The difference in return that you may achieve is not worth the efforts involved. Hence my suggestion to you is to invest this amount in a good MIP in Growth option. The return after one year is considered as Long term Capital Gain and taxable@10%(or 20% after indexation). For one year, CPI index will not change drastically;hence paying 10% is OK. Reliance MIP is a good Fund and you can expect a return>than 10%. You may compare all MIPs in Valueresearchonline.com and select one of your choice.

Pranab

 

[bharadwaj05]

Dear Pranab,

Many thanks for your advise. Yes; I have finally parked my money in HDFC MIP Long term..

With regards to Long term capital gain after 1 year; which is taxable@10%(or 20% after indexation) could you help me to understand it?

Say 50000 INR parked in a MIP yielded 5000 profit (10% return say)
So LTCG would be 10% or 20%? What's indexation?

It would be levied on total amount after redemption or on just profit amount?

rgds,

Bharadwaj

 

[colpranab]

Dear Bharadwaj,
1. Tax is payable on Capital Gain and not on invested amount. Hence you will have to pay
10% of 5000/-(i.e 500/-)
2. Indexation basically means adjustment of invested amount for inflation during the investment period. As you know, there will be considerable erosion of actual value of your money over a period of time. In other words purchasing power of your money will reduce due to inflation. Hence you first adjust the amount to bring it to its original value and pay 20% Tax on the remaining amount. Very useful when the amount is large and investment period is long. In your case it may not be useful;may be tax worked out after indexation will be more than 10%.

Pranab