What to do with money got from FD interest

#1
My father a retired senior citizen of 63 years of age has about 60L parked in FDs which are returning about 10-10.5 % pa for about 10 years. He has already submitted 15H to avoid TDS. He receives his interest money in a savings account directly every quarter.

Now the problem is that except for 15-20k which is used for day to day expenses per month he has no idea about what to do with the remaining amount.
Can some one please guide us here considering his advanced age, what are the best investment options for him that can give him money in the short term of about 3-5 years and also tide over inflation so that all the money kept in FDs does not lose its value.

Besides this he has about 40L profit from a property sale which after indexation calculation comes to about 25L which he has to invest in a property or tax saving bonds. What are his options here and also he is thinking of putting the rest of the 15L into FDs. He already has some investments in real estate and does not really want to buy another property.

He has never dealt in mutual funds and stocks before, so what are his best avenues for investment considering he is such a conservative investor. But the good news is that he is now ready to enter the world of mutual funds and being only a novice in this field, I thought of asking the experts here. Please help us park his funds in the best possible way.
 

JackPotter

Active Member
#2
Although I'm no expert in the finance market, but I've learnt a bit during my stay on Traderji.

Recently I've started to guide my parents in investing their matured FD's money into Gold ETFs. The price of Gold ETFs fluctuates according to the domestic Gold price.
There are many Gold ETFs on offer from SBI, Reliance, Kotak etc.

I did a research and found out that all the Gold ETFs give an average return of 20-21% every year.

Your daddy will be required to open a D-MAT account to trade in Gold ETFs. The only downside is perhaps the Gold ETF attracts short term gain capital tax (around 15%) if sold within a year. If sold after a year, only 2.5% is deducted in brokerage and other taxes.
 

2021

Active Member
#3
The bestest thing you can do is buy a flat on a home loan jointly with your dad as co-applicant. If your wife is income tax payee, you can add her instead. I read your other thread and came to know you are an IT proffessional hence I assume you might be paying taxes. As your dad has parked a huge amount in FD and got some cash by selling property, he may come under income tax slab too (consult your CA for detail info)

Now coming back to flat you will buy on a home loan. It'll be an investment that will not only give you returns on any price rise but can also be used for renting purpose thereby getting monthly incomes. And question now why home loan that too as a co-app?!

The joint account holders (owners of the property) can claim income tax benefits individually. The housing loan benefits that fall under Section 80C and Section 24 of Income Tax Act make each borrower (you and your father) eligible for a maximum deduction of Rs 1 lakh and Rs 1.5 lakhs associated to principal repayment and interest payable on the home loan respectively.

Now fancy part, if you rent that flat, you can claim without any restrictions of principal repayament, that in case of not rented was upto 1 lakh and interest payable of 1.5 lacs upto extent of your ownership. Suppose you and your dad owns flat at 50:50 basis, all money that you pay as EMI will be deductable equally. Lets say your EMI comes to 20,000 pm which has 18,000 principal repay and 2,000 interest, you can claim 10000x12 months i.e. 1 lac 20 thousand and your dad 1 lac 20 thousand. The restriction of 1 lac and 1.5 lac does not come under rented property and all amount payable on EMI is eligible for tax rebate!

Now the catch that benefits you, on applying joint application know your tax payament needs and divide your loan is basis of sharing property upto extent you can save tax for both (or your wife if she is earning member). Like above example, 50:50 basis, if you or your dad or wife have to pay above 1.2 lacs, make a rato that is beneficial to both.

Else best thing you can do is opt for Index funds or Funds or funds which carry a low expense ratio and beneficial in loang run. Index funds, sensex or nifty has expense ratio of less than 0.3% and FoF carries around 0.5%. Reason of parking money in index funds or FoF is a) you don't need readily available cash. b) mutual funds/etfs, however best returns they give, has a life cycle and some day set of another funds take over. Index on the other hand, however market jumps up or down in short term, gives you good returns. Nifty was at 800 someday and sensex was at 1200! Right now 1% Indian opt share market in which most go mutual fund way, as information and technology go widespread 1% will become 10%. Indian growth story can go wrong but index story is here to boom. FoF on other hand gives you ample investment in several funds thereby reducing headache of tracking each funds, allow putting eggs in several baskets of different types in one fund and with a very low expense ratio.

ETFs in India are highily illiquid and as of now and in near future don't have future. A person in remote India is still buying gold jewellery, a person in metro city still prefers a gold coin or biscuits and a share market expert manipulates ETF prices example of which can be seen in silver or crude ETFs that is still not traded in India but you can see how volatile they are as it attarcts manipulators more than investors. hence ETFs are risky if you can't track on weekly basis if not daily as of now and carries brokerage, dmat per annum charges, capital gain taxes and other charges by nse/bse.
 
#4
The joint account holders (owners of the property) can claim income tax benefits individually. The housing loan benefits that fall under Section 80C and Section 24 of Income Tax Act make each borrower (you and your father) eligible for a maximum deduction of Rs 1 lakh and Rs 1.5 lakhs associated to principal repayment and interest payable on the home loan respectively.

Now fancy part, if you rent that flat, you can claim without any restrictions of principal repayament, that in case of not rented was upto 1 lakh and interest payable of 1.5 lacs upto extent of your ownership. Suppose you and your dad owns flat at 50:50 basis, all money that you pay as EMI will be deductable equally. Lets say your EMI comes to 20,000 pm which has 18,000 principal repay and 2,000 interest, you can claim 10000x12 months i.e. 1 lac 20 thousand and your dad 1 lac 20 thousand. The restriction of 1 lac and 1.5 lac does not come under rented property and all amount payable on EMI is eligible for tax rebate!

Now the catch that benefits you, on applying joint application know your tax payament needs and divide your loan is basis of sharing property upto extent you can save tax for both (or your wife if she is earning member). Like above example, 50:50 basis, if you or your dad or wife have to pay above 1.2 lacs, make a rato that is beneficial to both.

Else best thing you can do is opt for Index funds or Funds or funds which carry a low expense ratio and beneficial in loang run. Index funds, sensex or nifty has expense ratio of less than 0.3% and FoF carries around 0.5%. Reason of parking money in index funds or FoF is a) you don't need readily available cash. b) mutual funds/etfs, however best returns they give, has a life cycle and some day set of another funds take over. Index on the other hand, however market jumps up or down in short term, gives you good returns. Nifty was at 800 someday and sensex was at 1200! Right now 1% Indian opt share market in which most go mutual fund way, as information and technology go widespread 1% will become 10%. Indian growth story can go manipulators more than investors. hence ETFs are risky if you can't track on weekly basis if not daily as of now and carries brokerage, dmat per annum charges, capital gain taxes and other charges by nse/bse.

First of all a big Thanks to all who have contributed here.

The joint home loan was considered but my father does not want to take a loan at this age considering that he never took any in his life. Yes he is paying income tax but he prefers to do that than taking a home loan. What he wants is his interest money to work for him without taking loans or any other liabilities. He is considering a property to buy at his home town for about 30L which will include his 25L indexation benefit capital gain amount that he has to invest somewhere at any cost and I will take about 5L loan but not more than that. He has always been a real estate investor and has been very lucky with all his dealings so far but very frankly managing real estates and then selling these is a big headache.

Index funds are something I am not aware of. Can you provide me some more info on these and also where and how he can buy them? I was also thinking of having him put some money in balanced funds like HDFC Prudence or something similar. Is this an OK option?

ETFs I am not sure if he will actively look out for with a demat account, but i can do that on his behalf. Is it really true that gold ETFs are giving anywhere between 20-22% per annum? But if you say that they are risky I am not too sure about them.
 
#5
My father a retired senior citizen of 63 years of age has about 60L parked in FDs which are returning about 10-10.5 % pa for about 10 years. He has already submitted 15H to avoid TDS. He receives his interest money in a savings account directly every quarter.

Now the problem is that except for 15-20k which is used for day to day expenses per month he has no idea about what to do with the remaining amount.
Can some one please guide us here considering his advanced age, what are the best investment options for him that can give him money in the short term of about 3-5 years and also tide over inflation so that all the money kept in FDs does not lose its value.

Besides this he has about 40L profit from a property sale which after indexation calculation comes to about 25L which he has to invest in a property or tax saving bonds. What are his options here and also he is thinking of putting the rest of the 15L into FDs. He already has some investments in real estate and does not really want to buy another property.

He has never dealt in mutual funds and stocks before, so what are his best avenues for investment considering he is such a conservative investor. But the good news is that he is now ready to enter the world of mutual funds and being only a novice in this field, I thought of asking the experts here. Please help us park his funds in the best possible way.
If u consider FD to reinvest, dont invest for 10 years and all. U invest for short periods(eg 1yr, 2yrs) why because interst rates may go up again.. Dont put all money in FD at single time.. u do at different periods(ladder pattern).So that u will get maturity continously. U can again analyse the investment vehicles, interest rates at that time and decide further reinvesting
 
#6
Very Interesting questions and a nice wonderful financial puzzle to solve. Let's try to unravel layer-by-layer :)

Coming to FDs, considering his age, I would definitely recommend a less riskier path for your dad. He has spent a good part of his life earning the money and subsequent interest and I would definitely not recommend jeopardizing the same. If he is having excess money apart from his day-to-day expenses, then I would recommend that he can consider the following investment avenues:
a) Balanced funds - HDFC Prudence/HDFC Balanced/Reliance Regular Savings Fund - Balanced. This will give an equity zing to his portfolio, but also covers the downside.
b) NCDs - Some good NCDs are in vogue now and your father can consider investment into some Large-Cap companies like Tata Motors, Sundaram Transport Finance. They are giving some good interest rates like 11.3% etc
c) Gold ETFs - Gold has been rising steadily past few years and have given some wonderful returns. However, whether the same will be true going forward, only time will tell. I would recommend limiting the exposure to have a prudent allocation
d) Reinvest into FDs - If more excess money is present, create new FDs for short-term. Do ensure that you have a sweep-in facility such that the funds are available for any emergency.

Now comes the interesting property part. Here there are multiple issues which need to be factored closely. One is taxation. The index profit is taxabale and your dad has to factor in the tax angle first. Moreoever, with this capital gains, the returns from FDs also become taxable. Do check with your CA about this, but as per my understanding, this is the case.

From a tax efficient way, there are only 2 avenues. One being investment into another property and two being capital savings bonds. From your post, it appears that he is already exposed to property and may not want to consider it. So what's the way out? I am not sure what is the rate of returns are today in Capital Gains Savings Bond. However, post-inflation, I am not sure if the capital is preserved or erodes. Do check on this.

My recommendation would be: If your father has a property, he can use the proceeds to construct a house. Else, you can consider buying a flat with you as a joint borrower. Primary borrower has to be your father as the capital gains are in his name. He can't transfer the Capital Gains or benefits of the same to anyone else. How this impacts your own financial plan you need to consider? I am not very sure if you and your wife can buy a property with the money that your dad made. I don't think it's possible with the tune of money we are talking about. Your father has to be the borrower and either you or your wife can be joint-applicant/borrower.

Happy Investing !!
 
#7
Looks like my earlier reply is stuck with the moderators so is not appearing here.
Hope this one goes through.

First of all thanks to all those who contributed. I really appreciate it.
I guess my thoughts on balanced funds are correct, so I will surely ask him to start a SIP in HDFC prudence and Reliance Regular savings.

NCDs if they are reliable is another possibility considering the fantastic rate of returns they offer. But are they liquid enough and is it possible to encash these if needed before maturity? Any idea on how to invest in these NCDs?

Reinvesting into FDs for a shorter duration is surely on the cards so will look at this as well.

Now Gold!! Yes I think its a very good investment, but looks like one needs a demat account for this. Will look into this as well.

The tax saving bonds return is quite low and the returns are taxabale as well so mostly he is going to invest 25L in a house at our native place and I am going to borrow 5-10L loan as well.

So I guess that leaves the 15L still left to invest. I am sure he will play it safe and reinvest in a FD. But are there any other safe options which will not erode the principle?
 
#8
Although I'm no expert in the finance market, but I've learnt a bit during my stay on Traderji.

Recently I've started to guide my parents in investing their matured FD's money into Gold ETFs. The price of Gold ETFs fluctuates according to the domestic Gold price.
There are many Gold ETFs on offer from SBI, Reliance, Kotak etc.

I did a research and found out that all the Gold ETFs give an average return of 20-21% every year.

Your daddy will be required to open a D-MAT account to trade in Gold ETFs. The only downside is perhaps the Gold ETF attracts short term gain capital tax (around 15%) if sold within a year. If sold after a year, only 2.5% is deducted in brokerage and other taxes.
Gold is quite risky dude.One day gold will come back to Rs. 5000 per 10 gm. and all the greedy people will be seen crying.At the moment its just scarceness of gold which is increasing prices,but one day when we'll find a big mountain made of gold somewhere on earth,gold will fall like a operator driven stock :yahoo:
However this is just my guess :fatigue: i'm just warning people.Beware don't put your lifetime saving in gold.If its your extra money then its ok.
I know 5000 is very low,but if it come to even 15000 that would be enough to regret yourself also.
Nothing can always remain in uptrend.Its just the long term uptrend of gold.One day when its downtrend will start,it'll not stop easily too.
Avoid gold.:cool:
 
Last edited:

JackPotter

Active Member
#9
That is absurd. Perhaps it has been in the uptrend for maybe 200-300 years or more. :) Though 80% of their capital is invested in real estate, 10% in Stocks/Mutual Funds and only 5% in Gold ETFs and FDs each(which I'm shifting towards Gold ETFs). :)
 
#10
NCDs if they are reliable is another possibility considering the fantastic rate of returns they offer. But are they liquid enough and is it possible to encash these if needed before maturity? Any idea on how to invest in these NCDs?

Reinvesting into FDs for a shorter duration is surely on the cards so will look at this as well.

Now Gold!! Yes I think its a very good investment, but looks like one needs a demat account for this. Will look into this as well.

I am sure he will play it safe and reinvest in a FD. But are there any other safe options which will not erode the principle?
For investing into NCDs, you require a demat account as most NCDs are held in Demat form. They are pretty liquid as they are listed on NSE, Once the allotment is over, the NCDs are listed and can be traded over an exchange. So it boils down how many days does your broker take to credit the money into your account.

If you want to invest in Gold ETF, you require a demat account. However, you can consider buying pure 24 carat gold from Spot Exchange / Mint / banks.

Happy Investing !!
 

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