I park by emergency fund in short-term fixed deposits. With interest rates falling, can you please suggest a good alternative? I also want to invest Rs 2,000 a month in a mutual fund with exposure to foreign stocks. Please suggest a good plan.
Naveen Kukreja CEO and Co-Founder, Paisabazaar.com replies: Park your emergency fund in a high yield savings account. Consider small finance banks and private banks as interest rates offered by these range between 5-7%, which is higher than FDs of 45-95 days. These will also be more tax-efficient as cumulative interest income of up to Rs 10,000 is tax-exempt. You can also consider ultra-short duration funds. These usually offer higher returns than bank FDs and savings accounts. To ensure maximum capital protection, opt for funds with maximum exposure to AAA-rated or sovereign bonds. You can consider Aditya Birla Sun Life Savings Fund, HDFC Ultra Short Term or SBI Magnum Ultra Short Duration Fund. My advice would be to first build a core equity portfolio by investing in equity funds with primarily Indian exposure. You can invest in international funds later. International funds are also less tax-efficient than equity funds investing in India. You can start your mutual fund journey by investing in direct plans of any of these— Axis Multicap, ICICI Prudential Multicap or SBI Magnum Multicap.
I am a 84-year-old pensioner. My wife’s portfolio of 15 mutual funds and five stocks is worth approximately Rs 1 crore. Due to old age and health issues, we are not able to handle the investments and IT returns filing. Can you please suggest one or two government bonds or bank FDs or mutual funds or any other safe options in which lump sum investments can be made? Also, should I wait for the markets to recover then sell and invest?
Prableen Bajpai Founder, Managing Partner, FinFix Research & Analytics replies: There are a number of government schemes, such as Senior Citizen’s Savings Scheme, Pradhan Mantri Vaya Vandana Yojana and the RBI Floating Rate Savings Bonds 2020 (taxable) that you could consider. SCSS and PMVVY offer 7.4% interest with a maximum investment limit of Rs 15 lakh per person and have tenures of five and seven years, respectively. The interest on SCSS is paid out quarterly. PMVVY offers different payout options. The RBI floating rate bond scheme has a seven-year tenure and will give you a bi-annual interest currently at 7.15%, which would eventually float and will be 0.35% higher than the rates offered for NSC. The interest for all the products are taxable as per your tax slab.
You can park 70–80% of the corpus in these. The remaining money can be parked in a liquid fund. On redeeming, if your investments have reasonably appreciated, you can begin to redeem them and consolidate the portfolio.