How can I invest an amount for a period of one year and reap the maximum returns
Please suggest how I can invest this amount for a period of one year and reap the maximum returns?
By OLM Desk
My Rs 2.5 lakh FD will mature next month. Please suggest how I can invest this amount for a period of one year and reap the maximum returns? – Sanjay Ahlawat, Ghaziabad
It is good that you are planning a re-investment option for your fixed deposit in advance rather than waiting for the maturity of your fixed deposit or for the auto transfer of the amount in your saving account where it may start earning negative real interest rate, after accounting for inflation.
In the current scenario, where bank interest rates have been on a downward spiral, it is quite unlikely that you may find a similar interest paying fixed deposit as your last one. In addition, since your objective is to maximise your returns, it is important for you to understand that you may be required to take risks for maximizing your returns. Moreover, since your investment period is very less at 1 year, there are limited options for you to maximise your returns. One option would be to compare FD rates across banks for various tenures and choose the highest paying one for the period you are comfortable investing for. However, technically while private bank deposits are at a higher risk compared to PSU bank deposits, you may go ahead with a good private commercial bank deposit as well since these are well regulated by RBI. Another option would be to consider AAA rated company fixed deposits, which may pay slightly higher interest rates but are riskier investments than FDs. Third option, which you may consider are short term debt mutual funds. While the returns are not guaranteed in mutual funds, a good short term debt fund may be able to provide you comparable returns. Further, you may consider investing in dividend option in case you are in the highest taxation slab since dividend distribution tax may be marginally lesser than the tax you may pay in other options. However, marginal taxation benefits should not be your sole aim of choosing investment option like debt mutual funds.
The ideal scenario for you would be to link your investment to your tangible goals which may increase your investment horizon as well, and accordingly if your investment horizon is say five years, then you may be able to look at higher risk-higher expected reward, equity linked investment options rather than keeping yourself bound in low returns debt options. Thus, it’s important for you to take a holistic view.
Prashant Kapoor, Vice President(New Initiatives), Outlook Money