Investing in long-term financial instruments is a crucial aspect of financial planning. Two popular options for long-term investments are the Public Provident Fund (PPF), Bajaj Finance Fixed Deposits, and mutual funds.
The Public Provident Fund (PPF) in India offers stable returns and is a favored choice for many investors. However, the PPF rate has remained frozen at 7.1% since April 2020, lagging behind the formula-based rates. Economists suggest that there may be further rate hikes before the general election in India. Despite the current lower rate, economists believe that there is room for further rate hikes in the coming quarter.
On the other hand, Bajaj Finance Fixed Deposits provide industry-leading interest rates of up to 8.60% p.a. These fixed deposits offer stability and substantial returns, making them an attractive investment avenue. The company has the highest credit ratings, ensuring a secure environment for investors. Additionally, flexible interest payout options cater to diverse needs, and the user-friendly online platform makes investing seamless.
Bank fixed deposits (FDs) can house emergency money and windfalls. They can beat inflation too if timed right. FDs are important for investors who are just starting out, as they offer higher interest rates than savings accounts. They are also useful for creating an emergency fund, as they can be liquidated quickly. FDs are a safe option for protecting windfall money and retirement benefits. They can also play a role in diversifying an investment portfolio, especially when FDs from other entities can match inflation. To get the most out of FDs, it is important to invest in regulated and trustworthy entities, choose short tenors when interest rates are low, and consider the timing of interest rate cycles. FDs with regulated entities such as banks and select NBFCs are safe, while systemically important banks provide additional protection. FDs can offer good returns when interest rates are high, but may deliver poor returns when rates are low. Overall, FDs serve as a reliable investment option for various financial needs.
Mutual funds are another investment option that individuals can consider. Investing in mutual funds has been a subject of debate regarding the actual benefits for individuals. Various factors come into play when assessing the success of mutual fund investments, including the duration of investment, the choice between lump sum and SIP, the feasibility of timing the market, and the preference for mutual funds over direct stock investments.
The essence of mutual fund returns lies in the duration of your investment. Taking the example of an index mutual fund reflecting the BSE Sensex from January 2000 to the present, an investment of 1 lakh rupees would have grown to 6.6 lakhs, surpassing returns from bank FDs (3.95 lakhs). This underscores the significance of time in wealth accumulation. SIPs help average out costs over time, mitigating the impact of market volatility. Continuing SIPs during market downturns is crucial, as it allows for the purchase of more units at lower prices, ultimately reducing the average cost. Attempting to time the market proves challenging, as illustrated by scenarios where lump sum investments made at market peaks yield negligible returns. SIPs, on the other hand, help navigate market fluctuations, providing more consistent returns over the long term.
Diversification and expert management are key advantages of mutual funds over direct stock investments. While individual stocks can yield high returns, they also pose higher risks and require constant monitoring. Mutual funds offer a balanced approach, distributing investments across sectors, reducing risk, and allowing individuals to benefit from the expertise of fund managers. Over a 25-30 year horizon, consistent investments could yield average returns of 12%, outperforming traditional investment avenues like bank FDs and PPF even after factoring in Long-Term Capital Gains Tax. The success of mutual fund investments lies in patience, disciplined investment strategies, and a focus on the long-term horizon. The provided personal fund returns, showcasing a range of 12–15%, further reinforce the potential of mutual funds for sustained wealth growth.
It is important for individuals to carefully consider their financial goals, risk tolerance, and investment horizon before choosing between the PPF, Bajaj Finance Fixed Deposits, and mutual funds. Consulting with a financial advisor can provide valuable insights and help individuals make informed investment decisions.
Publicis Worldwide India has created an ad film called 'Seekh' for HDFC Mutual Fund, as an extension of the 'Zindagi Ke Liye SIP' campaign. The film aims to connect with first-time investors and emphasizes the simplicity of investing in mutual funds through a Systematic Investment Plan (SIP). It tells the story of a father teaching his son the importance of starting early and thinking long term, which mirrors the concept of SIP. The campaign is designed to resonate with diverse audiences and will be aired on TV and digital platforms. Oindrila Roy and Pratheeb Ravi from Publicis Worldwide India are involved in the campaign.
State Bank of India (SBI) has changed its fixed deposit rates, making it more attractive for investors. SBI FDs offer guaranteed returns and fixed income, making them popular among low-risk investors. The interest rate for SBI FDs ranges from 6.75% to 7.25% depending on the duration and whether the investor is a senior citizen. On the other hand, mutual funds are market-linked and their value can increase or decrease based on the performance of the share market. While FDs provide security, mutual funds have the potential to provide higher returns.
When comparing the returns of SBI FDs and mutual funds for different investment durations, it is important to consider the interest rates and the potential for higher returns. For a Rs 1 lakh investment over 3 years, an SBI FD would yield a return of Rs 1,22,239 at an interest rate of 6.75%, while a mutual fund with a 12% return would yield a return of Rs 1.4 lakh. Similarly, for a 5-year investment, an SBI FD would yield a return of Rs 1,38,042, while a mutual fund would yield a return of Rs 1,76,234. The article provides similar comparisons for 7-year and 10-year investments. Overall, while SBI FDs offer security, mutual funds have the potential to provide higher returns.
Investing in direct plans of mutual funds can result in higher returns due to lower expenses. For example, the Parag Parikh Flexicap Fund has a higher NAV for its direct plan compared to its regular plan. The NAV difference between direct and regular plans grows each day, leading to higher returns in the long run. If you invest Rs 10,000 SIP in both plans for 10 years, the value of investment in the regular plan would be Rs 33.82 lakh, while the value in the direct plan would be Rs 35.57 lakh, a difference of almost 5-6%. This difference becomes even more significant for long-term investments like retirement. It is important to consider the expenses and commissions when investing in mutual funds and choose between regular and direct plans accordingly.
A couple in their 30s working in the IT sector with a two-year-old daughter want to invest in mutual funds. They currently invest in public provident fund, employee provident fund, and bank fixed deposits. They have a home loan and save around ₹80,000 per month for retirement and their daughter's education. They are seeking guidance on how to invest in mutual funds.