Invest in fixed income products for regular cash flows.
I am 59 and run my own business. I have surplus funds which are at present invested only in bank FDs at 9-10 per cent interest. As the returns from FDs are eaten away by tax and inflation, I have been thinking about diversifying into other avenues, but not directly into equity. My risk appetite is average and I expect my investments to earn around 15 per cent annually. My investment horizon is up to 10 years. Please suggest a strategy.
Kamal Laddha
You are right in observing that inflation and taxes eat into returns of fixed deposits. So, the price paid for safety seems to be pretty high. Again, you do not want to venture into equities directly. A mutual fund investing in a basket of stocks is expected to reduce risk and provide adequate diversification across sectors. Though not as much as direct equity, equity mutual funds too can be risky, as a manager is expected to take active calls in containing the downside and choosing a portfolio that participates well in rallies. Earning 15 per cent is possible over 10 years. But paradoxically, you cannot achieve such returns unless you invest in equity mutual funds, which may be risky given your age and average risk appetite. A more realistic target would be around 10 per cent over 10 years, something which is likely to be accomplished by investing in balanced funds, which entails taking lower risks.
Invest in Tata Balanced, Birla Sun Life 95 and ICICI Pru Balanced. If you can take above-average risks, large-cap funds such as Quantum Long Term Equity, ICICI Focused Bluechip and Franklin India Bluechip may offer reasonable alternatives.
Given that you run a business, we hope you have regular cash flows. If your inflows are volatile, stick to fixed income products such as FDs, FMPs, RDs and NSCs. You should ensure that you receive a regular income from your fixed deposits and only surplus amounts which you may not need should be exposed to market risks.
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