I am planning to invest Rs 5,000 every month to build a good corpus over the next ten years. Should I go for term deposit or invest in mutual funds? What funds will you suggest?
- Sachin Kumar
There is a difference between saving and investing; savings are safe and guarantee capital protection. A term deposit is more of a savings product which guarantees a fixed return over the tenure of the deposit unlike mutual funds that do not guarantee any returns. In the long run, especially like the ten year time frame that you are considering; equity mutual funds are likely to earn you a better return which is more likely to beat inflation compared to term deposits. However, when you invest in equity mutual funds, you are right away exposed to market risks. As a unit holder, you proportionately own part of the business in which the fund you own has invested in. Market risk is a multidimensional concept that manifests itself in various ways and is reflected in the volatility of the market indicators. Risk is often misunderstood as well, for instance safe investments such as bank deposits also carried risk; there is a risk that the rate you earn will not exceed the rate of inflation.
As you come across as a new investor, we suggest you consider investing in a balanced fund. These are funds that are stable in their performance and a good way to get started with mutual fund investing. Invest in a systematic and regular manner in these funds to get into the habit of investing and experience the performance of your investment in them. You can consider investing in funds such a HDFC Prudence and Reliance Regular Savings Balanced.