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Advantage of Liquidity

Debt mutual funds give you the advantage of liquidity, which recurring deposits don’t offer

I am presently investing Rs 8,500 in equities through mutual fund SIPs and I also have a monthly recurring deposit of Rs 9,000 spread over different dates. The recurring deposits are to take care of my insurance payouts and other seasonal bulk purchases, admission fees for my children. The total of all insurance including life, health and motor is Rs 47,000. I also have Rs 24,000 once a year expense in April on my children’s school fees. I want to increase my allocation in mutual funds particularly debt funds by reducing the recurring deposits contribution. Please suggest a way out.
-Partha Hazra

Your current annual equity investments through mutual funds are Rs 102,000 and in fixed return bank recurring deposit is Rs 108,000. Your current asset allocation follows a 48:52; equity to debt ratio, which is well balanced. However, when one takes into account the annual outflow of Rs 71,000 to meet your insurance premium and school going children’s expenses; the allocation gets heavily skewed towards equity which you should be aware of.
The thought to decrease the recurring deposit contribution and increase your contributions to debt mutual funds need to be lauded. Mutual fund contribution offers you liquidity which a recurring deposit does not. Moreover, the current interest rates are favourable to make investments in debt funds. You can consider investing in dynamic funds such as IDFC Dynamic Bond or SBI Dynamic Bond which will suit your requirement in making SIP investments in debt mutual funds. Do remember, that some of these funds do have an exit load when withdrawing before completing a year of investments before withdrawing from these schemes.

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