Short-term investments in balanced funds may not be able to protect capital like fixed deposits...
06-May-2013 •Research Desk
Two of my bank fixed deposits giving interest at 10.25 per cent, amounting to Rs 25 lakh, are going to mature in May 2013. Should I renew them at 9.5 per cent available rate or transfer the funds to balanced funds for three years. Also, please suggest one or two dependable balanced funds.
Balanced funds are not the most suitable option for a three-year investment tenure. These funds are relatively less volatile than equity funds due to their debt allocation but they also invest predominantly in equity (60-80 per cent). So, it is possible that you do not earn substantial gains in three years or lose part of your capital.
You can consider investing in a dynamic bond fund or an FMP. These funds will be more tax-efficient than bank FDs as you will get the indexation benefit. However, unlike bank FDs nothing is guaranteed here. So, if you are completely risk averse and don't want to take any risk, renewal of your bank FD will be a better option for you.