I have ₹25 lakh in a bank cumulative FD. I am getting around 8 per cent interest on it. Is it better to use this interest in a Systematic Investment Plan (SIP) or continue with the FD? I want to double my money to ₹50 lakh as soon as possible.
- Valsa Kumar
Since you haven't shared your investor profile with us, we are offering you a general advice. Doubling money is not a wise investment strategy. A better way would be to identify your financial goals and start investing for it. The basic rule is that you opt for equity investment for long-term financial goals and stick to safer options like bank deposits and debt mutual fund schemes for short-term financial goals. For example, if you want to create a retirement corpus in 15 years, you should start investing in a diversified equity mutual fund scheme through a monthly Systematic Investment Plan (SIP). What if you want some money in a year? You save the money in a bank deposit.
If you make 8 per cent on your bank deposit, you would be able to double your money in nine years. We just used Rule 72 (72/8=9) to get the figure. If you want to invest the interest you get from your FD through a Systematic Investment Plan (SIP) in an equity scheme and earn better returns, you may reach your target amount soon. But you should choose this strategy only if you have an investment horizon of five to seven years. Though equity has the potential to offer superior returns, it can also be extremely risky and volatile in the short term. Also, unlike bank deposit equity doesn't offer you guaranteed returns.
This article was originally published on December 15, 2015.
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