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Dinesh Narayanan

NOT so long ago, one could put money in a bank fixed deposit account and take home double the investment in about five years or even less. Today, one has to carefully plan out where each penny goes to make sure that your kitty doesn't lose value.

For example, money lying in your savings account will grow at a rate of just 3.5 per cent while inflation would nibble at your hoard at a faster rate of nearly five per cent.

In other words, if everything remains the same, your savings will decline at a rate of 1.5 per cent every year in real-value terms. Fixed deposits of banks are only marginally better, with most banks offering interest rates in the 4.5-6 per cent range for a year.

Which means the options available are chiefly mutual funds and Government-sponsored savings programmes such as post-office savings, national savings certificates and public provident fund.

Fewer avenues mean the corpus has to be shrewdly distributed to maximise returns, depending upon the risk appetite of the investor.

Says Mr Naganath, Joint President and Chief Investment Officer of DSP Merrill Investment Managers, "For a person who is beginning to invest and who has a greater risk appetite, the ideal mix could be 70 per cent in equity and 30 per cent in debt.

For a middle-aged investor, it could be 50:50 and for a retiree, it may be 80 per cent debt and 20 per cent equity, which would offer adequate safety and a bit of growth."

He expects equities to yield about 15-20 per cent returns in the current year.

Debt funds may not give great returns this year, but the tax breaks in the Budget have made them attractive, he added.

Many fund managers are bullish about equity this year. Mr Paras Adenwala of Birla Sunlife Mutual Fund says, "Depending upon the risk-taking ability, one should take exposure to equity funds.

However, one should invest gradually by buying on dips." He expects equity to return about 14-15 per cent in the current year.

Besides mutual funds, which offer growth potential for money, the Government-sponsored schemes are a good bet for some steady returns with attractive tax breaks even though the maturity period is longer for NSCs and PPF deposits.

Return from the post-office monthly income scheme can be leveraged to maximise yield as it provides a fixed amount every month.

The return can be reinvested in recurring deposits with banks where it would earn interest at compounded rates.

The tax rebate on post-office savings, combined with the reinvestment return, would provide a yield which is perhaps the maximum one can get in the current interest rate environment.

Now that the administered rate regime is fading out, investors will be increasingly dependent on the markets, especially the equity market, to help them save for rainy days.

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