Now that recurring deposits attract TDS, would it be prudent to invest the same amount in mutual funds via SIPs? I have sufficient savings to fall back upon and was wondering if mutual funds would be an option in the present context. I was thinking of a 10-year horizon on recurring deposit, with about ₹20,000 a month as savings potential.


Both recurring deposits and SIPs in mutual funds involve investing a sum of money every month. But the similarity ends there. While RD is a debt instrument offering assured returns, SIPs, be it on debt or equity mutual funds, require willingness to ride the ups and downs of stock/bond markets to earn returns.

On the taxation front, capital gains on mutual fund investments are subject to taxation at special rates. Long-term capital gains on equity mutual funds alone are exempt from tax if sold after one year. In case of SIPs, long-term gains will be tax-free, that is, if every instalment has completed one year.

On the other hand, income from RD has always been taxable at your slab rates of 10, 20 or 30 per cent and has to be shown under the ‘Income from Other Sources’ head in your tax return.

So, the introduction of TDS on RD income above ₹10,000 in the Budget this year does not create any new and significant disadvantage in terms of taxation of RDs.

Hence, considering SIPs in the light of TDS on RDs is not the right way to look at mutual fund investments. Rather, your willingness to take higher risks to earn higher returns should be the gauge.

Since you have stated that you have sufficient savings to fall back upon and also that you have a long-term horizon of 10 years, you can surely consider mutual fund investments if you have the risk appetite. Over this time period, you will be able to earn superior returns compared to an RD by investing in quality funds with a stable track record. Long-term investments in equity instruments also help beat inflation, something which a debt instrument may not be able to provide for.

I will be investing ₹2,000 a month in Reliance Equity Opportunities for the next three years. How safe am I?

VP Rao

Equity investments are subject to stock market gyrations and safety here is only relative. For instance, an equity fund focused purely on large-cap stocks may be considered safer than funds focused on mid- and small-cap stocks. When markets fall, large-cap funds may see capital erosion too, but the fall may not be as drastic as mid and small-cap focused funds.

Reliance Equity Opportunities is a multi-cap fund. Its holdings can move from being large-cap-oriented to mid and small-cap oriented depending on what is moving the markets at a particular point in time. Hence, it is riskier than funds focused predominantly on large-caps.

The fund has a good long-term track record giving annual returns of 17 per cent in the last five years and 26 per cent over a three-year time frame.

Although past record may seem attractive, remember that investment in any equity fund with shorter time horizons, such as three years, is a high-risk proposition.

No one can second-guess the markets. In case the choice goes wrong, you need enough time to take corrective action and benefit out of it.

I have started investing ₹2,500 a month in Axis Long-term Equity, Birla Sun Life Front Line Equity, HDFC Mid-cap Opportunities and ICICI Pru Focussed Blue chip. I would like to invest ₹5,000 more. I want to create a corpus of a minimum ₹50 lakh, 15 years from now. Kindly review my portfolio.

T Srinivasu

If you invest ₹15,000 a month and your funds earn a conservative 12 per cent compounded annual return, you will get a corpus of ₹75 lakh, 15 years from now. You have chosen stable performers and also diversified your portfolio well with a good mix of funds. You don’t need additional schemes for the extra ₹5,000. Invest ₹5,000 each in BSL Frontline Equity and Pru Focused Bluechip instead of ₹2,500 each.