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Wednesday, May 20, 2009

Tips to make your money work as hard as you do



During such times of recession, everyone is running away from equity investments and the stock market. People are talking about safety of the invested money as primary consideration. But, there are still people like me who have not yet lost faith in the equity markets. This article is going to be about, making your money work as hard as you do. People are doing double shifts, working extra hours etc. Why not, we make our hard earned money work that way.

Let us assume you have a cash of Rs. 10 lacs idle with you and want to invest it. You can use either of the below mentioned strategies to make your money work harder than what it would in a savings account.

Strategy 1:

Deposit the money in a Bank fixed deposit that would pay you interest on a monthly basis. Let us say the bank gives you an interest of 8% per annum you would get Rs. 6666.67/- per month as interest. Invest this money in an equity diversified mutual fund. By doing so, your 10 lacs remains intact (We have taken care of the safety part here) and the interest part that is invested in mutual funds would continue to earn returns that would help you beat inflation.

Let us say the mutual fund gives you a return of 20% this year your investment would be worth Rs. 96000/- which eventually makes your total investment to be worth Rs. 10,96,000/- which is very good considering the fact that your initial investment is still in tact.

Strategy 2:

Deposit the money in a Bank fixed deposit that would pay you interest on a monthly basis. Let us say the bank gives you an interest of 8% per annum you would get Rs. 6666.67/- per month as interest. Invest this money in a Bank Recurring Deposit. By doing so, your 10 lacs remains intact and the interest part is also invested in the bank and hence this is safe too.

Let us say the RD gives you a rate of interest of 7.5%, it means your RD would mature to Rs. 83,330/- at the end of the first year which eventually makes your total investment to be worth Rs. 10,83,330/- which is very good considering the fact that your investment is entirely intact.

Strategy 3:

Deposit the money in a Bank fixed deposit that would pay you interest on a monthly basis. Let us say the bank gives you an interest of 8% per annum you would get Rs. 6666.67/- per month as interest. Invest this money in a normal Bank Account. By doing so, your 10 lacs remains intact and the interest part is also invested in the bank and hence this is safe too.

Let us say the bank gives you a rate of interest of 3.5%, it means your RD would mature to Rs. 81,537/- at the end of the first year which eventually makes your total investment to be worth Rs. 10,81,537/- which is very good considering the fact that your investment is entirely intact.

Returns Comparison:

Strategy 1:
Net Returns: Rs. 96,000/-
Returns % = 9.6%

Strategy 2:
Net Returns: Rs. 83,330/-
Returns % = 8.33%

Strategy 3:
Net Returns = 81,537/-
Returns % = 8.15%

Using the above three scenarios we can make the interest portion on our investment earn an interest or earn us an income and at the same time keeping our initial investment safe and secure. The bank would give us only 8% as interest, by using either of the above mentioned strategies, we can make our money work harder and earn a better interest.

As always, equities is the best investment class and the returns is 9.6% which is much higher than the other strategies.

Happy Investing!!!

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