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I have Rs 85000 balance in my savings account which I want to invest for higher return

I have 85000rs balance in my PNB savings account. I want to invest this money because I am getting only 4% interest on this amount. Where I should invest and how much? Should I invest whole money? I also want few balance with me always as ready to use. So please suggest?

Feb 22, 2016 by Pooja Bhatia, Delhi  |   General

We do not give specific investment advice. We will share with some principles based on which you can make your investment decision in consultation with a financial advisor if required. Your decision should be based on your liquidity needs, returns expectation, expected investment period and risk tolerance.

If your expected investment period is less than a year, you can invest in liquid or ultra-short term debt funds. Liquidity of these funds are quite good. There is no exit load and redemptions are processed on the next business day. Therefore, if you give redemption instructions then money will be credited to your bank account the next day by 2pm or so. However, you should still keep some money in your savings bank for some urgent cash requirements. Please note liquid redemptions are not processed during the weekend or holidays. So factor that in, when you decide how much money to keep in your savings. Each one of us has different needs. You should decide based on your past experience with expenses. Liquid funds and ultra-short debt funds are much better options for parking the funds lying idle in your savings bank. These funds have very little risks and can give you much higher returns than the 4% savings bank interest rate (please see our article, Top Liquid Mutual Funds: Better options than savings bank for parking your surplus cash). Currently top performing liquid funds are giving more than 8% annual returns (please click on this link to see the top performing liquid funds)

If you can invest for more than a year, you can consider investing in short term debt funds. These debt funds are also fairly low risk products and the risk of losing your capital is quite low. These funds are accrual based debt funds, which means that there is very little interest rate risk. Currently top performing short term funds are giving 8.5 – 9.5% annual returns (please click on this link to see the top performing short term debt funds). But you should prepared to hold these funds for at least a year in order to get the best returns.

If you have a long term (more than 3 years) investment horizon, you can consider investing in income funds. Income funds can be a little volatile in the short term but can give very good returns in the long term. Top performing income funds have given double digit returns in the last 3 years (please see top performing income funds). However, it is important to reiterate that income funds can be volatile in the short term. Therefore, you should be prepared or otherwise stick to short term debt funds.

If you have a long term investment horizon, you can also consider investing in equity funds, but these funds are much more risky than liquid and debt / income funds. You should consult with your financial advisor and make a decision which is most suitable for your needs.

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