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Repay Home Loan by investing FD amount in best Investment plans

I am 33 years old, salaried professional. I have Rs 35 lakhs house loan and savings of about Rs 12 lakhs, in fixed deposits. How can I invest the latter, so as to double the latter in 5 years, so that I can pay off a big portion of my house loan principal

Jan 2, 2014 by Sanjay Kumar , Bangalore  |   Home Loan

To double your money in 5 years, you need a post tax annual return of almost 15%. Over a sufficiently long period of time, historically equity funds on an average have provided returns in excess of 15%, but there is no guarantee of any returns for any time period for equities. Past performance is not a guarantee of future returns of a fund. Fixed income returns, though high, are not high enough to double any amount in the 5 year period. You have to assume some risk.

Presently, a four-five year FD can guarantee annual returns anywhere between 8-9.5%, depending on your bank and the term. So your investment can double in a FD in nearly 8 years, if it continues to grow at 9.5%. However this would also carry a higher tax incidence as the gains would be added to your taxable income and taxed according to the income slab. Certain debt funds can provide returns few basis points higher than FDs, but one must understand that even debt funds carry some risk (e.g. interest rate risk, credit risk etc.) . With regards to your question, you need to assume some risk to generate the kind of returns that you are looking at. If you can take some risk, you can invest 70% of your money in fixed income and 30% in a diversified equity fund.

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