Best of both worlds

For a conservative investor who is taking baby steps towards investing in equity , here is combination that must work really well and help build confidence

Investor can try a combination of  Post Office Monthly Income Scheme ( MIS ) - with a SIP in a Equity Mutual Fund

Let me explain :
Suppose you have Rs.3 Lakh rupees that you want to invest , open a Post Office Monthly Income Scheme. MIS provides you with a interest rate of 8% and at the end of 6 years, the term of an MIS account, you will be get a additional bonus of  Rs.15,000 ( 5% of 3 Lakh )

So at 8% interest you would be getting an annual interest of Rs.24,000. Which means an amount of Rs.2,000 would be paid to you every month . MIS pays out the interest every month

Investor could channel this Rs.2,000 into a monthly SIP of a good diversified Equity Mutual Fund like the HDFC Top 200 or DSP Blackrock Top 100 or may be a Fidelity Equity Fund.

This mode of investment is very similar to what is called STP or Systematic Transfer Plan , where a lump sum amount is invested in a Debt Mutual Fund and every month a fixed amount would be taken out of the Debt Fund and invested in a Equity Mutual Fund .

Know more about MIS here

The advantage with this approach could be that , the Rs.3 Lakh would have continuously earned about 8% interest and the equity investment would add a additional kicker to the returns earned with the original lump sum of Rs. 3Lakhs protected.

This combination of Debt and Equity may prove to be your best friend for a long time to come

Also read my previous blog Investing ? -- Make it boring

Image : FreeDigitalPhotos.net,Photographer: Ashley Cox