Freefincal Q & A: How to compare returns from a FD and a MF?

Each week I try and answer generic questions from readers. Here is this weeks edition. You can use the form below to ask your question and I will respond next week.

Some news:

1 If you have ordered GameChanger (my second book), you will receive in the next few days. It will be available at Amazon probably by tomorrow as hardcopy and kindle.

2 You Can Be Rich Too With Goal Based Investing is now 30% OFF at Amazon (hardcover ₹ 278)Opens in a new window and at Flipkart Opens in a new window. The Kindle editionOpens in a new window(you can use the free app to read it). is available for only ₹90.74.  The Google Play Store editionOpens in a new window (read on PC/Tab/mobile) is also available for the same price. Grab them before the offer ends!

Vinay: Hello sir, My MOM is due to retire next month and will be receiving indexed pension along with 20-30 lakhs of. Kindly suggest minimalist mf portfolio for her.

Pattu: I don’t do that, but can suggest that you can get professional advice for about 10-12K if you consult one of these SEBI registered fee-only financial planners.

Sagar: Hello Pattu Sir, and Subra Sir:) Many Thanks for your all Blog posts , Calculators and the book. I just finished reading it and now as you tweeted today important part I have to implement it. I have downloaded Automated-mf-portfolio-financial-goal-tracker-Apr-2016 tracker. I am trying to add my holdings in the tracker but Nothing happens Do you have any idea what can be problem in this case ? Do i have to activate Macros or something ? Regards Sagar

Pattu: Yes, macros have to be active. I will post a video about how to use this and track a portfolio and financial goals.

Aniket Bhadane: How to compare returns from FD and MF? Example: I have Rs. 100000 to invest. I can invest this one time in a Fixed Deposit (compounded each year) or in a Direct Mutual Fund in form of SIP investing 5000 each month for 20 months. Whichever I choose, I keep the investment for 5 years. How to compare returns from FD and MF at the end of 5 years? (Please consider a conservative return rates as per your experience) I read your articles about CAGR, XIRR. But it did not give a clear idea how to compare these two instruments?

Pattu: Comparisons are based on past data. You need to consider the range of 5-year returns observed in an index like the Nifty. This gives you an idea of how much returns can fluctuate. Here is such a study: Equity investing: How to define ‘long-term’ and ‘short-term’  For example. If I say, I expect 12% over 5Y, I must qualify(or quantify) that expectation with a spread: 12% +/-12% (!!).

That is how risk is stated. There is a difference between 12% +/- 2% and 12% +/-12% (this is what I would expect over 5Y).

Please also consider studying:

What Return Can I Expect From Equity Over the Long term? Part 1

What Return Can I Expect From Equity Over the Long term? Part 2

Bottomline: Apples & Oranges can be compared if we use the right yardstick (risk + return and not return alone)

Comparing FD and MF
Credit: ericaxel

DILIP: Are Direct MF plans are expensive? I have seen one article as below. It is talking about expense ratios (are increasing) and basis points(bps) . Could you please throw more light on both the points highlighted into the article? In addition, do you find any additional cost? Is there any comparative analysis tool exist to both of issues highlighted between Regular and Direct plan schemes? For long-term investors, just as returns compound, annual costs also compound, so it is also worth to discuss and develop tool to visualize the overall impact on portfolio return. http://www.livemint.com/Money/CFCKxfH8EU7ETzjfVH1TsL/Direct-plans-are-not-as-cheap-as-you-think.html Thanks.

Pattu: I do not read anything from Livemint, ET Wealth, moneylife, ValueResearch, Business Standard, MorningStar ….. because they are of no use and often lacks the right perspective. This article (which I was forced to read because a friend showed it to me) is yet another example of this. There is no logic on Earth that can justify the use of regular plans over direct plancs and I would suggest that you ignore this.

I already have Illustrations: Direct Mutual Funds vs. Regular Mutual Funds

and annual reports: Direct Mutual Fund vs. Regular Mutual Fund: 2017 Performance Report and Expense ratio calculators.


Amit Sharma: 
Hi, great article. Unfortunately I am a victim of low cibil score and was looking measures to improve it as I also wanted to avail a personal loan to renovate my house. Please suggest me as the banks keep cibil score as the fundamental factor in giving loans.

Pattu: It is nothing more than common sense. (1) Clear all loans. (2) Do not use the card up to the credit limit – just 30-40% use for a few month and a little more after that. It will take many months before it will improve.

CIBIL is not responsible for a low CIBIL score – we are.

Ask Questions with this form

And I will respond to them next weekend. I welcome tough questions. Please do not ask for investment advice. Before asking, please search the site if the issue has already been discussed. Thank you.

___________________

You Can Be Rich Too With Goal Based Investing is now 30% OFF at Amazon (hardcover ₹ 278) and at Flipkart. The Kindle edition(you can use the free app to read it). is available for only ₹90.74.  The Google Play Store edition (read on PC/Tab/mobile) is also available for the same price. Grab them before the offer ends!

OFFER: Get Pranav’s Ultimate Travel Training Kit for Rs. 199 (immediate download) using the link below.

GameChanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

is the new book hat discusses efficient money management solutions for everyone.
1) How to have a plan to quit as soon you start working and invest for it with minimal effort on auto-pilot.
2) How to manage expenses and time with minimal effort
3) Learn how to make that 4-day weekend in Thailand for 12k, plus travel to exotic locations at 50% lower budgets than what you did previously
4) Learn how credit cards can lower home loan payments and how to negotiate the fees associated.
5) Invest for financial freedom on auto-pilot!

Coming soon to Amazon

Cover-pink

Ultimate Travel Training Kit by Pranav Surya

A deep dive analysis into vacation planning, finding cheap flights, budgeted accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Your one-time decision to read it will impact the way you travel for decades. Get it now (immediate download) for ₹199

You Can Be Rich Too With Goal-Based Investing

is my book with PV Subramanyam.

  • Ask the right questions about money
  • get simple solutions
  • Define your goals clearly with worksheets
  • Calculate the correct asset allocation for each goal.
  • Find out how much insurance cover you need, and how much you need to invest with nine online calculator modules
  • Learn to choose mutual funds qualitatively and quantitatively.

If you have not yet got the book, check out the reviews below and use the links to buy.

Reader Quotes:

Gift it to your Friends and Relatives whom you care more. Already follower of Pattu and Subra’s forum. Ordered 4 more copies to give gift to my friends and eagerly waiting to read

The best book ever on Financial Freedom Planning. Go get it now!

Your first investment should be buying this book

The (nine online) calculators are really awesome and will give you all possible insights

Thank you, readers, for your generous support and patronage.

Amazon Hardcover Rs. 278. 30% OFF

FlipkartOpens in a new windowOpens in a new window Rs. 279 30% off

Kindle at Amazon.in (Rs.90.74)

Google Play Store (Rs. 90.74)

Infibeam Now just Rs. 319 21% OFF.

If you use a mobikwik wallet, and purchase via infibeam, you can get up to 100% cashback!!

Bookadda Rs. 344. Flipkart Rs. 359

Amazon.com ($ 3.70 or Rs. 267)

More information is available here: A Beginner’s Guide To Make Your Money Dreams Come True!

What Readers Say


Create a "from start to finish" financial plan with this free robo advisory software template


Free Apps for your Android Phone

Install Financial Freedom App! (Google Play Store)


Install Freefincal Retirement Planner App! (Google Play Store)


Find out if you have enough to say "FU" to your employer (Google Play Store)


About Freefincal

Freefincal has open-source, comprehensive Excel spreadsheets, tools, analysis and unbiased, conflict of interest-free commentary on different aspects of personal finance and investing. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. We do not accept sponsored posts, links or guest posts request from content writers and agencies.

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

Do let us know what you think about the article