2 min read.Updated: 09 Aug 2021, 11:04 AM IST Written By Raj Khosla
Some recent IPOs have given very good returns but this does not mean all new issues will make money. Mutual funds offer several advantages and are possibly the best investment vehicle for small investors
I have been investing in mutual funds for the past two years. The returns are good but nothing compared to what my colleagues have earned from IPOs. Should I withdraw from mutual funds and invest in IPOs?
Every IPO is different and the company’s prospects should be researched in detail before investing. Study the fundamentals of the company and examine its valuation before investing. Even if you have done your research, do not put a large amount into an IPO.
Some recent IPOs have given very good returns but this does not mean all new issues will make money. Analysts were sceptical about Zomato but the stock was listed with terrific gains. At the same time, some other IPOs that came out in recent months are now trading below the issue price.
Your decision to take the mutual fund route is correct and you should continue on that path. Mutual funds offer several advantages and are possibly the best investment vehicle for small investors. Don’t let the spectacular gains made by your colleagues distract you from your goal.
I want to invest ₹2 lakh in a fixed deposit. My bank is offering only 5.65% on a three-year deposit while a cooperative bank is offering a higher rate of 7.5% and NBFCs are offering up to 8.25%. Will it be safe to invest in a cooperative bank or NBFC?
-Name withheld on request
You are obviously averse to taking risks and want to invest in a safe option. Cooperative banks offer higher rates to attract deposits but are not as safe as nationalised and commercial banks. However, the Deposit Insurance Credit Guarantee Corporation (DICGC) insures deposits up to ₹5 lakh per individual per bank. A bill introduced in the Rajya Sabha ensures that the money is paid to the investor within just 90 days if a bank collapses.
However, NBFC deposits are not covered by DICGC insurance. Investors who put money in fixed deposits and NCDs of DHFL will have to suffer losses. Don’t get lured by the higher rates offered by NBFCs. The quest for 1-2% higher return could endanger your entire principal amount.
Consider investing in Post Office schemes such as POMIS (interest rate 6.6%), Kisan Vikas Patras (6.9%) and NSCs (6.8%) where interest rates are slightly higher than what your bank is offering. These small savings schemes come with a government guarantee and are therefore absolutely safe.
Answered by Raj Khosla, managing director, MyMoneyMantra.com. Send your queries and views at email@example.com
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