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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Time to consider MIPs

Posted by Muthu on November 6, 2014

Recently I was reviewing the MIP investments of our clients and pleased with what I saw. Investment made at any point of time, has comfortably beaten the fixed deposits. In many cases, by a significant margin.

10 Year G Sec yield is continuing to soften. Earlier this year, it was above 9%. Even last month beginning, it was above 8.5%. Yesterday it was at 8.19%. As yields fall, bonds rally resulting in rising of NAVs.

As MIPs invest around 20% of corpus into equity, rising equity markets also has contributed to higher gains.

We recommend MIPs as any time product, which is capable of beating fixed deposits, provided one is willing to hold for not less than 5 years.

I would suggest now to seriously consider investing in MIPs. Keep in SB A/C or FDs only your emergency fund. Other fixed deposits can be moved to MIPs if you’ve 3 year investment tenure.

Over next 3 years, we believe both inflation and interest rates would continue to soften. More than a onetime event, it would be a process for next couple of years. Bonds would continue to rally contributing to increased NAVs.

We’ve also mentioned earlier that we’ve a very positive view of equity market for next few years.

With falling interest rates and rising equity market, MIPs are capable of delivering returns much superior to fixed deposits. I would not be surprised even if the returns are in mid or higher teens.

Accruals are tax free for MIPs. After 3 years, withdrawals have indexation benefit. This would result in negligible taxation unlike FDs which are taxed at the tax slab you belong to.

We never try to time any investment. However the opportunity available now for MIP investment looks too good to ignore.

So you may consider moving some FDs to MIPs provided you are willing to hold it for not less than 3 years.

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