Your 2016 Debt investment plan

Now that we have established as to how we can have 1 goal of a FI number and invest in 2 asset classes with 3 portfolios, we need to get down to the strategy of investment in the 3 portfolios. Let me start with debt.

For the purpose of coverall all sections of readers, let me divide the investing populace into 3 categories. The first will be people who are below 40 years in age and are likely to continue work for at least another 15 years or so. For this category of people the only thing they need to do is to keep contributing to their PF / NPS and PPF accounts. Remember that it is important too maximize your PPF account contribution, you will see the real benefits of compounding in the years to come. For people who do not have a PF or NPS account, I recommend you open another PPF  account in the name of your spouse.

For the next category of people who are in the age group of 40 to 60, my recommendation is the same. Keep extending your PPF accounts, make sure you contribute the maximum amount and ideally never withdraw from it unless it is to meet a goal at a time when redemption of equity is inopportune. In addition to this you can invest in Tax free bonds if you are looking at a regular income in a few years time. Avoid FD as they are clearly tax inefficient, you may want to look at POMIS and also at different types of debt funds if you have surplus money to invest after all the above.

Finally, we come to the category who are retired, even though they may still have some secondary profession. For these people Tax free bonds are a must and they should put in as much as they can. In terms of FD, Senior citizen’s saving scheme is the only worthwhile investment. POMIS along with Debt funds can be looked at. The PPF accounts need to be continued and you can withdraw from these now. If you have the financial means, keep contributing the maximum to it. Assuming you have contributed to PF and PPF diligently over your working life, these alone will go a long way in taking care of your post retirement needs.

In my opinion, dent investments should be kept simple. Unless you have serious amount of surplus money, do not go for Gilt funds and the like. The best part of debt instruments is predictable returns, there is no need to go for instruments that are likely to have volatile returns. Equity is volatile in any case – I will deal with this in the next post.

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14 thoughts on “Your 2016 Debt investment plan

  1. Tax free bonds earn simple interest, is it correct, so if you divide your fds in husband and wife name and keep int below taxable limit, is it good strategy, off course 1st preference to complete ppf full limit

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      • The problem with Investing in Tax Free Bonds is you have to buy them only in secondary market as getting the sum you want is very remote in the IPO.Secondary markets in Debts are not well developed in India.So why not invest in Short term Gilt Funds? they are not much volatile,absolutely safe and tax freindly if held for more than 3 Years?

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      • Mr.Roy
        I am talking about SHORT TERM GILT FUNDS.eg SBI Short Term Gilt fund is a good bet specially now when the interest rates are likely to fall

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      • I am a diy guy just entering into investing. Stumbled on ur posts from asan fb page. This is my first comment . Well my understanding and execution plan is inline with your FI n value investing strategy.

        IMHO the debt component is of 2 purposes to me.

        1) compounding of principal + interest with high level of capital protection. I’m having pf n vpf going. After reading your school of thought have applied for ppf. Will topup 1.5 lac in 1st week of apr’16

        2) surplus money that I am setting aside for my equity investment of 2017 (buy bluechip of giant n large cap, lumpsum 1 midcap direct mf, 1 small cap direct mf) will be invested in debt.

        Ppf n fd appear inefficient for this purpose. Hence I am going via parents route. My father is a senior citizen with less than 2.5 lac income. So i am opening Senior citizen saving scheme n will invest one part of surplus (will submit form15h every year to avoid tds).

        On d same lines remaining of surplus in liquid n ultra short term funds (father’s name)

        The idea is after 1year I ll have various liquidating options at my disposal. Will use my liquid fund then my ultra short term n last my scss.

        This is the 1st time i have penned down what i have been doing for last 2 months. Would love to hear your thoughts on the same.

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      • I am a diy guy in my early 30s just entering into investing. Stumbled on ur posts from asan fb page. This is my first comment . Well my understanding and execution plan is inline with your FI n value investing strategy.

        IMHO the debt component is of 2 purposes to me.

        1) compounding of principal + interest with high level of capital protection. I’m having pf n vpf going. After reading your school of thought have applied for ppf. Will topup 1.5 lac in 1st week of apr’16

        2) surplus money that I am setting aside for my equity investment of 2017 (buy bluechip of giant n large cap, lumpsum 1 midcap direct mf, 1 small cap direct mf) will be invested in debt.

        Ppf n fd appear inefficient for this purpose. Hence I am going via parents route. My father is a senior citizen with less than 2.5 lac income. So i am opening Senior citizen saving scheme n will invest 50% surplus required (will submit form15h every year to avoid tds).

        On d same lines remaining of surplus in 25% liquid n 25% ultra short term funds (father’s name)

        The idea is after 1year I ll have various liquidating options at my disposal. Will use my liquid mf (most liquid) then my ultra short term n last my scss.

        This is the 1st time i have penned down what i have been doing for last 2 months. Would love to hear your thoughts on my approach.

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  2. Sir,
    I am going to invest in PPF full amount on or before 5th April 2017 as per your recommendation. I also would like to invest 50k in NPS as I have opened tier 1 and tier 2 account .
    When should I invest in NPS and which account tier 1 or 2 ? Does it also need to be done before 5th April or any other date for benefits ?
    Thank you for your recommendation.

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    • NPS can be done any time in the FY to get tax benefits. PPF has to be done before April 5th to get the interest for the whole year. Go for a Tier 2 account, but check with your accounts team in office.

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