As all my regular readers will know, a lot of my debt investment have been historically into FMP instruments. The basic premise of this is simple – it is a safe investment with relatively stable interest rates you can lock into for 3 years or more, the indexation benefits are good and consequently the taxes are reasonably low. If you want to read more about why I invest in it you can go through the FMP related blog posts.
The way I approach FMP redemption proceeds can be summarised as below:-
- The capital gains are used for my regular expenditure if required. These form a good part of my passive income stream and, more often than not, I use it for some discretionary expenses.
- I normally reinvest the principal amount in some other debt instrument, it could be FMP again or something else depending on the context of time.
So far in April, 3 of my FMP investments have been redeemed and the overall details are as follows:-
- The principal amount in these three were 7 lacs.
- Total capital gains arising out of these redemption is 2.25 lacs. In terms of XIRR it translates to around 9.75 % which is pretty good.
- At this point in time, I do not really need the capital gains for my expenditure. This is mainly due to my active income through Consultancy which is more than adequate to take care of my regular and discretionary expenses.
Based on the above considerations I have decided to invest 9 lacs out of the redemption amount. In the present interest rate cycle, investing in pure debt products will really not make sense. As such, I am looking at the following distribution:-
- Dual advantage FMP which invest in equity to a small extent.
- Close ended equity funds such as Sundaram long term micro cap fund.
- Equity savings funds.
- Funds such as ICICI Balanced Advantage fund or Edelweiss Absolute Return fund.
As some of these funds are dependent on market levels, I will be waiting for the annual results to be out. My feeling is Nifty will get down to below 9000 levels shortly and that will be a good time for me to buy these instruments.