His Mutual Fund investment method sounds Interesting. Can you help me understand and elaborate his technique with examples?

[smakash111]

Can you help me understand and elaborate his technique with examples?

 

[ChinmayG]

Can you help me understand and elaborate his technique with examples?

He isn’t providing any specific mutual fund investment strategies. Instead, he recommends parking your idle money in a fixed deposit (FD) or a liquid fund while it remains in your bank account before being invested in mutual funds. This approach allows you to earn additional interest compared to leaving the money in a regular savings account. By combining the returns from your mutual fund investments with the interest earned from the liquid fund or FD, he aims to demonstrate how this cumulative approach can significantly enhance your overall earnings.

If you choose to park money in a liquid fund or FD and gradually invest it into a mutual fund using monthly withdrawals (SIP), the returns would differ. Let’s compare direct SIP in mutual funds versus liquid fund + SIP approach to show how returns are affected.

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Scenario:​

• Investment Amount: ₹5,00,000
• Monthly SIP: ₹41,667 (₹5,00,000 divided over 12 months)
• Liquid Fund/FD Return: 6.5% p.a.
• Mutual Fund Return: 12% p.a.
• Investment Period for SIP: 12 months
• Analysis Duration: 12 months for SIP contributions.

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Option 1: Direct SIP in Mutual Fund (No Liquid Fund/FD)​

If you invest ₹5,00,000 directly into a mutual fund via monthly SIPs of ₹41,667, the returns will depend on the mutual fund’s performance. Mutual fund SIP returns grow over time as contributions are spread across 12 months.

Returns from Direct SIP:​

• Average SIP Return for Mutual Funds (approx. 12% p.a.):
  Using SIP return calculations, the total value at the end of 12 months will be ~₹5,33,000.
  • Gain: ~₹33,000.

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Option 2: Liquid Fund/FD + SIP in Mutual Fund​

Here, you park ₹5,00,000 in a liquid fund (earning 6.5% p.a.) and set up a monthly SIP of ₹41,667 from the liquid fund into a mutual fund.

Step 1: Liquid Fund Returns​

• As money is withdrawn(For FD you can opt for Monthly interest) monthly for SIPs, the remaining balance in the liquid fund continues to earn 6.5% annual returns.
• Approximate additional earnings from the liquid fund: ~₹12,000 (as the balance reduces over time with monthly withdrawals).

Step 2: Mutual Fund SIP Returns​

• As in Option 1, the monthly SIP of ₹41,667 into the mutual fund grows over 12 months with an average return of 12% p.a.
• Total mutual fund value at the end of 12 months: ~₹5,33,000.

Total Value After 12 Months:​

• Liquid Fund Earnings: ~₹12,000
• Mutual Fund Value: ~₹5,33,000
• Total Value: ~₹5,45,000.
  • Gain: ~₹45,000.

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Comparison of Returns:​

1. Direct SIP in Mutual Fund:
   • Total Value = ~₹5,33,000
   • Total Gain = ~₹33,000
2. Liquid Fund + SIP in Mutual Fund:
   • Total Value = ~₹5,45,000
   • Total Gain = ~₹45,000

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Key Insights:​

• By parking your lump sum in a liquid fund and systematically investing it in mutual funds, you earn an additional ₹12,000 from the liquid fund’s interest.
• The Liquid Fund + SIP approach ensures your idle money continues earning returns while gradually moving into equity markets.
• This strategy works well in scenarios where market volatility is a concern, and you prefer spreading out investments instead of lump sum investing.

 

[zacobite]

Can you help me understand and elaborate his technique with examples?

this is when u already have capital and not monthly sip amount.. same as STP that mfs offer