With the rupee depreciating, should you opt for international funds?

I have around Rs 400,000 in my bank account that I am planning to invest. I don’t have an organised emergency fund. But this amount acts like one. I am aiming for returns better than fixed deposit. Where do you suggest I invest? 

The basic characteristic of an emergency fund is that we are able to use the money quickly when we need to and for that, we are able to withdraw it equally fast. Returns here are of secondary importance. In my view, it’s only liquid funds among short-term bond funds that fulfil this need.

With the rupee depreciating, I want to invest in international funds. Can you suggest a strategy to invest in international funds?

Investment should always be done with the right reason and for the right merit. If you want to invest in companies around the world then consider international funds. Gaining from rupee depreciation would be a little bonus. But understand one thing, the rupee may not always depreciate, and international markets also go through ups and downs. I suggest you put a small percentage of your overall portfolio into mutual funds that are constituted for investment in companies abroad.

My bank offers a strategy for systematic investment plan (SIP) in mutual funds. It takes a bulk amount and put s it  in a fixed deposit. If I invest around Rs 1.25 million, I will get about Rs 5,000 interest a month, which the bank will invest in my choice of funds. The plan looks attractive as it preserves the capital. What do you think? 

This is a strategy that will benefit the bank more than it will benefit you. If you put your entire Rs 1.25 million into mutual funds you could expect to see doubling of your funds every five years. In 10 years you would have close to Rs 5 million or more. With your bank's proposed strategy, in 10 years time, you will barely reach Rs 1.5 million.

I have recently received  a significant salary hike, and my salary has increased by Rs 10,000 a month. What are my options ? How do I best utilise this hike in my income to increase my monthly investments for good appreciation?

If you invest the additional Rs 10,000 a month completely into an SIP, at the end of 25 years it will give you an astounding additional sum of Rs 33 million. Does that sound interesting? When you are young and when you get additional hikes, maximise your investments. Go ahead and spend if you have to, but don’t do this endlessly and mindlessly.

The writer is director, Transcend Consulting. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in