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I would like to start my investment portfolio with Rs 5,000/- every month. I am trying to find a scheme that gives me the flexibility to pull out my money really quickly (family emergency etc) and also give me a 8-9% rate of return.

I would also like to know how to select a scheme that pays a monthly dividend.

Thank you.

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Given that you are starting with a relatively small amount, you want a decent interest rate, and you want flexibility, I would consider fixed deposit laddering strategy.

Let's say you have ₹15,000 to start with. Split this in to three components:

  • ₹5,000 purchase a 30-day fixed deposit
  • ₹5,000 purchase a 60-day fixed deposit
  • ₹5,000 purchase a 90-day fixed deposit

Purchase all of the above at the same time. 30 days later, you will have the first FD mature. If you need this money, you use it. If you don't need it, purchase another 90-day fixed deposit.

If you keep going this way, you will have a deposit mature every 30 days and can choose to use it or renew the fixed deposit.

This strategy has some disadvantages to consider:

  • As for interest rates, the length of the fixed deposit in positively related to the interest rate. If you want higher interest rates, elect for longer fixed deposit cycles.For instance, when you become more confident about your financial situation, replace the 30, 60, 90 day cycle with a 6, 12, 18 month cycle

  • The cost of maintaining the short term deposit renewals and new purchases. If your bank does not allow such transactions through on line banking, you might spend more time than you like at a bank or on the phone with the bank

  • You want a monthly dividend but this might not be the case with fixed deposits. It depends on your bank but I believe most Indian banks pay interest every three months

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I don't think it makes sense to invest in an FD since. 1.) A 30 day FD is not very likely to give you 8-9% 2.) Inflation is so high in India that your losing money even though you think that you are doing well enough.

I would suggest you to expect a larger return and try hedging your portfolio correctly. For example you can buy a stock which is likely to go higher, and to limit your risks, you can buy a put option on the same stock, so even if the price falls drastically, you can exercise your option and not lose anything except for the premium you paid.

Good luck:)

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  • "Hedging your portfolio" eh? You might want to provide a more detailed answer for it to be considered useful.
    – karancan
    Commented Jun 11, 2014 at 19:19
  • For example you can buy a stock which is likely to go higher, and to limit your risks, you can buy a put option on the same stock, so even if the price falls drastically, you can exercise your option and not lose anything except for the premium you paid.
    – user15222
    Commented Jun 11, 2014 at 19:33
  • Edit your answer with details. Don't just leave it as a comment
    – karancan
    Commented Jun 11, 2014 at 20:10

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