Keeping money only in term deposits can be counterproductive

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NEW DELHI :

I am a retired retiree. My daughter works in a multinational and transfers a lot of her money to my account saying that she tends to spend. Please tell me the maximum I can save in my fixed deposit and would it be better for her to keep her salary in her own account?

—Neela

Keeping excess money in a bank account or a fixed deposit can be counterproductive. Your daughter can start investing her salary in more productive instruments that can help her grow her hard-earned money instead of just keeping it in her bank account.

As a first step, she can build up a contingency fund in her bank account, which can represent her expenses of six to nine months. Once it’s built or if it’s already in place, she can invest her monthly savings for future needs. Some of these needs may be the purchase of a vehicle, vacations, wealth creation, etc. mix of debt and equity and for any goal over five years, she may consider investing in equity.

The fact that she transfers her salary to your account each month to avoid overspending shows a strong intention on her part to save. This saving habit can be reinforced by following the strategy suggested above to establish a good investment plan for oneself. Mutual funds are one of the best ways to invest in asset classes such as stocks and debt. She can set up systematic investment plans (SIPs) for each month that the excess money in her account will be invested in mutual funds on a predetermined day each month. This will help her to diversify her investments and at the same time make the money earned work more for her. She is also able to invest for the long term and over the period, the cumulative effect of these regular investments will help her build a good portfolio, which will be much higher than the money that remains idle in a bank account.

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