When Rs 1 Crore FD Monthly Interest is used as SIP in Nifty [Case Study]

How about Using monthly interest from Rs 1 Crore FD as SIP in Mutual Funds?

That is, you use the FD monthly interest as SIP.

Can this be one ideal option for new investors who are looking to scale equity exposure slowly? Or rather very slowly?

Recently, I was talking to a friend. As it turns out, he is a pretty conservative saver. He doesn’t like equity. Or more specifically, he would love to have equity-like returns but fears the ups and downs of the market.

I tried to convince him about how one can start with a pure 100% debt portfolio and gradually scale up the equity investments.

How?

The idea is pretty simple.

Suppose you have Rs 1 crore to invest.

(I know Rs 1 crore is not a small amount. But stay with me and understand the concept. Then you can think whether it makes sense for anyone who is a conservative investor or not, even if it means starting with amounts less than Rs 1 crore – like Rs 10 lakh, Rs 25 lakh, Rs 50 lakh, etc.).

The idea is to gradually ease into equities. So what can be done is to park Rs 1 crore in a safe bank for fixed deposit. And then use monthly interest to invest via SIP into equities.

I know it sounds pretty simple. And it is.

But I am sure you would want to see how it works in practice. Right?

So let’s analyze a few scenarios with real numbers.

We still need to make a few assumptions:

  • The FD interest is kept constant at 6% over the years (for simplicity).
  • We ignore taxation on FD interest.
  • We do a SIP in Nifty50 (or in index funds tracking the Nifty50)

So if you put Rs 1 crore in fixed deposit, you get Rs 50,000 monthly interest

Related Reading – Monthly interest on Rs 1 crore FD and Monthly interest on Rs 2 crore FD and Monthly interest on Rs 5 crore FD.

Now, this Rs 50,000 per month is used as the monthly SIP amount of Rs 50,000 to be invested in Nifty.

We will now see various scenarios where Rs 50,000 monthly SIP investment happens in Nifty starting from the year 2000, year 2001, year 2002… year 2007, year 2008… year 2014….year 2020 and finally year 2021.

Remember that we are constantly using the monthly interest for SIP, the FD principal of Rs 1 crore does not increase. And neither does it decrease as we are not withdrawing from the principal. We are only using the monthly interest. So with each passing month, the amount invested in equity increases.

Let me share one case study in detail and then I will share the summary of all findings:

  • You keep FD principal of Rs 1 crore as it is.
  • The monthly interest of Rs 50,000 is used to invest via SIP in Nifty on the first day of the month, starting from January 2000.
  • From Jan-2000 to Aug-2021, a total of Rs 1.3 crore would have been invested via Rs 50,000 monthly interest going into SIPs.
  • The value of equity investment in Aug-2021 would be Rs 6.67 Crore. The value of your FD remains at Rs 1 Crore.
  • So starting from 0% equity and 100% debt, the portfolio is now at 87% equity and 13% debt.

FD monthly interest as SIP

And here is how the allocation distribution between equity and debt would have oscillated over the years:

Asset allocation Equity Debt FD Interest as SIP

That was about starting in the year 2000. But what if we started during the later years?

I simulated those scenarios for you. Here are the findings:

  • If you had kept Rs 1 crore in FD in Jan-2001 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 5.99 Crore. Your total investment via SIP would have been Rs 1.24 Crore. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 7% in Equity and 14.3% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2002 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 5.15 Crore. Your total investment via SIP would have been Rs 1.18 Crore. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 7% in Equity and 16.3% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2003 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 4.24 Crore. Your total investment via SIP would have been Rs 1.12 Crore. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 1% in Equity and 19.9% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2004 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 3.42 Crore. Your total investment via SIP would have been Rs 1.06 Crore. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 4% in Equity and 22.6% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2005 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 2.87 Crore. Your total investment via SIP would have been Rs 1.00 Crore. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 2% in Equity and 25.8% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2006 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 2.44 Crore. Your total investment via SIP would have been Rs 96 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 1% in Equity and 29.9% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2007 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 2.16 Crore. Your total investment via SIP would have been Rs 90 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 3% in Equity and 31.7% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2008 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 1.94 Crore. Your total investment via SIP would have been Rs 84 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 66% in Equity and 34% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2009 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 1.71 Crore. Your total investment via SIP would have been Rs 76 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 2% in Equity and 36.8% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2010 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 1.46 Crore. Your total investment via SIP would have been Rs 70 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 4% in Equity and 40.6% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2011 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 1.29 Crore. Your total investment via SIP would have been Rs 64 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 2% in Equity and 43.8% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2012 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 1.11 Crore. Your total investment via SIP would have been Rs 58 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 6% in Equity and 47.4% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2013 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 92.9 lakh. Your total investment via SIP would have been Rs 52 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 2% in Equity and 51.8% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2014 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 76.8 lakh. Your total investment via SIP would have been Rs 46 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 4% in Equity and 56.6% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2015 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 63.5 lakh. Your total investment via SIP would have been Rs 40 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 9% in Equity and 61.1% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2016 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 52.1 lakh. Your total investment via SIP would have been Rs 34 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 2% in Equity and 65.8% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2017 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 40.4 lakh. Your total investment via SIP would have been Rs 28 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 8% in Equity and 71.2% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2018 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 30.3 lakh. Your total investment via SIP would have been Rs 22 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 3% in Equity and 76.7% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2019 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 21.4 lakh. Your total investment via SIP would have been Rs 16 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 6% in Equity and 83.4% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2020 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 13.1 lakh. Your total investment via SIP would have been Rs 10 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 6% in Equity and 88.4% in Debt.
  • If you had kept Rs 1 crore in FD in Jan-2021 and then use Rs 50,000 monthly interest as SIP to invest in Nifty on the first day of every month, the value of your Equity Portfolio in Aug-2021 would be Rs 4.3 lakh. Your total investment via SIP would have been Rs 4 lakh. The FD remains at Rs 1 Crore. The allocation would have started from 0%-100% to finally become 1% in Equity and 95.9% in Debt.

And that is how you can gradually scale up your equity investments over time without touching your FD principal of Rs 1 crore. Remember that this is an approach for someone who is really not into equity much. A person who is a very conservative saver (and not even an investor).

Ideally, a better approach would have been to start with some equity deployment initially and then handling it accordingly based on market views that you have and other factors.

Note – Debt funds are better than Fixed Deposits

But nevertheless, this was a depiction of how someone can be eased into equity investing if they are not much interested in it. And please don’t think that about retiring with just Rs 1 crore. Have no doubts. Rs 1 crore is not enough to retire in India. Though Rs 5 crore can be enough for most. Here’s the proof.

I hope you found this case study on how to use the monthly interest of Rs 1 Crore FD as SIP in Mutual Funds in India (2021) interesting. Do share it with your conservative and FD-lover friends and family members.

6 comments

  1. The resulting allocation into Equity and Debt is not clear.While the Debt % is continually increasing, the Equity % is erratic.
    Kindly explain with an Excel TAble

    1. Due to equity market movements, the equity allocation also varies with time (in addition to fresh 50K monthly inflows via SIP)

  2. Interesting article Dev !

    I had sent an email on your registered mail id couple of months back regarding planning.
    Let me know how we can take it forward.

    Thanks!

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