Excellent Plan with Bank FD

DharameshValue-Investing

31
Hi
My father in law taught me an exellent idea of investment through Bank fixed deposit.
Make a FD with bank and take loan on that FD and re-FD that loan amount.Repay that loan within a year and take
another loan & repeat the cycle.
Eg:Make a FD of 50K with any bank. Interest,take for instance is 8%. Take a loan of 30K on that FD after few days and
make another FD of 30K with bank @ 8%. Bank used to charge 2% extra on loan amount ie 10% in this case. I will be
paying 10% interest and other side earning 8% on FD.So net impact of loan is 2% only probably cheapest in world.Also
my networth increased from 50K to 80K.
After repaying the loan in a year. I can again opt for 30-50 K loan & repeat the cycle. I feel this very attractive option &
safety is exteremely high.Such small saving plan may yield better fund in future & house wives can be invloved for
these activities & formalities with bank.
Would request you to suggest your view.

31 Answers
Karthik October 9, 2012 at 1:38 pm
Can

you

answer

one

simple

question?

effectively what percentage return do you think you earn from your 50k investment?
REPLY

Dharamesh October 9, 2012 at 2:43 pm

Hi

Karthik

Above given practice develops the habit of investment & gives instant result. For one year return on 50K will
not be more than 6% after deduction of loan interest but total net worth of investement after maturity will be
86400 in a year.May be the same can also be done with 50K FD and opening an RD but RD gives somewhat
return

only

opted

for

years.

Now 36400 can be used for any long term investment in MF or stock market and remaining 50K can be used
for FD against to repeate the cycle.

REPLY

Karthik October 9, 2012 at 2:55 pm

You are just complicating the way of investing, paying an unncecessary charge of 2%, and investing the 30k
in Equity as a lumpsum which is not a good idea.
Instead, we should go for Systematic Investment plan and make the habit of investing small amounts
steadily (the amount you will be paying for the loan that you took against the FD can be used for investing in
SIP)
REPLY

Karthik October 9, 2012 at 2:58 pm

and, when you say your net worth increases by 30k by getting a loan against FD, your Liability increase by
30k.
REPLY

Dharamesh October 9, 2012 at 3:52 pm

Yes karthik liablity will also be incresed by 30K for that particular year but it is secured liability. Your
suggestion of SIP in MF is good. Can you suggest few good MF suitable for SIP.
REPLY

Ramesh October 9, 2012 at 3:07 pm

It seems that you are creating money out of thin air. Better check the details or do it yourself over a single
year, and see how much money you made.
REPLY

Dharamesh October 9, 2012 at 3:36 pm

Hi

Ramesh

Yes this formula is already implemented by my father in law and he had developed sound investment out of
it. Now he has grown old after fullfilling all his responsibilities with good financial backup.I have posted this
just to have views of other members of this website for pro & cons of scheme. May be SIP in MF is better
idea provided it give good return. I have portfolio of approx 2 lacs in MF in different scheme since last 5-6
years. Only few have responded wellrest seems junk to sell off. MF have risk factor to gain. No expert can

predict any fund in advance that it will be a super hit.whenever any fund performs well expert starts to
recommend it. Its just trial & error method of investment.
Would like suggestions for good MF for SIP
Moreover I am not saying above FD scheme is one & all should be in portfolio. This is one of the type of
secured investment can be included in overall portfolio. May be some people can come out with better idea.
REPLY

Biswa Singh October 9, 2012 at 3:57 pm

I am not convinced that you will get any positive return out of it. Also its too complicated to think of. If
possible please show with calculation for one year how much money you are going to make.
REPLY

Karthik October 10, 2012 at 1:47 am

I think, Dharamesh is trying to put this..
Assets
10

Lakh

FD

at

8%

for

one

year

Maturity

amount

10,83,634

8 Lakh FD at 8% for one year Maturity amount 8,66,907

Liabilities
8 Lakh Loan at 10% for one year, Total Outgo 8,43,992
The FD taken with the loan earns Rs. 22,915, which can be considered as a total return of 1,06,549 instead
of 83,634.
But, If we consider 30.9% Tax, the difference is very small which comes to 2,240. For 20.6%, difference is
9,132 and for 10.3%, difference is 16,023.
REPLY

Ramesh October 10, 2012 at 10:47 am

Will you continue to earn money on the FD, over which you have taken a loan?
REPLY

Biswa Singh October 10, 2012 at 9:39 am

Karthik,
8 lakh loan at 10% per year would be 8,80,000. So here he has a loss around -14,000.
If you now decuct this loss 14,000 from the original FD then the actualy return earned will be not 8% rather
6%. I dont see any profit in it.
REPLY

Dominic Prakash October 10, 2012 at 10:37 am

@Dharamesh: I dont see any profit either but I see lot of pain in tracking loans and FDs. Generally (all)
banks try to squeeze any meager amount from their clients. Actually Banks make money from these 1% or
2% between their loan with RBI and loans given to their clients. Like you do between FD and loan.
REPLY

TheZionView October 10, 2012 at 11:19 am

If you invest at 8% and Loan at 10% from it. You can profit only if the loan amount gets anything above 10%.
Example
100000

at

8%

for

year

you

earn

108000

80000 at 8% for 1 year you earn 86400

Your return is 108000+86400=194400
Loan 80000 at 10% for 1 year you pay=88000
Your actual return is =194400-88000=106400
So if you look at the example you will be making a loss of 1600 which is 1.6%.
REPLY

Dharamesh October 10, 2012 at 11:36 am

Dear

All

It seems you all taking this scheme as short term gain whereas it is long term investment plan on continue
basis.Also I have previously told you it can be part of overall investment portfolio.
Let

me

explain

Take a loan against FD which normal earning person can easily repay within 6-12 months. No need to take

higher risk. This is small investment on regular basis which can be done in the name of Housewife or mother
to save the tax on interest. I have made a data based presentation for 10 years with minimum return
possibility. Here I am not able to paste excel presentation with proper rows & colum marked. It is getting
scattered. Hopefully you can try to arrnage for yourself in readable content
Investment

Loan

Total

FD

FD

Interest

8%

Loan

Intrest

50000

30000

80000

6400

3000

86400

30000

116400

9312

3000

Net

Return

Total

FD

3400

3000

Value
86400

6312

125712

9457

168169

125712

30000

155712

12457

168169

30000

198168

15854

3000

12854

214022

214022

30000

244022

19522

3000

16522

263544

263544

30000

293544

23484

3000

20484

317028

317028

30000

347027

27762

3000

24762

374790

374790

30000

404790

32383

3000

29383

437173

437173

30000

467173

37374

3000

34374

504547

504547 30000 534547 42764 3000 39764 577311

Total

Investment

in

10

Yrs

380000

Total

(50000+30000*10+30000

Loan

Intrest)

return

577310

Net Surplus 197310

Moreover I have calculated interest on loan on simple intrest formula on yearly basis whereas it is actually on
reducing balance basis.So total interest will come down & will be added in net surplus. Also if any one can
manage to repay loan before 12 months in each cycle may yield more return.
Hopefully I have managed to convience you all that this scheme can manage to give return if followed
carefully and gives safe & secured return. Pls do not compare it with return with equity market where we are
always in mercy of market conditions & luck. I do agree that it is a bit complicated and need to visit 2-3 times
bank in every year. But obvious gain is there.
Thanks you all for your valuable time & feedback
Regards
REPLY

Dharamesh October 10, 2012 at 11:51 am

Investment

Loan

Total

FD

FD

Intrest

8%Loan

Intrest

50000

30000

80000

6400

3000

86400

30000

116400

9312

3000

125712

30000

155712

12457

168169

30000

198168

15854

3000
3000

Net

ReturnTotal
3400

FD

Value
86400

6312

125712

9457

168169

12854

214022

214022

30000

244022

19522

3000

16522

263544

263544

30000

293544

23484

3000

20484

317028

317028

30000

347027

27762

3000

24762

374790

374790

30000

404790

32383

3000

29383

437173

437173

30000

467173

37374

3000

34374

504547

504547 30000 534547

Can E-Receipt of PPF A/C alone be considered proof for tax deduction?
Trishit RayBanking, EPF or PPF, Income Tax, Tips or Useful Information

2
Hello everybody,
PPF for simple tax savings purpose is a good option specially if one is risk avert and dont need the money in near future.I
also do have a PPF account.I deposited some money through online banking and downloaded the pdf version of the ereceipt.The e-receipt has INB reference no.,my name,ppf a/c no.,amount,date,debit a/c no. and the transaction type
clearly shows as PPF Deposit.It has the bank logo which is SBI in my case.
My question is if I take a print out of this e-receipt will this alone be enough proof for tax deduction?
Regards,
Trishit Ray

2 Answers
Ashal Jauhari June 4, 2012 at 2:28 pm
Dear Trishit, yes the e-receipt is a valid proof to claim tax benefit at source from your employer.
Thanks
Ashal
REPLY

Brundaban June 6, 2012 at 3:07 pm

Dear

Trishit,

Along with e-receipt you can produce the front page of PPF Pass book(scan copy) showing your PPF A/C

No.

and

Name.

Also you can print the transacation history showing the transaction in ppf ac and this can be used as proof.