{"id":1913591,"date":"2014-02-06T17:18:43","date_gmt":"2014-02-06T11:48:43","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=1913591"},"modified":"2014-02-07T10:05:13","modified_gmt":"2014-02-07T04:35:13","slug":"returns-recurring-deposits","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2014\/02\/06\/returns-recurring-deposits\/","title":{"rendered":"Returns on Recurring Deposits"},"content":{"rendered":"

Earlier, we discussed returns on a systematic investment plan (SIP) on an index ETF (To SIP an ETF or Not?<\/a>) The analysis was incomplete because it did not discuss returns on a similar investment made on a risk-free asset. How would a recurring deposit over the same period of time perform?<\/p>\n

To simplify, lets have a look at the overnight rates on our zero-coupon yield curve:<\/p>\n

\"zero<\/a><\/p>\n

We can use these rates as a rough approximation for 1 month risk-free returns. What would returns be if an investor put in a fixed amount every month and re-invested it based on the risk-free yield above?<\/p>\n

Since 2011: 9.66%
\nSince 2012: 10.25%
\nSince 2013: 11.98%<\/p>\n

Compare this to SIP on ETF returns:<\/p>\n

Since 2011: 7.40%
\nSince 2012: 8.58%
\nSince 2013: 5.33%<\/p>\n

Three years worth of data points are too short to draw any conclusions. And unfortunately we don’t have yield curves before 2011, so we’ll take the 1-Month Mumbai Interbank rates as a proxy.<\/p>\n

\"mibor\"<\/a><\/p>\n

\n
\n

Recurring Deposit<\/h3>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Start Year (Jan)<\/th>\nIRR<\/th>\n<\/tr>\n<\/thead>\n
2004<\/td>\n7.87%<\/td>\n<\/tr>\n
2005<\/td>\n8.03%<\/td>\n<\/tr>\n
2006<\/td>\n8.18%<\/td>\n<\/tr>\n
2007<\/td>\n8.33%<\/td>\n<\/tr>\n
2008<\/td>\n8.54%<\/td>\n<\/tr>\n
2009<\/td>\n8.90%<\/td>\n<\/tr>\n
2010<\/td>\n9.49%<\/td>\n<\/tr>\n
2011<\/td>\n9.86%<\/td>\n<\/tr>\n
2012<\/td>\n10.13%<\/td>\n<\/tr>\n
2013<\/td>\n11.19%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n
\n

SIP on the JUNIORBEES ETF<\/h3>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Start Year (Jan)<\/th>\nIRR<\/th>\n<\/tr>\n<\/thead>\n
2004<\/td>\n10.77%<\/td>\n<\/tr>\n
2005<\/td>\n9.48%<\/td>\n<\/tr>\n
2006<\/td>\n8.66%<\/td>\n<\/tr>\n
2007<\/td>\n8.47%<\/td>\n<\/tr>\n
2008<\/td>\n9.81%<\/td>\n<\/tr>\n
2009<\/td>\n8.70%<\/td>\n<\/tr>\n
2010<\/td>\n4.91%<\/td>\n<\/tr>\n
2011<\/td>\n7.40%<\/td>\n<\/tr>\n
2012<\/td>\n8.58%<\/td>\n<\/tr>\n
2013<\/td>\n5.33%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n

It looks like right up till 2009, the market outperformed the risk-free rate. And then took a turn for the worse and is yet to recover. Better days ahead, hopefully.<\/p>\n

Update from Prakash Lekkala<\/a>: <\/p>\n

we will be taxed 30% on fixed deposit returns… so considering that, dollar cost averaging did better than FD, except in 2010 and 2013.<\/p>\n

Bond MF’s would have done better since 2010, as you wouldn’t have paid tax after indentation<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

Earlier, we discussed returns on a systematic investment plan (SIP) on an index ETF (To SIP an ETF or Not?) The analysis was incomplete because it did not discuss returns on a similar investment made on a risk-free asset. How would a recurring deposit over the same period of time perform? To simplify, lets have … <\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[960],"class_list":["post-1913591","post","type-post","status-publish","format-standard","hentry","category-your-money","tag-returns","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/1913591","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=1913591"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/1913591\/revisions"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=1913591"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=1913591"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=1913591"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}