I have 30 lakhs rupees and want to apply for an IPO. What is the best strategy? Should I use an overdraft (OD) against a 30 lakh fixed deposit (FD), or should I apply directly for the IPO without using the OD against the FD? The FD interest rate is 7.15%, and the OD rate is 2% above the FD rate. Additionally, any OD money will be in a savings account while waiting for the IPO, which can earn potential interest. Please consider at least 4 lakhs profit in a year from the IPO sale of shares and/or keeping 30 lakhs in an ICICI savings account to earn interest.When considering an IPO investment strategy with your 30 lakhs, you have two main options: using an Overdraft (OD) against a Fixed Deposit (FD) or applying directly without using the OD. Here’s a detailed analysis of both strategies considering the interest rates and potential profits:
Am I missing something here ? Keeping money in bank account is better than OD against FD
1. Using Overdraft (OD) Against FD
• FD Interest Rate: 7.15%
• OD Interest Rate: 7.15% + 2% = 9.15%
• Saving Account Interest Rate: Assuming 4% for simplicity
Scenario Steps:
1. Create a Fixed Deposit (FD) of 30 lakhs:
o Interest earned from FD = 30,00,000 * 7.15% = 2,14,500 per year
2. Use OD against the FD to apply for the IPO:
o Interest cost for using OD = 30,00,000 * 9.15% = 2,74,500 per year
3. Keeping IPO application money in the savings account:
o Interest earned from savings account = 30,00,000 * 4% = 1,20,000 per year
4. Expected profit from IPO investment:
o Estimated profit from IPO = 4,00,000 per year
Net Profit Calculation: Total Income=FD Interest+Savings Interest+IPO Profit\text{Total Income} = \text{FD Interest} + \text{Savings Interest} + \text{IPO Profit}Total Income=FD Interest+Savings Interest+IPO Profit Total Income=2,14,500+1,20,000+4,00,000=7,34,500\text{Total Income} = 2,14,500 + 1,20,000 + 4,00,000 = 7,34,500Total Income=2,14,500+1,20,000+4,00,000=7,34,500
Total Expenses=OD Interest=2,74,500\text{Total Expenses} = \text{OD Interest} = 2,74,500Total Expenses=OD Interest=2,74,500
Net Profit=Total Income−Total Expenses\text{Net Profit} = \text{Total Income} - \text{Total Expenses}Net Profit=Total Income−Total Expenses Net Profit=7,34,500−2,74,500=4,60,000\text{Net Profit} = 7,34,500 - 2,74,500 = 4,60,000Net Profit=7,34,500−2,74,500=4,60,000
2. Directly Applying for the IPO Without Using OD
• Saving Account Interest Rate: Assuming 4%
Scenario Steps:
1. Keep the 30 lakhs in a savings account:
o Interest earned from savings account = 30,00,000 * 4% = 1,20,000 per year
2. Apply for the IPO directly using the 30 lakhs:
o Estimated profit from IPO = 4,00,000 per year
Net Profit Calculation: Total Income=Savings Interest+IPO Profit\text{Total Income} = \text{Savings Interest} + \text{IPO Profit}Total Income=Savings Interest+IPO Profit Total Income=1,20,000+4,00,000=5,20,000\text{Total Income} = 1,20,000 + 4,00,000 = 5,20,000Total Income=1,20,000+4,00,000=5,20,000
Comparison:
• Using OD Against FD: Net Profit = 4,60,000
• Directly Applying for IPO: Net Profit = 5,20,000
Conclusion
Based on the calculations, applying for the IPO directly without using an OD against an FD yields a higher net profit of 5,20,000 compared to using an OD, which yields a net profit of 4,60,000.
Therefore, the best strategy in this case would be to apply for the IPO directly using the 30 lakhs without creating an FD and using an OD. This maximizes your net profit by reducing the interest expenses associated with the OD.
Zerodha (Trading Account)
RHP
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