First, let me explain why one should invest? There are 2 ways to make money – Work for money or let your money work for you. For an example If you put Rs. 100000 into a box and open it after 5 years, you will get the same Rs. 100000. On the other hand, if you invest the same amount in Fixed Deposit, you will get around Rs. 133000 back after 5 years because your money was working for you. So one of the major reason of investing is to grow wealth over time.
“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett
Different person have different financial needs or goals like saving for retirement, higher education or tax optimization. This is why there are so many investment options out there to meet different needs. But with so many investment options today, it becomes really difficult to choose the right one. There is nothing like that you can call “best”. Best for one might not be best for other and vice versa.
So I am listing 5 safe and trending investment options in India meeting different objectives. Choose one or more suiting your financial goals –
1. Mutual Funds
Do you have enough time and skills to manage your own portfolio?
Do you have a great knowledge of market?
“Mutual Funds” comes into play when your answers for above questions are “NO” but you still want to invest for great returns. Mutual fund is common money collected from interested investors and invested in stocks, bonds etc by expert professionals who have sound knowledge of the market. They invest money on the behalf of investors and the profit made is shared among all the investors. Minor fee is charged for managing your investment
So, depending upon where your money experts are investing and risk involved, mutual fund can be of different types – Equity Funds, Debt Funds, Balanced Funds and Liquid funds etc. The people with higher risk appetite can go for equity funds where a minimum of 65% fund is invested in equity and equity related securities. More the risk involved, more the money you can make/loss.
On the other hand Debt/Income funds are suitable for those who want to build up wealth with moderate risk.
You can pay all the money you want to invest in one go (Lump sum) or choose an amount to pay per month(SIP-systematic investment plan).The good thing about mutual funds is that one can start with as low as 500 Rupees per month.
There are several other benefits of investing in Mutual Funds over other investment options. For an example you don’t have minimum investment years like FD (unless it’s close ended ELSS scheme), so you can withdraw your money at regular intervals. If you invest in ELSS(Equity Linked Savings Scheme) then returns will be tax free.
2. Public Provident Fund(PPF)
PPF is one of the best investment options which offers good interest rate and tax free returns. Being an initiative of Indian Govt. , it’s safe instrument for putting money in. Any 18+ Years old Indian resident can open a PPF account by visiting authorized Bank Branch or post office. Some banks are also offering online PPF account opening service. Current PPF interest rate is fixed at 7.8% P.A. which is pretty higher than fixed deposit or bank interest rate. The PPF interest rate is decided by central government and keeps changing periodically.
Once you have opened a PPF account, you can deposit from Rs. 500 to Rs. 150000 every year and interest earned will be compounded yearly. To keep the account active you must deposit at least Rs. 500 every year. The money will be locked in for 15 years, although you will be allowed to withdraw partial amount from 7th year with certain conditions. Withdrawal and Interest remains tax free.
PPF is safe, tax free and attractive investment option for those who are planning to invest for children’s education, marriage, retirement or other long term goals.
3. National Saving Certificate (NSC)
There are two types(NSC Issue VII and NSC Issue IX) of National Saving Certificate provided at Post offices and if you want to invest in NSC then you must visit a Post office with required documents. Rs. 100 is the minimum you can start with and there is no upper limit you can put your money into NSC. Interest rate is decided and announced by Indian government and Current interest rate is kept at 7.9% compounded annually.
Depending upon the type of certificate, the maturity period can be vary from 5 years to 10 years. Investment made in these certificates comes under 80C of the IT Act and are eligible for tax benefits. Premature withdrawal are only possible in special cases. National Saving Certificates are for those who prefer safety over returns.
4. Sukanya Samriddhi Yojana(SSY)
If you are a parent/guardian of a girl child(10 years or less), you can open Sukanya Samriddhi Account on the behalf of her by visiting any post office or authorized bank branch. Birth certificate of girl child is the major document you need to open Sukanya Smariddhi Account. The maturity period of account is 21 years although 50% of deposited amount can be withdrawn once girl reaches the age of 18.
The maximum amount one can deposit in a SS Account is Rs. 150000. The interest rate of 8.6% per annum makes it attractive investment for both the tax payer parents and the girls in India. SS account get tax benefits under section 80C of IT Act. The interest rate keeps changing and announced by Finance minister in the month of April every year.
The SSY scheme can be a great investment option over long period and it make sure you are not affected by the rising cost of education or wedding expenses. Interest rate in Sukanya Samriddhi Account is highest among all the saving schemes offered by Govt.
5. Fixed Deposit(FD)
As its name suggests, Fixed Deposit is a fixed amount one deposits in a bank for a fixed period of time say 1 year or 5 years etc and gets better interest rate than savings accounts. The main objective of a Fixed Deposit account is to earn a higher interest rate on extra money. The interest rate depends upon Tenure of deposit, the institution where you park your money and other factors. Tenure period can be of 7 days to 10 years and interest rate can be as high as 9% a year.
Usually new banks offers high interest on FD accounts to increase their customer base. Most of banks today allow online FD account opening as well as withdrawal directly to your bank account. The interest earned on a FD account is fully taxable.
You can also withdraw your money before maturity but in that case you get lesser interest rate than what was fixed to given at the end of maturity of account.
Final Note – I want to conclude with the final note that don’t go after returns too much aggressively otherwise you might end up getting your fingers burnt. Choosing a right investment product is very important. Don’t put all the eggs in one basket but Diversify. Try to include both safe as well as aggressive investment products in your portfolio to make it ideal for meeting your financial future needs. All the best.