Whether you are looking for a regular income or want to invest for tax benefits, there's an investment for every occasion. The choice to be made is between the traditional avenues and the modern ones. So watch your options and take your pick.
For regular income:
If regular income is what you are looking for and if you are above 60 years of age, your first choice should be the Senior Citizens Savings Scheme. It offers an interest of 9% p.a. payable quarterly for 5 years and extendable by 3 years.
If you are below 60 years or age or have exhausted the limit of Rs 15 lakh under Senior Citizen Scheme, you have two options, the Post Office Monthly Income Scheme (PO-MIS) or
Government of India Bonds (GOI Bonds). PO-MIS offers 8% p.a. for 6 years in the form of monthly payout. But they come with their share of hassles while dealing with post offices. GOI Bonds also offer 8% p.a. for 6 years. The payout is half yearly.
My advice would be, prevent hassles of the post office such as updating passbooks regularly, long queues, unstable agents service and so on. By investing in GOI Bonds, as you get half-yearly interest, you can withdraw 1/6th of the interest amount every month or whatever is required each month. Convenience should be preferred over the interest frequency.
My advice would be, prevent hassles of the post office such as updating passbooks regularly, long queues, unstable agents service and so on. By investing in GOI Bonds, as you get half-yearly interest, you can withdraw 1/6th of the interest amount every month or whatever is required each month. Convenience should be preferred over the interest frequency.
For tax benefits:
Public Provident Funds offer tax benefits but the maximum investment allowed is Rs 70,000 under section 80C and offers 8% tax free return. Interest is not assured for full term and can be changed any time.
Other than National Savings Certificates, there's no other fixed return product offering section 80C tax benefit. For those who want to keep it simple, opt for NSC. But, with section 80L benefit scrapped, it has lost its unique edge.
Those who are not happy with the 8% taxable (post tax return of 5.6%), can opt for mutual fund Equity Linked Saving Schemes (ELSS) which have the potential to give much superior returns. Don't expect ELSS to repeat 30-40% compounded returns it has achieved over last 5 years due to booming markets. Have reasonable expectations of 12-18% returns over medium to long term.
Also you can look at unit-linked insurance products, which offer lot of flexibility on liquidity, term, and fund-to-fund switch option. While you would get tax sops under section 80C, the returns from regular premium ULIPs are also tax-free.
For sound long term investment:
Kisan Vikas Patra (KVP) doubles your Money in 8 years and 7 months. That is an effective return or IRR of 8.4%. Gone are the days when KVP doubled money in just 5 years. Now it takes longer as interest rates have fallen from 13% to 8% in KVP. If your investment horizon is really as long as 8 years, you should check out diversified equity mutual funds which is the ideal option for long term wealth creation and sails through the intermediate volatility over long term, comfortably.
Equity MFs have a history of phenomenal returns over any span of 8 years or more. Equity MFs have multiplied money anywhere between 4-8 times in any 8-year span.
For smaller, but regular investments:
Recurring deposits in banks or post office are a good way to built corpus by saving regularly. RDs with post offices offer an effective return of 7.5%.
The favorite of housewives, once upon a time the modern name of monthly recurring deposit is Systematic Investment Plan (SIP). Mutual funds promote this concept very heavily for their equity schemes. SIP is very popular and also a tried and tested concept in equity funds world over, to generate maximum returns by investing small amounts every month. Annualized returns generated in equity MF SIPs over last 10 years range from an unbelievable 25 to 40%. Annualized returns generated in equity MF SIPs over last 5 years range from 40-60%.
It's time every Indian Investor should give a serious look at having at least 1 or 2 SIPs in his portfolio in best performing equity MFs and participate in India's secular long term bull run. If your aim is to save regularly over 5-10 years to create wealth over long term, then, irrespective of age, gender or professional status equity SIP is best for all. Equity MF SIP for 5-10 years is a sure shot way to beat post office returns.
Bank fixed deposits return 6.25% for 1 year and up to 7.50% for 5 years. As for company fixed deposits, only select fixed deposits with high safety ratings like HDFC, ICICI Home Finance, Exim Bank offer around 7.50% for 3-5 years period.
Public Provident Funds offer tax benefits but the maximum investment allowed is Rs 70,000 under section 80C and offers 8% tax free return. Interest is not assured for full term and can be changed any time.
Other than National Savings Certificates, there's no other fixed return product offering section 80C tax benefit. For those who want to keep it simple, opt for NSC. But, with section 80L benefit scrapped, it has lost its unique edge.
Those who are not happy with the 8% taxable (post tax return of 5.6%), can opt for mutual fund Equity Linked Saving Schemes (ELSS) which have the potential to give much superior returns. Don't expect ELSS to repeat 30-40% compounded returns it has achieved over last 5 years due to booming markets. Have reasonable expectations of 12-18% returns over medium to long term.
Also you can look at unit-linked insurance products, which offer lot of flexibility on liquidity, term, and fund-to-fund switch option. While you would get tax sops under section 80C, the returns from regular premium ULIPs are also tax-free.
For sound long term investment:
Kisan Vikas Patra (KVP) doubles your Money in 8 years and 7 months. That is an effective return or IRR of 8.4%. Gone are the days when KVP doubled money in just 5 years. Now it takes longer as interest rates have fallen from 13% to 8% in KVP. If your investment horizon is really as long as 8 years, you should check out diversified equity mutual funds which is the ideal option for long term wealth creation and sails through the intermediate volatility over long term, comfortably.
Equity MFs have a history of phenomenal returns over any span of 8 years or more. Equity MFs have multiplied money anywhere between 4-8 times in any 8-year span.
For smaller, but regular investments:
Recurring deposits in banks or post office are a good way to built corpus by saving regularly. RDs with post offices offer an effective return of 7.5%.
The favorite of housewives, once upon a time the modern name of monthly recurring deposit is Systematic Investment Plan (SIP). Mutual funds promote this concept very heavily for their equity schemes. SIP is very popular and also a tried and tested concept in equity funds world over, to generate maximum returns by investing small amounts every month. Annualized returns generated in equity MF SIPs over last 10 years range from an unbelievable 25 to 40%. Annualized returns generated in equity MF SIPs over last 5 years range from 40-60%.
It's time every Indian Investor should give a serious look at having at least 1 or 2 SIPs in his portfolio in best performing equity MFs and participate in India's secular long term bull run. If your aim is to save regularly over 5-10 years to create wealth over long term, then, irrespective of age, gender or professional status equity SIP is best for all. Equity MF SIP for 5-10 years is a sure shot way to beat post office returns.
Bank fixed deposits return 6.25% for 1 year and up to 7.50% for 5 years. As for company fixed deposits, only select fixed deposits with high safety ratings like HDFC, ICICI Home Finance, Exim Bank offer around 7.50% for 3-5 years period.
Old vs. New
As you can see, each need offers investment options that vary from the traditional (like postal savings) to the modern (like mutual funds). Unlike the yester years when one didn't have much to choose from so far as investments were concerned, today the younger generation has a plethora of options to choose from. While that is indeed good news, this ample choice only makes decision making more difficult. So think of competitive options before you write a cheque for traditional investment options. How then does one choose? Here are some pointers that will help you take a decision:
- Select the appropriate avenue as per your time horizon, risk appetite and liquidity requirements.
- You also need to take minimum calculated risks for possible higher potential returns, as it is popularly said, 'sometimes not taking risk, results in the biggest risk'.
- Traditional assured return investments are important in asset allocation for steady growth, but should not be the only components of your overall portfolio.
- Over a long term, not investing in equity as an asset class can make the difference between getting average returns as compared to building significant wealth to take care of your future financial needs and dreams.
- Never ignore inflation and taxation while calculating your returns. Considering 6% inflation, if your traditional avenues generate just 8% year on year, your pre-tax return is just 2% and your post-tax return is zero….sorry, its in fact negative!
So, think twice and think wise before you do your next investment.
The above views are personal views and do not guarantee results as mentioned above. Investors should decide their own investment options after thorough study of various avenues as per his risk profile.
As you can see, each need offers investment options that vary from the traditional (like postal savings) to the modern (like mutual funds). Unlike the yester years when one didn't have much to choose from so far as investments were concerned, today the younger generation has a plethora of options to choose from. While that is indeed good news, this ample choice only makes decision making more difficult. So think of competitive options before you write a cheque for traditional investment options. How then does one choose? Here are some pointers that will help you take a decision:
- Select the appropriate avenue as per your time horizon, risk appetite and liquidity requirements.
- You also need to take minimum calculated risks for possible higher potential returns, as it is popularly said, 'sometimes not taking risk, results in the biggest risk'.
- Traditional assured return investments are important in asset allocation for steady growth, but should not be the only components of your overall portfolio.
- Over a long term, not investing in equity as an asset class can make the difference between getting average returns as compared to building significant wealth to take care of your future financial needs and dreams.
- Never ignore inflation and taxation while calculating your returns. Considering 6% inflation, if your traditional avenues generate just 8% year on year, your pre-tax return is just 2% and your post-tax return is zero….sorry, its in fact negative!
So, think twice and think wise before you do your next investment.
The above views are personal views and do not guarantee results as mentioned above. Investors should decide their own investment options after thorough study of various avenues as per his risk profile.
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