Various Investment Options

VARIOUS INVESTMENTS OPTIONS

1. Savings Bank Account

The Savings Bank Account offers the interest rate in the range of 3.5% - 7%. This is most liquid and safe investments. Use savings bank account for parking your surplus money temporarily for short period less than one month. This is the first banking product people use. Instant liquidity is one of the most important advantages of saving bank account.

2. Money Market Funds or liquid funds

Money Market Schemes of Mutual Fund offers better returns when compared to the savings bank account. The investor can withdraw money from the liquid funds with a one day short notice.

The main objective of money market funds is to protect the capital you invested at the same to provide a better return when compared to savings banks account or bank fixed deposit of less than one year maturity. The money market funds primarily investing the funds in short-terms fixed income generating securities.

Dividend distribution tax, Short Term Capital gain and long term capital gain as per the present Tax Law

3. Bank Fixed Deposit

Bank Fixed Deposits is another form of investment. The fixed deposits are offered with varied maturity, starting from 15 days. The investors having low risk appetite and wanted capital protection can choose invest in Bank FDs. It is advisable to put money in FDs for a maturity period of one year and above. In case you needed the money within one year period, it is better to opt for liquid funds. Bank normally offers interest rates in the range of 3% to 9% depending upon the duration of the deposits. Most of the banks offers) 0.50% - 1.00% extra interest for deposits made by senior citizens.

It is important to plan your investment time frame while investing in Bank FD because early withdrawals typically attract a penalty.

TDS (Tax deducted at source) will be deducted as per the present Tax Law

4. Post Office Savings Schemes (POSS)

Post Office Savings Schemes are most popular form of investments, which guarantees the capital and interest. Bank Fixed Deposits presently offers almost the same interest rate which Post Office Savings Schemes provides. If you need a regular income, the Monthly Income Plans could suit your requirements. The attractive features of POSS is low risk and interest earned on deposit does not attract TDS (Tax Deducted at Source)

The Post Office offers various savings schemes that include National Savings Certificates (NSC), National Savings Scheme(NSS), Kisan Vikas Patra, Monthly Income Scheme and Recurring Deposit Scheme

5. Public Provident Fund (PPF)

PPF is a very attractive fixed income investment option for small investors. The interest earned on PPF is completely exempted from income tax. The amount invested in PPF is eligible for deduction from your total income subject to a maximum limit prescribed U/s 80C of IT Act. The low risk is one of the most attractive parts of PPF investment. One of the disadvantages of PPF is lack of liquidity.

The following are the advantages of investing in PPF

a) Assured returns,

b) Guarantee of the Govt. of India,

c) Deduction form the taxable income while investing under section 80C of the IT Act

d) Tax free returns.

6. Company Fixed Deposits (FDs)

Company FDs are one of the most risky forms of investments. Company FDs offer more interest rates when compared to Bank FDs. The FD interest rate is depending upon the credit rating of the instrument. FD with poor credit rating will offer higher interest rates and it is more risky also. Investors should carefully select the companies they invest in. Lot of small investors has lost their hard earned money by investing in FDs issued by companies that have run into financial problems.

Companies used to borrow money from the public by way of issuing FDs. The maturity period of FDs varies from one to five years. The disadvantages of FDs are poor liquidity and high risk. FDs are not encashable prior to their maturity.

Credit Ratings are important indicators of credit risk of a FD/Debenture/bond. Credit risk refers to the risk of default in the payment of interest and/or principal amount. Major credit rating agencies in India are CRISIL, ICRA, CARE etc.

TDS is applicable for interest earned on Company FDs.

7. Debentures

Debentures are other fixed-income, long-terms instruments issued by corporate . They are usually secured and listed on stock exchanges

8. Bonds

Bonds are usually issued by PSUs and have a maturity period of one year to five yearsRisk in investing in Bonds - Interest Rate Risk, Re-Investment risk, Call Risk, Default Risk, Inflation risk, Liquidity risk

9. Government Securities Securities issued by Government of India. The maturity period of Government securities varies from one year to thirty years.

10. Mutual Funds

Mutual Funds are financial intermediaries which pools savings of numerous individuals and invest the money thus raised in a diversified portfolio of securities, including equity, bonds, debentures and other instruments thus spreading and reducing risk. The object is to maximize the return to the investor who participates in the equity indirectly through mutual funds

Advantages of investing in mutual funds:

a) Portfolio diversification

b) Professional management

c) Reduction/diversification of risk

d) Reduction of transaction cost

f) Liquidity

g) Convenience and flexibility

Disadvantages of investment in mutual funds :

a) No control over costs

b) No tailor made portfolios

c) Problems of managing a large portfolio of funds

 

To know about Mutual Funds, please click here

11. Life Insurance Policies

Life insurance is a contract for payment of money to the person assured (or to the person entitled to receive the same) on the occurrence of the event insured against.

Usually the contract provides for -

payment of an amount on the date of maturity or at specified periodic intervals or at death, if it occurs earlie or a periodical payment of insurance premium by the assured, to the corporation who provides the insurance.

To Know more about insurance please click here

12. Equity Shares


Investments in shares of good companies provides maximum returns over the long term. There are two ways in which you can invest in equities-

a. By applying for shares that are offered to the public – Primary Market

b. By buying shares that are listed on the stock exchanges – Secondary market

Over the long term, equity shares have offered the maximum return to investors and also this is most risky form of investment. The dividend received from equity investment is fully exempted from income tax.

 

An NRI can invest in the Indian capital market by buying in the secondary market or by subscribing to public offers by corporate.

NRIs can invest in the secondary market only under the Portfolio Investment Scheme (PIS) as formulated by the Reserve Bank of India. The salient features of the scheme are:

  • An NRI has to take permission from RBI before start trading under Portfolio Investment Scheme. The permit can easily be obtained through a designated branch of a bank where the NRI investor should have an account.
  • Investments can be done either on repatriable basis or on non-repatriable
    basis or both. In either case RBI permit is mandatory and separate permits
    are required for repatriable and non-repatriable investments.
  • Shares can be bought and sold only on delivery basis. Intra-day squaring off
    is not permitted.

Applicable tax on profits made will be deducted at source.

 

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