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Where To Invest safely?

safeinvest

While investors are particular in their search for safe investment alternatives, it’s vital to know that safe investment alternatives don’t really exist in any part of the world. The safest investment should typically be government bonds. Another safe alternative is a savings bank account, but it won’t earn a decent return. The money in savings bank account won’t even survive the deteriorating effects of inflation. In fact, investors may actually lose funds in a savings account when measured in terms of purchasing power. This poses a really big question to investors as to where they should invest. Here are few low-risk investment options that provide a reasonable return:

Fixed deposits

Fixed Deposit is a low-risk investment alternative that can help earn profits over time. There is always a choice with investors to either choose from company’s fixed deposits or bank FDs. Certain fixed deposits also provide tax advantages. While investing in fixed deposits may seem seamless, investors must note a few points while choosing the Fixed Deposit most suited to their personal needs. These points are:

Credit profile: It helps in determining whether the firm will honor all capital as well as interest payments. Investors should opt for higher rated FDs.

Interest rate: It is the rate of return fetched on the fixed deposit. Therefore, a higher interest rate is preferable. In a quest of getting higher interest rate, investors should not ignore the importance of credit rating.

Interest payout frequency: Fixed Deposits are identified as one of the best low-risk investment alternatives that provide interest payment at varying frequencies. The payouts can be yearly, quarterly, monthly or a one-time payout on maturity. In any case, investors must select the option that meets their needs. ‘On maturity’ or one-time payment alternative fetches the highest return, and the credit goes to the power of compounding.

National Savings Certificate (NSC)

National Savings Certificate is a popular investment alternative among rural Indians. In NSC, the minimum investment amount is Rs.100 and investors have the option to select period extending to 5-10 years. The current interest rate is 8.8% for ten years and 8.5% for five years. Just like Public Provident Fund, the Indian government decides the interest rate for National Savings Certificate annually. The latest NSC issues are NSC VIII and NSC IX. Investors have to pay interest on earned NSC interest. Section’ 80TTA’ eradicated the tax advantages of interest from NSC. It is, therefore, better to invest in PPF instead of NSC.

Investors should re-invest the interest earned from NSC investment to get ‘80C’ tax benefit. For example, an investor has been awarded Rs 8,500 as interest from Rs 1 lac investment in NSC. Rather than withdrawing and compensating tax, investors should permit it to accumulate and mark this 8,500 as re-investment in coming year.

Public Provident Fund

Well, this option is a no-brainer. If the investors are small business owners or belong to the salaried class, they should select investment in PPF as their first option. They do not even need to look at other alternatives before they consider PPF. The scheme provides nearly 99% security as it is run by the government. Some of the benefits of PPF are:

  •  Minimum investment in PPF account is Rs.500 while the maximum investment is capped
  •  at Rs.1,00,000.
  •  The maturity amount, as well as interest, is tax-free.
  •  Attractive interest rate among fixed income offerings
  •  Free from court attachments, creditors and loan sharks

There is ideally no disadvantage in investing in PPF. If investors have any remaining tax benefit under 80c Section after paying children tuition fee and term insurance, they should certainly invest remaining funds in PPF. They can utilize EPF or PPF to add fixed income to the portfolio and keep stability.

This is the best investment alternative for the investors who are in the high tax bracket. It offers a total savings of 11%, the best savings for an investor in 30% tax bracket. Investors should not even look at other investment options stocks until they have maxed out 80C benefits with PPF and term insurance.

Post Office Monthly Income Scheme

POMIS comes in the list of best post office schemes. This plan offers guaranteed to return to investors on their investment. Any investor who intends to earn a monthly income can open POMIS account and avail an assured income per month. Investors earn 8% interest annually, payable on monthly basis. They will earn the interest amount each month from the investment date, and not from the beginning of the month.

For instance, Sanjay invests Rs 4 lacs in the POMIS. He earns interest of 8% every year, and thus gets a fixed amount as income per month. If they do not withdraw the funds for some month, the amount will not fetch any interest.

This POMIS does not fall under Section 80C, and so there are no tax-benefits for the funds investor put invest in this. Interest income is taxable; however there is no TDS deduction in this scheme.

Investors can deposit the funds in the POMIS with a local cheque, demand draft or cash. Once you start an income scheme account, investors will be given a planning certificate and also a passbook to note the transactions against the POMIS plan. The maturity period of POMIS is six years. Investors will be entitled to a 5% bonus if they retain scheme for six years. Therefore, eventually investors overall profits including bonus can be nearly 8.9%. There is a cap on the amount that investors can put in POMIS. The amount is confined to nine lacs for a joint account and Rs 4.5 lacs for a single POMIS account. Investors can open any number of accounts, only within the upper limit. Additionally, there is no obligation to take funds out after maturity. They can leave the funds in the account, and it would fetch the interest equal to the interest earned on saving bank account for coming two years only.

Endowment plans

Insurance firms introduced launch endowment schemes to provide life cover along with savings. Endowment schemes can assure a payment irrespective of whether the holder survives the term or not.

Bonds

Bonds functionality is very much like that of Fixed Deposits (but typically carry higher risk), with the exclusion that certain bonds trade in the secondary market, and thus are liquid. Bonds must be evaluated in the same way as Fixed Deposits. So if they want to invest in Bonds, it’s a wise idea to evaluate various consider parameters like the frequency of compounding, credit rating and rate of interest. Certain bonds also provide tax benefits.

 

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