Whether its surviving in rainy days where money is scant to being self-reliant during financial emergencies and goals-be it funding your children's education, buying a house, building a retirement corpus, etc., it is very important to invest, and invest wisely. The government, banks and financial companies, all offer various savings schemes to encourage people to invest their money for a specified period of time and earn periodic returns on their investments. If you invest prudently, knowing the pros and cons of various investment options, you can ace your financial planning endeavours. Here are the best investment schemes that will ensure that you have sufficient savings for your future financial needs.
1. Fixed Deposits (FD)
FDs are the safest and most hassle-free investment option wherein you deposit a fixed sum of money for a specified period of time and earn interest at a fixed rate of return. Most banks and financial companies offer FDs at various returns staring at around 7% rate of interest.
The benefit of FD investment is that you can invest as low as Rs.25,000 and enjoy the flexibility to choose the tenor. Almost all the banks and NBFCs offer investment in fixed deposits ranging from 7 days to 10 years. There is no lock-in period in case of FD schemes and you easily withdraw money from your deposit by paying a minimum penalty in case you need the money urgently.
You can also choose the frequency of interest pay-out from your FD depending upon your income requirements. It can be monthly, quarterly, half-yearly or yearly. You can even choose to re-invest the interest to receive lump sum interest after your FD matures. FDs are especially recommended for senior citizens, who get a higher interest, or those planning retirement. The maximum benefit from FD is in the short-term, from tenors ranging from 12 months to 60 months.
2. Personal Provident Fund (PPF)
It is the safest and popular investment option in India. It is a government-backed long-term saving scheme that is a completely tax-free investment. The amount of money deposited in PPF is available as deduction under section 80C of Income Tax Act; the interest earned on PPF is also not taxable.
PPF may be opened in a bank or post office where your money gets invested for 15 years, which can be extended by another 5 years. There is a lock-in period of 5 years and presently, the PPF investments earn a compound interest at 7.90% p.a. You need to make a minimum yearly investment of Rs.500 and can make a maximum investment up to Rs.1,50,000.
3. National Saving Certificate (NSC)
NSC is popular government-backed saving option that provides guaranteed returns with tax savings. A safe investment, you can invest in NSC at any post office for a period of five years. The interest rates on NSC is decided by the government and is reviewed every quarter. But the interest rate does not change during the tenor of NSC once your investment has been made. Presently, your investment in NSC yields returns of 7.90%, which is compounded half yearly.
A minimum investment of Rs.500 can be made in NSC, without any maximum limit. The best thing is that you can claim tax deductions, but to the maximum amount of Rs.1,50,000 under section 80C. Keep in mind that the interest earned on NSC is taxable, so don't forget to add the interest accrued on NSC to your total income while filing your tax return.
4. Mutual Funds:
You can also invest in mutual funds if you want to explore and benefit from equities and debts, which gives you an option to balance risk and return based on your preference. Investing in the share market through mutual funds is a safer option than making a direct investment in the stock market.
You can consider starting a systematic investment plan (SIP), which is one of the best ways to invest in mutual funds by making small regular investments. This helps you earning better returns in comparison to other investment options.
5. Equity Linked Savings Scheme (ELSS)
As the name suggests, this mutual fund scheme helps in parking your investment in equity. ELSS are tax-saving mutual funds that allow a deduction up to Rs.1,50,000 under section 80C. It comes with a lock-in period of 3 years.
You can earn higher returns by investing in ELSS since all the investments are made in the equity market that can help you beat inflation, but there is always a risk attached to investing in equity. An investment in ELSS can be made from as low as Rs.500 and there is no maximum limit on investment in these funds.
It is wise to choose a combination from these investment options and schemes, and spread your risk by investing in safe options like FDs and varying it with riskier options such as mutual funds. Being prepared for your financial wellbeing and planning in advance is the right way to ensure that you and your family are prepared to deal with all kinds of financial contingencies. When looking for lenders to invest with, see the benefits offered by trusted NBFCs like Bajaj Finance.
Bajaj Finance offers fixed deposit schemes at attractive rates of interest starting at 8.05% p.a. It also gives you flexible tenors and interest pay-out options. Use the online FD calculator to determine the interest and maturity amount in advance.