From equity mutual funds to bank fixed deposits, investment planning needs careful analysis of the returns and the tenour
While saving is done to meet unplanned and planned expenses, investment is all about making your money earn for you, and give you the rewards through future returns. Investment planning needs a careful analysis of the return and the time frame.
Bank fixed deposits
Bank fixed deposits have attracted the maximum investment, primarily because it is a safe source of investment where the rate of returns is fixed. You can opt for a bank FD ideally for one year, which gives the highest rate of interest. FDs allow premature withdrawal with an interest deduction making them a liquid investment. However, you cannot break a tax saving FD that is locked in for a period of five years.
Mutual funds (MF) have grown as a lucrative investment, both for the short term (money market funds) or the long-term (tax saving or locked-in mutual funds). You can invest in MFs through systematic investment plans or in a lump sum. The risk profile depends on the funds you invest in, while debt funds invite less risk, the risk is comparatively higher in equity funds. The investment amount and time period depending on your age and financial goals.
Public Provident Fund
Public Provident fund (PPF) is one of the safest and secure long-term investment avenues with the best part being it is a totally tax-free investment. PPF has a lock-in of 15 years which enables you to earn compound interest on your investments. If you want to extend your investment time frame, you can extend it for the next five years. The minimum period of investments is 6 years after which you can withdraw your investments. In case of financial emergencies, you can take a loan on the balance of your PPF account. The current interest rate effective from January 1, 2018 on PPF is 7.6% per annum compounded annually.
Company fixed deposits
Company FDs are a lucrative investment avenue in comparison to bank FD’s. These investments are placed with financial institutions and non-banking finance companies (NBFCs) for a fixed term and carry a prescribed rate of interest. Company FDs are unsecured investments governed by the Companies Act under Section 58A. If the company defaults, the investor cannot sell the fixed deposits to recover the capital which makes company FDs highly risky. While investing select the investment period very carefully as you are not allowed withdrawing money before the maturity date. This investment is not under any insurance benefits and is not under the control of the Reserve Bank of India, which adds to the risk exposure.
Investment in gold is one of the most sought out options The value of gold bears an inverse relation with the value of equity. Gold becomes a lucrative investment option when the stock markets are red. You can plan your investment in gold through a gold deposit scheme, gold ETF (exchange-traded fund), gold mutual funds, gold bar etc. Gold mutual funds and ETFs allow you to hold the gold in a paperless form and sell them in stock exchanges making them a highly liquid investment.
Excerpted from Tax Guru