You work hard for your money. But there are always ploys to take that from you. The biggest enemy is price rise or inflation, which reduces the purchasing power of your funds. Then, there are temptations like the consumer products that dazzle you but may make you poorer. There are also certain habits that compel us to lose money by leaving it idle. Money is a great seed which when planted and nurtured can generate more money. Here are five simple ways to make money work for you.
Cap savings a/c balance to minimum
Leaving money in a savings bank account is a truly unforgivable waste of your money’s potential. Savings account gives just 3.5-4% annual interest. Use sweep-in accounts so that beyond a certain threshold, funds in the account will be converted into term deposits, etc., offering much higher interest rates.
Liquid funds for extra return
Known to give 6-7%, liquid mutual fund schemes are an epitome of liquidity. With instant withdrawal facilities, you can get your money quickly with absolutely no lock-in period whatsoever. There are no exit loads in liquid funds. All this means fast and unlimited access to your money in this low-risk investment. With liquid fund investing now online, you have the ability to execute investments seamlessly anytime anywhere.
Trust the good old fixed deposits
Any extra money that you have besides your emergency and other needs can also be kept in the traditionally most popular segment—bank fixed deposits. These instruments can give good returns, especially those in new banks with aggressive interest rates. They are highly liquid, but some pre-mature withdrawal may face a small penalty. The FDs are an apt choice for people with absolutely no risk tolerance.
The government has a range of small-saving schemes. This list includes Post Office Savings Account, 5-Year Post Office Recurring Deposit Account (RD), Post Office Time Deposit Account (TD), Post Office Monthly Income Scheme Account (MIS), Senior Citizen Savings Scheme (SCSS) , 15-year Public Provident Fund Account (PPF), National Savings Certificates (NSC) and Kisan Vikas Patra (KVP ). Each avenue comes with own interest rate and maturity profile. These are extremely safe but are not very liquid as they have lock-ins. However, they generate neat returns. Ideal for extremely conservative investors.
Peer to peer lending
This is akin to becoming a bank. Peer to peer lending (P2P) is now regulated by the RBI. You can lend your idle money to peers who will pay at an agreed rate of interest. You can make higher returns than on bank FD, liquid funds or any other instrument since you are assuming the risk of the borrower not paying back. Popular among sophisticated investors, P2P lending is gaining traction with the use of advanced analytics and systems to help you decide. Lock-in periods for your money are decided by you. Loan tenures can be as low as 3-6 months. This is a high-risk high-return play.
Money doesn’t grow on trees. But there are different options through which you can make your money generate more cash. It all depends on the choice of the avenue, the risk you are willing to take and associated charges. Carefully evaluate all the options. The ideal way is to take a multipronged approach so that you are not too much or too less exposed to one avenue.
The writer is founder and CEO, Right Horizons