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Assured Return Income
These investments that are 0% risk investments. Because they are 0% risk investments, they also give low returns. The retunes are fixed and not very high! However, for people who cannot take too big risks, these are good investments. Below, we have explained all your choices of assured return investments.
The possible choices for assured return investments are:
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Fixed Deposits (FD's)
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Public Provident Fund (PPF)
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Employees Provident Fund (EPF)
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National Savings Certificate (NSC)
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Kisan Vikas Patra
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Post Office - Monthly Income Scheme
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Post Office - Time Deposit
Fixed Deposits (FD's)
FD’s are one of the oldest and most common methods of investing. Incase you do not know how it works, you have to give the financial institution a certain sum of money for a certain fixed period of time. After that time period is over you will get the original amount with some interest that you have earned for the time period you invested your money.
Just to give you an idea about the time periods and the interest rates you can earn, you can check this out. It is a link to the ICICI Bank FD interest rate chart. All the major banks and other financial institutions also have different FD offers.
FD’s are not very “liquid” investments. If you invest your money in FD’s, you will not be able to withdraw it until the FD matures. Generally, if you need to remove your money before the maturity of the investment, you will be able to do so but you will loose the interest that you were supposed to earn. There are some FD’s that allow you to claim your interest every month or every 6 months etc. There are many different schemes with many different offers!
Besides this, if a particular interest rate is decided at the time of investing and the interest rate goes up while your money is invested, you will not be able to enjoy the higher interest rate.
However, now-a-days the banks and the financial market is becoming very competitive. You need to check up on the different types of FD schemes available before making any FD investments.
There are FD’s offered by non-financial institutions like companies etc. also. These are generally FD’s that will give good rate of returns. They are called Company FD’s.
However, the risk involved is also moderately high. However, the companies try to get themselves an AAA rating according to the specifications of the RBI. If a company has an AAA rating, then it can be considered to be a safe investment.
How do I buy a company fixed deposit?
Company Fixed Deposits forms are available through various broking agencies or directly with the companies.
What is the minimum investment for a company fixed deposit?
Minimum investment in a Company Fixed deposit varies from company to company. Normally, the minimum investment is Rs.5,000. For individual investors, there is no upper limit. In case of recurring deposits, the minimum amount is normally Rs.100 per month.
What is the duration of the Company FD scheme?
Company Fixed Deposits have varying duration; they may vary from a minimum of 6 months to 5 years or even more.
Public Provident Fund (PPF) Investing!
PPF is among the most popular small saving schemes. Currently, this scheme offers a return of 8 per cent and has a maturity period of 15 years. It provides regular savings by ensuring that contributions (which can vary from Rs.500 to Rs.70,000 per year) are made every year. For efficient "tax saving" there is nothing better than PPF!
But for those who are looking for liquidity, PPF is NOT a good option. Withdrawals are allowed only after five years from the end of the financial year in which the “first deposit” is made.
PPF does not provide any regular income and only provides for accumulation of interest over a 15-year period, and the lump-sum amount (principal + interest) is payable on maturity.
The lump-sum amount that you receive on maturity (at the end of 15 years) is completely tax-free!! One can deposit up-to Rs 70,000 per year in the PPF account and this money will also not be taxed and be removed from your taxable income.
If you are relatively young and have time on your side, then PPF is for you.
How to invest in PPF?
A PPF account can be opened with a minimum deposit of Rs.100 at any branch of the State Bank of India (SBI) or branches of it's associated banks like the State Bank of Mysore or Hyderabad. The account can also be opened at the branches of a few nationalised banks, like the Bank of India, Central Bank of India and Bank of Baroda, and at any head post office or general post office.
After opening an account you get a pass book, which will be used as a record for all your deposits, interest accruals, withdrawals and loans.
However, be warned: you can have only one PPF account in your name. If at any point it is detected that you have two accounts, the second account that you have opened will be closed, and you will be refunded only the principal, not the interest. Again, two adults cannot open a joint account. The account will have to be opened in only one person’s name. Of course, the person who opens an account is free to appoint nominees.
Employees Provident Fund (EPF)
The EPF program is a fund, providing money upon retirement, resignation or death, based on the accumulated contributions plus interest.
In this scheme both the employer and the employee contribute 12% of annual income towards the fund. Of this 24% contribution, 8.33% is given towards a family pension plan. The remaining portion (15.67%) grows at a rate of 9.5% per annum. This return is guaranteed. Also, investments up to a maximum of Rs 70,000 per annum are not taxed!
Withdrawals from EPF is allowed under certain special circumstances like buying a house, children's wedding, etc. If you quit your job and provide a declaration that you do not intend to work for the next six months you can withdraw your EPF.
How to invest in EPF?
This is generally done though your company if you are an employee. You need to find out from your company!
National Savings Certificate (NSC)!
NSC is an assured return scheme and provides for tax saving too! Returns are at 8% for a duration of only 6 years, which is relatively smaller compared to other small saving schemes. Here, investors are required to make a single deposit and the interest is returned along with the principal amount on maturity.
However, NSC is not at all liquid, as premature withdrawals can be done under specific circumstances only, such as death of the holder, forfeit by the pledgee or under court's order.
NSC investors enjoy tax saving benefits. The interest earner is eligible for tax saving up to a maximum limit of Rs 12,000.
Thus, NSC is an ideal investment for those investors who are looking at tax benefits on a longer-term basis and are not too bothered about liquidity.
How do I invest in National Savings Schemes?
NSC application forms are available at all post-offices.
What is the minimum investment and range of investment in NSC?
NSCs are issued in denominations of Rs.100, Rs.500, Rs.1,000, Rs.5,000 and Rs.10,000. There is no upper limit on investment in NSCs.
Kisan Vikas Patra (KVP)
Want to double your investments in less than nine years? KVP is for you! But there's a catch. The scheme, which offers to double your money in "eight years and seven months", offers NO Tax benefits!
One can exit the scheme any time after 2.5 years from the investment date, though investors will have to bear the loss of interest for the invested time period.
Though KVP is not meant for regular income, it is a safe avenue of investment for those without pressing tax concerns. Liquidity is also reasonably higher here.
How do I invest in Kisan Vikas Patra?
You can buy KVP by filling up the appropriate application form available at post offices across the country.
What is the minimum investment and range of investment in KVP?
The minimum investment in KVP is Rs.100. Certificates are available in denominations of Rs.100, Rs.500, Rs.1,000, Rs.5,000, Rs.10,000 and Rs.50,000. The denomination of Rs.50,000 is sold through head post offices only. There is no limit on holding of these certificates. Any number of certificates can be purchased. A KVP is sold at face value; the maturity value is printed on the Certificate.
Post Office - Monthly Income Scheme (MIS)!
Post office monthly income schemes provide a monthly income at 8 per cent per annum. On completion of six years, a 10 per cent bonus on the principal sum is provided. The scheme offers better liquidity, with investors having an exit option after one year from the investment date.
Unfortunately, an exit after one year would also lead to a loss of 5% of the amount invested. While there is no loss of interest earnings, the loss of principal can be significant if the amount invested is high.
Investors have to wait for a three-year period to withdraw from the scheme without penalty. The minimum investment for a single and joint account is Rs.6000, while the maximum limit is Rs.300,000 for a single account and Rs.600,000 for a joint account.
In short, it is suitable for people who wish to invest a lump-sum amount initially and earn interest on a monthly basis.
Post office - Time Deposits!
Post office time deposits are available for periods ranging from 1 year to 5 years. The current rate for a one-year deposit is 6.25%.
Interest payments are made annually. Investors have an exit option within six months without receiving any interest. There is a one-year lock-in for exit with interest. A penalty of 2 per cent is deducted from the relevant rate in case of premature withdrawals.
Interest income from this scheme is eligible for tax benefits. So if you are a short to medium-term investor looking for an annual interest income along with flexible investment tenure, time deposits are suitable for you.
How do I invest in a Time Deposit?
A Time Deposit account can be opened at any post-office.
What is the minimum investment for a Time Deposit?
The minimum investment in a Time Deposit could be as low as Rs.50. There is no upper limit on investment.
Insurance..Why take LIFE insurance?
Life Insurance is bought by almost everyone. And most people buy it for one core reason – to save tax! But this should not be the only reason to buy insurance! Here we have explained some of the reasons why life insurance is a VERY important part of personal money management!
Passing away early
One is never sure about life. We often come across people claiming that nothing is going to happen to them; that they are too young to pass away. But do they really know what the future holds for them? Just read newspaper headlines about the recent Tsunami, the earthquake, bomb blasts etc. that took place and such calamities to understand how the future can be unpredictable.
Individuals need to insure themselves to secure the future of those who are dependant on them; especially if they happen to be to only earners in thire family. You wouldn’t want your family to go through hardships or rely on others/relatives, etc. This, in fact, is the MAIN reason why one should buy an insurance policy!
Living too long
Advances in the field of medicine have grown by leaps and bounds over the past few decades. Due to this, life expectancies have gone up. This causes another problem for individuals. It is generally observed that individuals who tend to live way beyond their earning years like say, till the age of 85 or 90, usually face a problem coming to terms with increasing costs of living. Also take into account the increase in medical expenses!
Insurance, if bought at the right time for the right amount provides the required money in such times. Individuals could opt for a pension plan offered by insurance companies, which suits their needs in terms of income, retirement age and expenses post-retirement. Such plans provide an "annuity", which means that individuals keep getting a fixed sum every month/year after they have retired.
Painful existence
Maybe an individual has planned well during his earning years to secure himself financially. He has created assets in such a way that he has a comfortable monthly income to support his family expenditure.
But what if an individual were to have a health problem afflicting him or his spouse? What if the treatment were to cost him a sum beyond his financial capacity? Here again, life insurance can help you out in two ways. One, by way of a "medical rider" that provides for money in case of any medical emergencies! These riders are taken along with the life insurance plan and help cover the medical expenses.
And secondly by allowing the individual to surrender the insurance policy. Of course this should be done only in case of an urgent need like a serious health problem. Surrendering the policy will help in the generation of a lumpsum amount that can be used for covering the high cost of medical expenses.
Tax benefits
Life insurance has always been bought more for tax benefits than to insure human life. But the role of life insurance in an individual’s "tax planning" cannot, in any way, be undermined.
Individuals can now invest upto Rs.100,000 in insurance premium to avail of a deduction from taxable income.
Now that the extreme need for Life Insurance is understood, you must get your self some life insurance. If you do not do it for your self or if you do not even want to do it to save tax, do it for your family! If you have people who depend financially on you, you MUST MUST MUST get life insurance!
There are many different Life Insurance Companies and many different life insurance plans. It is best to get your self a life insurance agent instead of deciding which plan to go in for yourself!
In this article we have talked about all the basics of money management. We have not talked about more risky investments like stocks etc. We have just talked about safe investment options that anyone can use