5 Safe Investment Options for Salaried People

5 Safe Investment Options
5 Safe Investment Options

 

Safe Investment Options are investment instruments beneficial for those who are interested in assured returns. Those who cannot bear the pain of markets ups and downs. These people are happy with pre-defined returns escaping market volatility and risk.

Safe Investment Options are for those who park their money risk free to earn decent returns.

Hi, Prateek here,  This post projects some of the safe investment options in India. Here, you get an overview of  safe investment options, which provide assured return on invested capital.

In Financial planning, tax outgo is the pivot around which all investment decisions revolves. Safe investment options are exercised in such a manner that one gets benefits of both the words i.e. decent returns and saving tax.

Tax Planning & Safe Investment Options

Tax planning starts with 80C deduction, followed by exemption on housing loan interest, education loan interest, and further to contribution in NPS etc.

This post is not focused on tax planning, infact this post aims to introduce you with Safe Investment Options we can exercise.

Governments usually don’t default. So any investment backed by govt security are safe and secure. They simply follow 2 investment principals promoted by Warren Buffet i.e.

Rule 1 : Never Loose Money

Rule 2: Never forget rule no. 1.

The advantage of investing in safe investments options, is, you are well aware about the returns at the maturity of investment. (not in case of PPF and NPS).

Does that mean, no guess work and no speculation, sitting idle, isn’t it all boring?

No, Its not!!

Take a case of National Savings Certificate[NSC] as safe investment option. NSC earlier used to entice people due to its sure and interest free returns in short span of time.

Earlier, people used to buy NSC’s on monthly basis. In 5 years, they had 60 NSC’s. And then starts the money circulation cycle.

After 5 years, you have one NSC maturing every month, amount received is re-invested. That cycle kept going and people remain busy in maintaining that cycle only.

Is investment in NSC relevant today also? It needs multi-dimensional research, as interest earned on NSC is also taxable now.

Personally, I am not a risk taking person. I believe in keeping my capital intact, so apart from other investments, I do invest in safe investment options mentioned below.

Here is list of few safe investment options in India.

It is the most basic financial instrument and everyone should have a savings bank account compulsorily. With the push from govt through Jan Dhan Yojana and Direct Benefit Transfer Schemes (DBT), crores of people have got Zero Balance saving banks account.

The bank is supposed to give to interest on savings bank account balance. The interest rates vary from bank to bank. Some bank offer higher savings account interest rates based on account balance. I am SBI account holder, so earlier, SBI used to give interest at the 4% per annum, but recently it has reduced it to 3.5% per annum.

Some banks are offering higher interest rates on savings bank account also, with some pre-condition on minimum balance or tenure. Details can be found out at respective bank wesite.

The interest accumulated in saving banks account is taxable and is added to your overall income.

  • National Saving Certificate -NSC

  • NSC is small saving scheme. NSC can be started with minimum value of Rs100, without any maximum limit.
    • Investment Amount: Any amount in multiples of Rs100, because it aims to promote small savings.
    • Tenure: 5 years.
    • Interest Rate: 7.6% compounded annually (as on 01.01.2018)
    • On investing Rs100 today you will get  Rs143.23 in 5 years.
    • Ownership: Single Owner, Adult or Minor, or Adult on behalf of Minor, therefore tries to remove fraudulent claims by co-owners.
    • Investments in NSC qualify for rebate under section 80C of IT Act. But, income from interest earned on NSC is taxable.

    The problem with NSC is, you cannot be sure that returns would be able to beat the inflation. Higher inflation during lock-in period will adversely impacts the purchasing power your investment.

PPF is the most popular safe investment option. In PPF, investment can be started by a minimum of Rs 500, and maximum of Rs1.5 lacs in a financial year. Investment can be done only 12 times in a financial year with lock-in period of 15 years.

PPF offers flexibility in investing.

  • When to invest?

-Any time of the year

  • Max Investment in a year?

-Rs1.5Lacs.

  • No. of deposit transactions limited to?

-12 times a year.

 

PPF investment waives the fear of investment not beating the inflation, as Govt. decides its interest rate in alignment with rates on Govt Securities with similar  maturity. So, PPF is one of the most profitable and safe investment option.

As on 01.01.2018 the interest rate is 7.6% per annum compounded annually.

Interest earned on PPF is tax free.

A detailed overview of PPF account is available here.

  • Fixed Deposit -FD

Fixed Deposits are also known as term deposit scheme. Invested money is locked for fixed term,  at the interest rate based on investment tenure.

Savings Tip: At the end of month, you can transfer all the account balance in a FD for 1 year. Advantage, for one, you will get better rate of interest as compared to savings account interest. Secondly, you will learn art of managing expenses with latest salary only.

Tax on Interest

  • Interest accumulated more than Rs10,000/- is taxable (including interest in savings bank).
  • For Senior Citizens, interest accumulated more than Rs50,000/- is taxable.

I have SBI account with net-banking facility, here, I make and break my FD’s at will. When I need funds, I keep FD’s on higher interest rate intact and break the one’s with lower interest rate.

  • Multi-Option Depository Scheme -MODS

MODS are dynamic term deposits. They have automated the process of creating and breaking FD’s, many banks offer Multi-Option Depository Scheme (MOD). Its like a virtual FD.

In MODS, a minimum balance amount is left in the account. Any amount greater than minimum balance is automatically converted into MODS. This is also known as auto sweep facility.

MODS are invisible to the user. You can carry out your regular debit and credit transactions. System itself creates and breaks MODS based on pre-defined instructions.

The rate of return in MOD’s is same as FD’s of similar tenure, and interest incurred is taxable.

  • Recurring Deposit -RD

Recurring Deposit is another kind of term deposit. Its a monthly investment scheme. Interest rates of RD’s are equal to Fixed Deposit interest rates of same tenure.

Interest Rate Calculation: Equal to FD of similar tenure and compounded quarterly.

RD’s are quite helpful in creating investing habits by saving small amounts every month, one can earn big amount on maturity of RD. Just like in thirsty crow story, crow kept dropping pebbles to raise water level. Here, you would invest pebbles monthly to get lump sum amount at maturity.

Earlier interest on RD’s was tax free, so it used to be very lucrative small and safe investment option.  But, now interest of RD is taxable, so RD is loosing its shine.

2004 onwards, govt has given away the old pension scheme and introduced New Pension Scheme for new recruitment to Central and State govt jobs (except military services). Further, In 2009, NPS was opened  for all citizens of India.

NPS investments are market linked, so its subjected to market risks also. Any contribution in NPS is invested in market through fund managers, and then market is responsible for growing your corpus. Anyone in age group of 18 to 60 years is eligible to contribute in NPS. New employees of central and state govt and public sector banks are compulsorily enrolled on NPS.

  • Investments in NPS is subjected to market risks.
  • Individuals of un-organised sector can participate in NPS on voluntarily basis.
  • Minimum Investment per year- Rs6000.
  • On retirement, individual has to purchase at-least 40% in annuity and remaining amount he gets in lumpsum.

For more on NPS, find my post.

 

Safe Investment Options
Safe Investment Options

Conclusion

These are the few safe options to invest and grow your money. There are few more of them but they belong directly to Post Office. In the age of banks, post offices have not upgraded themselves digitally, so its quite hard to access their services by going again and again at post office. But, with coming up of India Post Payments Banks, on 01.09.2018, things will change. We have to wait a while to see how its shaping up.

 

That’s all for this post.

Do post your queries at prateek@cashadda.in.

Thanks.