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.
In order to allow people to save their money for a fixed period of time and receive periodic returns on their deposits, the government, banks and financial companies all offer different savings schemes. You will ace your financial planning efforts if you invest prudently, understanding the pros and cons of numerous investment options.
Here are the best investment schemes that will ensure that you have sufficient savings for your future financial needs.
Personal Provident Fund (PPF):
PPF is a government-backed long-term saving scheme that is tax-free and is the safest and most popular investment option in India. The amount of money deposited in PPF is available as deduction after the lock-in period, under section 80C of Income Tax Act and the interest earned on PPF is also not taxable.
National Saving Certificate (NSC):
NSC is a 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 are decided by the government and are reviewed every quarter.
National Pension System (NPS):
The National Pension System is a long term retirement – focused investment product managed by the Pension Fund Regulatory and Development Authority (PFRDA). The investment is in a blend of equity, fixed deposits, government funds, corporate bonds and liquid funds, among others. The scheme is open for state and central government employees and private employees in organised and unorganised sectors.
Upon retirement, the account holders can withdraw up to 60% of the corpus tax-free. The balance 40% is used to buy an annuity plan to receive a monthly pension after retirement.
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.
Equity mutual funds:
Equity mutual fund schemes predominantly invest in equity stocks. As per current the Securities and Exchange Board of India (Sebi) Mutual Fund Regulations, an equity mutual fund scheme must invest at least 65 percent of its assets in equity and equity-related instruments. An equity fund can be actively managed or passively managed. Since the risk is higher in equities, the possibility of higher returns increases.
Debt mutual funds:
Debt mutual fund schemes are suitable for investors who want steady returns. They are less volatile and, hence, considered less risky compared to equity funds. Debt mutual funds primarily invest in fixed-interest generating securities like corporate bonds, government securities, treasury bills, commercial paper and other money market instruments.
Conclusion: The motive of introducing saving schemes was to allow the wealth of the Indian citizens to appreciate or grow at higher interest rates so the benefits of the same could be reaped through tax exemptions which come up along with some of the saving schemes rolled out by governments, banks, financial institutions.
Investors must note, when selecting the savings scheme, that there is no high-return low-risk combination investment option. Thus, while selecting an investment avenue, you have to match your own risk profile with the risks associated with the investment product before investing in it.