Hello folks! We are here to tell you that need not to be the Wolf of Wall Street or Warren Buffet to start investing and its okay if you’re mouse of the main street. Financial planning sounds Greek to most of the people especially the fresh ones and consequently we resort to our parents for their advice which is biased towards old school instruments. ("put money in bank and safe options", " buy an insurance" ) Investment opinions are like religions— there are strong opinions and little tolerance.
In this weeks IM we intend to unfold the available investment instruments and for ease of your assimilation we’ve categorized them into conventional and modern methods. Alike almost everything else, investment options also exist in shades of grey and it would be inappropriate to disregard either of these methods completely. It is thus prudent to understand these options and then choose your shade your of grey! So, without further ado, we unwrap the conventional investment instruments. If you like this one, do give us a thumps up on LinkedIn. Conventional methods of investing : 1. Bank Deposits/FDs/RDs
Starting with the investment avenues offering the highest liquidity. (Liquidity is a measure of how quickly something can be converted into cash. High liquidity means easy convertibility to cash.) Bank deposits are one of the most popular and safest option available in India. Investors who need little to no volatility in their investment portfolios, look for such low-risk & fixed income instruments: Bank Deposits, Fixed deposits and Recurring deposits. Fixed Deposit - Amount of money is locked for a fixed period of time. You earn interest on the principal sum throughout the tenure on a cumulative basis. The interest earned gets added to the principal amount after every specific interval. This one is one of the most preferred options in India, due to the convenience and flexibility it offers. Recurring Deposit- A minimum amount is invested every month over the pre-determined term. You earn fixed interests on the amount invested until the investment matures or term ends. Here's the illustration for your easy understanding:
2. Government Schemes
Whether you like the government or not, the govt does think good of its citizens and offers myriad of saving schemes to help you grow your money and in turn increase the inflow of money into the economy. These saving schemes were initially introduced as a catalyst to cultivate healthy saving and investing habits in India, just what we are trying to reiterate! Remember when you put your money in these instruments it’s like putting your money in a safe haven. It’s the safest it can get. If you want to invest your money but don’t want to be vulnerable to a fluctuating stock market, a government saving scheme is the right place to put your money. Let us discuss about some good government investment schemes. i. NPS- National Pension Scheme What is it? The name is a clue enough to understand that involves pension but it’s a little more than that. It’s a pension cum investment scheme by GOI to provide security to you when you get wrinkled (yes read that as retired). You can invest your money for the long term and receive a lump sum money at the end of the tenure and enjoy your retirement watching the sunsets. Another interesting fact about this safe instrument is that NPS in itself is a mix of all asset classes. You can choose how much to invest in equities, government bonds and corporate debt based on your risk profile.. And lastly, the best part, you get tax benefits from it. So how exactly does it work? Here's the info-graphic for your rescue.
What is your investment option in NPS?
Note: You can invest in NPS through various mediums like directly with the government or even your own bank account.
The last piece on NPS: The tax benefit:
ii. Provident Funds - PPF & EPF Two parts to this. PPF which can be availed by everyone and EPF only for the salaried individuals. A. PPF (Public Provident Fund): We have watched our parents’ squirrel away their savings in PPF accounts. It is one of the most secured long-term investment options. Not only is PPF a low-risk fixed income savings scheme but its tax free!! PPF account can be opened at your nearest post office or any bank with a minimum locking period of 15 years. If you are an NRI reading this, NRIs are not allowed to create a PPF. oops! Fact check: Did you know you can avail loan against the amount you invested in PPF?
B. EPF (Employee provident fund) : All the salaried folks, you might have noticed the deduction in your salary for PF contribution. Well here’s how it actually works for you
Gold. The fantasy addiction drug of choice for Indians. We Indians just love the glittery gold. For centuries gold has been a popular choice of investment in Indian homes. Do you know the current gold price? The yellow metal has been on a rising spree for some time now. Buying gold jewelry and investing in gold are two different things. Here we will not talk about the physical gold as an option. Rather, we demystify how you can actually buy gold without buying it! Here’s how: i. Gold ETF - Gold Exchange Traded Funds are financial instruments comprising of units backed by physical gold but held in paper or financial form. They are listed on NSE and BSE and you can buy & sell gold ETFs just as you would trade in stocks. Now what makes Gold-Backed ETF a good investment option? Well, its smarter way of investing in gold where you don’t have to indulge in investing in physical gold and hassles of its security. ii.Gold Sovereign Bonds (GSB) - The instruments are government securities denominated in grams of gold. The Bond is issued by Reserve Bank on behalf of the GOI. These bonds also offer an assured interest rate over and above the movement in gold prices. They can be redeemed as cash. GSBs come involve a lock-in period as compared Gold ETF or mutual funds. So, if the liquidity is not an issue and you are investing for long term, go for SGBs. iii. Gold Monetisation Scheme - It is a gold savings account where gold can be deposited in any physical form – jewellery, coins or bars. This then earns interest based on gold weight and also the appreciation of the metal value. All ladies, listen up: All that old or unwanted jewellery can earn interest for you ! You now know where. Here's the illustration for a better understanding.
Note: All the above investment options can be availed from your electronic accounts/demat accounts. You need not step out, but if you have to , don't forget to wear your mask! This was one side of the coin- the old school thought. We will be back with modern and more dynamic investment options next week. Until then, stay home and do float a word with your parents at the dinner table tonight on the conventional investment instruments!