In today’s scenario the people are more concern about their future than present. Everyone wants financial independence and financial security. For this purpose, it is necessary for them to take investment decisions. Awareness and knowledge of different investment avenues is extremely important to make the right investment decision.
Investment can be made in both financial and non financial products
- Physical options like real estate, gold/jewellery, commodities etc. and/or
- Financial options such as fixed deposits with banks, small saving instruments with post offices, insurance/provident/pensionfund etc. or securities market related instruments like shares, bonds, debentures etc.
and this article provides you an overview of financial investment options available in the market and a brief description of the investment avenues related to short, medium and long tenure.
What are various Short-term financial options available for investment?
Broadly speaking, savings bank account, money market/liquid funds and fixed deposits with banks may be considered as short-term financial investment options:
Savings Bank Account is often the first banking product people use, which offers low interest (2.70% to 5.25% p.a.), making them only marginally better than fixed deposits.
Money Market or Liquid Funds are a specialized form of mutual funds that invest in extremely short-term fixed income instruments and there by provide easy liquidity. Unlike most mutual funds, money market funds are primarily oriented towards protecting your capital and then, aim to maximise returns. Money market funds usually yield better returns than savings accounts, but lower than bank fixed deposits.
Fixed Deposits with Banks are also referred to as term deposits and minimum investment period for bank FDs is 7 days. Fixed Deposits with banks are for investors with low risk appetite, and may be considered for 6-12 months investment period as normally interest on less than 6 months bank FDs is likely to be lower than money market fund returns.
What are various Long-term financial options available for investment?
Post Office Savings Schemes, Public Provident Fund, Company Fixed Deposits, Bonds and Debentures, Mutual Funds etc.
Post Office Savings : Post Office Monthly Income Scheme is a low risk saving instrument, which can be availed through any post office. It provides an interest rate of 6.6% per annum, which is paid monthly. Minimum amount which can be invested, is Rs. 1,000/- and additional investment in multiples of 1,000/-. Maximum amount is Rs. 4,50,000/- (if Single) or Rs. 9,00,000/- (if held Jointly). It has a maturity period of 5 years. Premature withdrawal is permitted if deposit is more than one year old.
If account is closed after 1 year and before 3 year from the date of account opening, a deduction equal to 2 per cent from the principal will be deducted and remaining amount will be paid.
And if account closed after 3 year and before 5 year from the date of account opening, a deduction equal to 1 per cent from the principal will be deducted and remaining amount will be paid.
Public Provident Fund : A long term savings instrument with a maturity of 15 years and interest payable at 7.1% per annum compounded annually, with interest calculated on a monthly basis which is credited at the end of the year. A PPF account can be opened through a nationalized bank, commercial banks, post offices, and their branches at anytime during the year and is open all through the year for depositing money. Tax benefits can be availed for the amount invested and interest accrued is tax-free. A withdrawal is permissible every year from the seventh financial year of the date of opening of the account and the amount of withdrawal will be limited to 50% of the balance at credit at the end of the 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower the amount of loan if any.
Company Fixed Deposits : These are short-term (six months) to medium-term (three to five years) borrowings by companies at a fixed rate of interest which is payable monthly, quarterly, semi-annually or annually. They can also be cumulative fixed deposits where the entire principal alongwith the interest is paid at the end of the loan period. The rate of interest varies between 5-11% per annum for company FDs. The interest received is after deduction of taxes.
Bonds : It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest on a specified date, called the Maturity Date.
Mutual Funds : These are funds operated by an investment company which raises money from the public and invests in a group of assets (shares, debentures etc.), in accordance with a stated set of objectives. It is a substitute for those who are unable to investdirectly in equities or debt because of resource, time or knowledge constraints. Benefits include professional money managemen,tbuying in small amounts and diversification.Mutual fund units are issued and redeemed by the Fund Management Company based on the fund's net asset value (NAV), which is determined at the end of each trading session. NAV is calculated as the value of all the shares held by the fund, minus expenses, divided by the number of units issued. Mutual Funds are usually long term investment vehicle though there some categories of mutual funds, such as money market mutual funds which are short term instruments.
Stock/Share Market Investment : requires regular monitoring because of it's high risk. The returns offered by this kind of investment are unmatched despite the introduction of taxes on long-term capital gains. You can spread the risk by creating a balanced portfolio and investing in different stocks.
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