Personal Finance; Different Avenues (Part 2)

Last week, I had written about Personal Finance and talked about certain points. In case you haven't read it, you can check it here.

In today's post, we will discuss about three different avenues available for you to invest and in some cases to protect your savings.

• Fixed Deposits and Recurring Deposits
  
  These two are the financial instruments which you would have easily come across in today's world. FDs and RDs provide a higher rate of interest than a regular savings account. The maturity date is fixed when you opt for a tenure ranging from 7, 15 or 45 days to 10 years. The interest rate usually varies between 4 and 7.50 percent, however it is based on the monetary policy adopted by the Central Bank of any country.
  
  Recurring Deposits is a kind of term deposit mostly useful for people with regular monthly income to deposit a fixed amount every month into their recurring deposit account and earn the applicable interest rate.
  
  The most important point to note while calculating the returns from FDs and RDs is Tax Rate. The interest earned from these instruments are chargeable to Income Tax.

• Public Provident Fund
  
  PPF is a savings and a very popular tax saving instrument in India.
  The scheme is fully guaranteed by the Central Government. A minimum yearly deposit of Rs 500 is required to open and maintain a PPF account. The maximum amount which can be deposited in a year is Rs 1,50,000/-.
  The interest rate is compounded annually and paid on 31st March every year.
  The total duration of the scheme is 15 years and thereafter the subscriber can choose to extend for blocks of 5 years each.
  The interest rate is declared quarterly.
  
  The important point here to note is that there is a lock in period of 15 years. Premature withdrawals are allowed from the start of the seventh Financial year. Entire corpus on maturity is tax free.
  
  For more on PPF click here.
• Stock Markets
  
  One can invest in Stock Markets either by investing directly in stocks or through the Systematic Investment Plan(SIPs) with the Mutual Funds.
  
  For investing directly one needs to open a demat account with a depository and a trading account with a broker.
  The basic difference between Trading and Demat account is that Demat account keeps your shares electronically and Trading account keeps your funds which are invested in Stock Markets.
  Investing directly is generally perceived to be little more difficult than investing via Mutual Funds. The key while investing directly is to understand the basics first and educate yourself.
  
  This is a vast subject and here are a few re plugs of old posts on it which might be useful :
  http://pratikmantri.blogspot.com/2016/11/mistakes-you-should-avoid-while.html
  http://pratikmantri.blogspot.com/2016/06/key-learnings-from-investing_43.html
  http://pratikmantri.blogspot.com/2017/05/books-on-investing-and-stock-markets.html
  
  
  The other option to invest in Stock Markets is through the Mutual Funds route. The basic concept of MF is that it pools money from many investors to purchase securities. MFs help in diversification, liquidity and professional management. MFs not just in invest in securities/stocks but they also invest in debt markets.
  
  There are few funds which are eligible to get you the rebate in Income Tax in India, they are Equity Linked Savings Scheme (ELSS). There is a 3 year lock in period in ELSS.
• National Pension System
  
  It is a voluntary defined contribution pension system in India. It is tax efficient under various Sections of Income Tax Act and is managed by Pension Fund Regulatory and Development Authority (PFRDA).
  
  It is a market linked product but with restrictions on its withdrawal but provides an attractive long term saving avenue to plan for retirement.
  
  You can find all the details about NPS here.

There are other savings instruments like National Savings Certificate, Sukanya Samriddhi Yojana which I have not discussed since that would have made this post even longer!