• 9 DEC 2016

    Investments - money-making instruments

    If you are looking for investment plans in India that can make your money work hard for you, read on. Get to know 5 top investment avenues in India that can help you maximise the returns on your investments. We give you a low-down on the top 5 best investment plans.

    Endowment plans

    Endowment plans are offered by life insurance companies. These are investment-cum-insurance plans. Endowment plans like Edelweiss Tokio Life – Wealth Builder offer guaranteed returns on your investment along with a Sum Assured, which is payable to your nominees in the event of your untimely demise. Endowment plans are available in various combinations of premium paying term and policy term. For instance, in Edelweiss Tokio Life – Wealth Builder, if you are a 35 year old male, non-smoker, your premium for a Sum Assured of Rs.9.10 lacs for a policy term of 30 years and a premium paying term of 12 years would be Rs.70000. Your maturity benefit would be Rs. 31.41 lacs. This means that if you survive till the maturity date, you will get a minimum of Rs.31.41 lacs and in case of your untimely demise before it, your family would get a minimum of Rs.9.10 lacs. This translates to a rate of return of 8.8% over the policy term which is better than what an F.D gives you. The investment in endowment plans are entitled for tax benefits under section 80C whereas the payouts are entitled for tax exemption under Section 10D of the Income Tax Act,1961. The best part is that the longer you stay invested, the better are your returns. You can redeem the policy for premature benefits any time after 5 years of the policy.

    National Savings Certificate

    National Savings Certificate or NSC's are investment tools floated by the government which gives you fixed returns for a particular period as well as tax returns on the same. These are issued by the post office. What one does here is invests an amount of money for a lock-in period of 5-10 years, during which he gets tax rebates, but no withdrawals. The interest rate would vary from 8.5 to 8.8% depending on the category of NSC purchased. The interest is compounded annually and is tax-free till the interest that is paid out in the last year. There is however no t.d.s on the maturity proceeds and the tax to be paid on the interest earned becomes your responsibility. The amount invested in NSC, subject to a maximum of Rs.1,50,000 is entitled for tax exemption under section 80C of the Income Tax Act, 1961. You can also avail of a loan on the NSC subject to various terms and conditions

    NSC's are still not available online and you need to go to the nearest post office to invest in it. The lock-in period is another dampener.

    National Pension Scheme

    A voluntary defined income contribution system which was started in its' current outlook from 2009 to encourage Indians to move towards a pensioned society. Investments in the National Pension Scheme are offered by most banks and brokers. The subscriber opens an account under the NPS and keeps on depositing money into it. There are various restrictions regarding withdrawals. Withdrawals can only be made thrice during the entire duration of the investment, subject to the first withdrawal being made after 10 years of deposit. AT the age of 60, the subscriber has to buy an annuity for 40 % of the accumulated corpus. Another 40 % can be withdrawn tax free whereas the balance 20 % is withdrawn in a taxable manner. If this 20% is withdrawn over a period of 10 years, the subscriber can save tax on it. The amount invested in NPS attracts tax benefits under the Income Tac Act, 1961 thus:

    1. Upto 1,50,0000 is exempt under Section 80CCD(1)
    2. Amount of Rs.50000 is exempt under section 80CCD(2). This is over and above the exemption available under section 80CCD(1).
    3. If your employer has enrolled you under the NPS, 10% of the employers contribution can be claimed as tax exemption.

    The problem with NPS is the rigidity and the lock-in period. Since the NPS as a principle wants to discourage withdrawals, the right to enjoy your investment is restricted.

    Fixed Deposits

    Fixed Deposits are investments with a short lock-in period and is ideal for short-term investments. Fixed Deposits are currently offering 7% interest on an average. These are floated by banks and are not covered under any tax-saving provision. The best part is that there is complete flexibility on the amount invested as well as the period of investment. The lock-in period can range form 3 months to 3 years depending on the individuals' discretion. The amount invested can be withdrawn even before maturity. The banks will only pay a lesser amount of interest on the F.D.

    The disadvantage here is the fact that it is not tax-free. The exception are few tax-saving F. D’s which have a lock-in period of 5 years and floated by particular banks.

    Public Provident Fund

    One of the favourite of most tax-payers in India because of the simplicity and availability, Public Provident Fund or PPF is a savings-cum-investment-cum-tax saving instrument. Just like the NPS, here also, you open a PPF account in which you invest funds every year. So, for example if you have invested Rs.1,50,000/- this year, that amount will be locked-in for a period of 15 years. The interest rate on the investment is periodically intimated by the government. For the current financial year, the interest rate stands at 8% p.a. The investment made in a P.P.F is eligible for rebate up till Rs1,50,000/- p.a. under 80C of the Income Tax Act, 1961. These  investments are completely guaranteed by the government of India.

    Again, the lock-in period is the biggest dampener. Otherwise, because of the interest rates which had reached 9-10% at one point of time, this is one of the most preferred means of investment by the common tax-payer.

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