Industry

Ask Us: On investments

Q. My father has received a sum of ₹8 lakh after retirement and he is adamant on keeping that sum as a fixed deposit in a public sector bank. The interest rates are very low. What other options can you suggest? An option that is more secure than share market and gives interest more than 5.25%.

Siddartha Shetty

A. Your father is not wrong in his decision to park his retirement proceeds in a safe avenue. If capital safety is his priority, he may have to make do with low rates in the current market situation. Exploring market-linked options like mutual funds can put his retirement proceeds at risk.

However, if he is keen on earning regular income, he can explore three options which would be as safe or even safer than public sector bank deposits while offering better rates. One, the post office Senior Citizens Savings Scheme, which offers quarterly interest payouts and has a five-year lock-in period. The scheme is central government-backed and therefore carries high safety.

The interest rate is announced at the beginning of every quarter, the current rate is 7.4% until June 30 2021. Up to ₹15 lakh can be parked per individual in this scheme. Two, he can invest in the 5-year post office time deposit or Monthly Income Account that offer 6.7% and 6.6% until June 30. Three, he can consider the Pradhan Mantri Vaya Vandana Yojana, a pension scheme from LIC open only to senior citizens. The scheme currently offers interest at 7.4%, and allows up to ₹15 lakh to be invested with a 10-year lock-in period. All of these schemes are as safe as fixed deposits with the only minus being that they require money to be locked in for 5 or 10 years. The Senior Citizens Savings Scheme, however, allows early withdrawal after one year, with a penalty, if there are emergency needs. If your father needs liquidity, this should be his preferred option. Do ask him to act before June 30 2021 as the rates may change.

Q. I am 24 years old and working in the private sector. As my total income exceeds the amount not chargeable to tax, I want to invest some of my money. But I don't have a clear idea where to invest. I have heard about PPF, fixed deposits, SIPs and ELSS but not sure which to choose. Could you please help me?

Thaddi Santoshi

A. Where and how you should invest your money should depend on your financial goals. Saving on taxes should not be your only goal, though once you decide on your goals you can consider tax-efficiency too to choose investment products. You may have many plans for the next 5-10 years of your life — taking a holiday, buying your parents something, getting a vehicle or pursuing higher education. All of these dreams will require money. You need to save and invest out of your current income to fulfil those dreams without having to borrow.

We suggest that before you look for investment options, map out your financial goals, with the time period by which you would like to achieve them. This will decide where you can invest. For goals within the next 1-3 years, you can simply consider recurring deposits with your bank. For 3 to 5-year goals, look at post office schemes like the 5-year deposit and the NSC. For goals beyond 7 years, you can consider SIPs in equity mutual funds. For very long-term, 15-year plus goals like retirement, there is the Public Provident Fund.

Having done the above exercise, you can make tax-efficient choices for each of the goals. As a young salary earner, you should be looking to maximise your Section 80C investments, which allow you to deduct up to ₹1.50 lakh from your annual income while calculating income tax. NSC, 5-year post office time deposits, PPF and SIPs in equity linked savings schemes are some options that can fit into your goals and also offer 80C tax breaks. Along with other investments, though, do invest in a health insurance plan for about ₹5 lakh to take care of any medical emergencies. Save about 6 months’ worth of expenses in a fixed deposit to take care of other emergencies, like job loss. If you have dependants, it would also be good to buy a pure term insurance plan so that your nominees get a lump sum in the event of some unfortunate event happening to you.


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Printable version | Jun 23, 2021 12:09:18 PM | https://www.thehindu.com/business/Industry/ask-us-on-investments/article34568490.ece

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