Today I will explain long-term investment option out of which some will provide you benefits of tax saving also.
Post Office savings- These are popular saving scheme as it have low risk with no tax deduction at source and yields high return than Bank FDs. Its monthly income plan will suits you if you are a retired person or you need a regular income every month. Post Office offers various schemes that include National Savings Certificates, National Savings Schemes, Kisan Vikas Patra, Monthly Income Scheme, Time Deposite, Senior Citizen Scheme and Recurring Deposit Scheme.
Public Provident Fund- PPF is one of the best Fixed income investment schemes for small investors because of: - The minimum amount to be deposited in this account is Rs 500 per year and maximum amount is Rs 70,000 per year. This amount get tax rebate under section 80c. PPF account provides investor an option of loan against its PPF account. And yields an interest of 8% p.a... The real good thing is the interest income is fully tax exempt. PPF account can be opened either in Post Office or in a Bank
It has a big negative point i.e lack of liquidity. So, if you are willing to live with poor liquidity, you should invest as much as you can in this scheme before looking for other fixed income investment options.
Company Fixed Deposits- Companies FDs are the best option to maximize returns within a fixed income investment. These are basically an investment instrument which is used by companies to borrow from small investors. FDs are open throughout the year. You should invest in FDs only if you have surplus funds for more than 12 months and select your investment period carefully as most FDs are not encashable prior to their maturity. These are risk embedded as its not important for non-financial companies to get a credit rating. So, you should consciously select the companies in which you like to invest your money. It yield better return than PPF but it is also have high risk association.
Bonds and Debentures- It is the other fixed income instrument issued by companies. It yield better return than companies fixed deposits. Due to an illiquid secondary market and a lack-lustre primary market, investment in these instruments is largely skewed towards issues from financial institutions.
Mutual Funds- Under this investment option investor’s pool their money to buy equity shares, bonds or any other fixed income instruments. It gives you a benefit of professional management of your funds, you can easily diversify your portfolio and lower your risk and increase your returns. There are number of option available to investor’s for investment like pure equity schemes, pure debt scheme and balance scheme. Investor can choose a fund which matches his/her objective. For example: someone want to invest for 5-7 years but do not have the high risk appetite so he/she can go with that fund which provide him good return at some lower risk. Some mutual funds also provide tax rebate under section 80c.
Life Insurance- I would like call it as risk cover instrument instead of investment alternative. People see life insurance as an investment option which is not a right thing. It is basically a risk cover and serves as a financial buffer in the wake of any un-favourable and un-foreseen circumstances. It ensures your near ones are not left in financial doldrums due to any emergency. Life insurance is classified as: Risk/ loss Mitigation and wealth creation option. Risk/ Loss Mitigation include- term insurance and whole life insurance. Wealth creations include- endowment assurance, ULIPs and pension plans. Life insurance yield less returns but provide protection from un-favourable conditions.
Equity Shares- Equity shares yields maximum returns over long-term and gives the shareholder an ownership stake in company. If you have time period of at least 5 years and you are ready for risk then invest in equity shares as it yield you maximum returns. You can invest in equity from secondary market as well as primary market. Equity shares are classified as blue chip shares, Growth shares, income shares, cyclical shares and speculative shares.
Preferred shares are type of shares which has properties of equity and debt instruments both and generally, termed as hybrid instruments. Preferred shares are senior to equity shares but are subordinate to debt/ bonds. These are usually carries no voting rights but carry a dividend and have priority over common shares in the payment of dividends and upon liquidation. These shares may have a feature of conversion in common shares. Preferred shares are also rated like bonds by major credit rating companies, there rating is generally lower then bonds as they do not carry guarantee as bonds carry for interest payments and they are usually junior to all the creditors. Preferred shares are classified as : - Prior Preferred shares, Preference Preferred shares, Convertible Preferred Shares, Cumulative Preferred Share, Exchangeable Preferred Shares, Participating Preferred Shares, Perpetual Preferred Shares, Putable Preferred Shares, Monthly Income Preferred Shares and Non-Cumulative Preferred Shares.
Real Estate- For most of the investor the most important asset in their portfolio is their residential house. It yields a highest return sometimes at shortest period and sometime takes the long period. It is an illiquid asset. Affluent investors are mostly interested in these types of investments like Agricultural land, semi-urban land and commercial property. Before going for this investment avenue please read this article.
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