Every individual with a stable income must ideally save a percentage of their income as their savings for future use. Savings have become a common financial element in most households and are crucial for dealing with situations of the financial crisis. Apart from storing money in a savings account, which offers a low-interest rate, there are numerous other investment avenues available for savings that offer better returns and can be utilized to achieve financial goals more efficiently. These options include the following:
1. Direct Investments:
Stock investing may not be suitable for everyone because it is a volatile asset type with no assurance of profits. Furthermore, not only is it tough to choose the appropriate stock, but it is also tough to time your entry and withdrawal. However, the silver lining is that, over extended periods, equity has outperformed all other asset classes in terms of inflation-adjusted returns. At the same time, unless you use a strategy to limit losses, you run the risk of losing a significant amount, if not all of your cash. You could diversify between sectors and market capitalizations to mitigate risk to some extent. A Demat account is required to invest directly in stock.
2. Equity Mutual funds:
Mutual funds that invest primarily in stocks are known as equity mutual funds. An equity mutual fund scheme must invest at least 65 percent of its assets in equities and equity-related securities, according to the Securities and Exchange Board of India (Sebi) Mutual Fund Regulations. An equity fund might be managed actively or passively. Returns in an actively traded fund are mostly dependent on the competence of the fund manager to create returns. Passively managed index funds and exchange-traded funds (ETFs) track the underlying index. Equity funds are classified based on their market capitalization or the industries in which they invest. They are also classified as either domestic (investment in solely Indian companies’ stocks) or international (investing in stocks from all over the world).
3. PPF (Public Provident Fund):
Many people use the Public Provident Fund as a source of income. Because the PPF has a 15-year tenure and the compounding of tax-free interest in this duration of time is huge, especially in the later years. It is also a safe investment because the interest earned and the principal invested are backed by a sovereign guarantee. It is important to keep in mind that the government reviews the interest rate on PPF every quarter.
4. Fixed deposit (FD) in a bank:
In India, a bank fixed deposit is seen as a safer investment option than stocks or mutual funds. With effect from February 4, 2020, each depositor in a bank is covered up to a maximum of Rs 5 lakh for both principle and interest under the deposit insurance and credit guarantee corporation (DICGC) guidelines. Previously, the maximum coverage for both principle and interest was Rs 1 lakh. One can choose between monthly, quarterly, half-annually, yearly, or cumulative interest options in fixed deposits, depending on their needs. The interest rate is applied to one’s income and taxed according to one’s income bracket.
The aforementioned points will assist you to explore the diverse avenues available for savings in India. For more information about savings options, you may consult with our experts who are available at all times for your service.