Stock Market has always been knows for its volatility which sometimes attracts investors for getting high returns in smaller span. But the level of risk which comes along sometimes make investors to stay away from the same. The recent trend of the stock market ‘which is not in favour of investors’ have made investors to look into some alternate investment options with moderate risk.
At first glance, real estate investment sounds very attractive as we have seen tremendous growth in this sector in last few years. But investment in property may not suit the pocket of every investor as it requires a large chunk of cash at the time of purchase.
At current market situation Fixed Deposit is one option which is attracting most of the investors in India. As this investment option eliminates the problems associated with stock market and real estate i.e safety and affordability.
Bank Fixed Deposit is the not the only option for investors to invest there money in Fixed Income Plans. Bur unfortunately most of the people are not aware about the other plans available to us and there benefits. Lets have a look at the alternates of Bank Fixed Deposit and understand the benefits of drawbacks of investing in these plans.
PUBLIC PROVIDENT FUND
Public Provident Fund (PPF) is a long term investment cum tax saving scheme introduced by the government of India in 1968 to encourage people to invest. Being a government scheme it offers complete safety to the investors even in volatile economic conditions. Lets analyze the pros and cons of this investment option before making any decision:-
- Interest Rate :- The current interest rate on PPF account is 8% (compounded annually) which is expected to increase soon. Although current fixed deposit rates are higher than the PPF rates but change is PPF interest rates are not as volatile as other interest rates.
- Tax Benefits :- PPF offers you tax free investment, which means the amount of investment (principal) made by you and the amount of Interest value earned on the investment is tax free in the hands of investor.
- Affordability :- The amount of minimum investment required in an year under this scheme is Rs 500 which can go upto Rs 70,000 as per investors convenience.
- Flexibility :- Investor can make investment as per the availability of funds, as there is no due date to make investment payment. Investor have flexibility to invest money anytime within the financial year.
- Account Opening :- The PPF account opening formalities are as simpler as opening a saving bank account. Even a non earning person can open his/her PPF account with the initial deposit of Rs100.
- Other Facilities :- This investment scheme offers you some great facilities on your PPF balance (investment amount) like partial withdrawal and loan.
- Loan Rates :- Interest on loan under PPF scheme is 2% above the PPF interest rate i.e 8% + 2% which comes out to be 10% which is very less as compared to the bank personal loan interest rate.
- Maximum Limit :- The maximum limit of investment under PPF Scheme is limited to Rs 70,000 in a financial year which is not a substantial amount of investment for future as per the economy trend.
- Premature Closure Not Allowed :- Premature closure of the scheme is not allowed. It is not possible in case of account holders death.
- Lock-in Period :- The lock in period of PPF Scheme is 15 Years before which even partial withdrawal is not allowed before 7th year of account opening which can be troublesome in some emergency.
- Loan :- Although PPF offers loan facility to its investors on their PPF balance but it is restricted to 25% of the account balance on the completion of 2nd year immediately preceding the year in which loan is applied for.
- Interest Calculation :-The interest on PPF balance is calculated on the lowest balance between the fifth and the last day of every month.Also Read : Complete Review Of Public Provident Fund (PPF) Scheme
CORPORATE FIXED DEPOSITS
The basic rule of high risk high returns applies here also. It is an another kind of fixed deposit scheme offered by companies where you can invest to earn interest income similar to the bank fixed deposit scheme.
Interest Rate :- Corporate Fixed Deposits offer better returns as compare to Bank Fixed Deposits.
Risk :- Corporate Fixed Deposits are more riskier than bank fixed deposits.
Unsecured Deposits : Bank Fixed Deposits are more secured than corporate fixed deposits as bank FDs are secured by Reserve Bank Of India (RBI) up to Rs. 1 lacs per branch, which means that if bank goes bankrupt, RBI will pay you up to 1 lacs of deposits. There is no such assurance on Company Deposits.
Premature Closure:- Most of the companies either do not offer the facility to pre mature withdrawal of fixed deposit or have cumbersome process unlike Bank Fixed Deposits where this facility is available easily.
Minimum Deposit :- Corporate deposits require a minimum deposit unlike bank fixed deposits.
Points To Remember Before Investing Into Corporate FD’s
Prospectus :- Always read the terms and conditions of the Companies Fixed Deposit before investing.
Financials Status:- Always try to invest in the profitable company, a company which is having a healthy debt to asset ratio.
Ratings :- Always try to invest in a company which have a rating of AA or higher. This rating get revised on regular basis so it would be better if you can keep a track of the company rating during the period of investment.
Returns :- Always try to invest in companies which offers regular dividends on your investment. But try to avoid the companies which are offering exceptionally high interest rate.
Investment Period :- Always try to invest for a moderate duration in company fixed deposits because of there risky nature. So prefer to invest for 3 to 5 years.
SENIOR CITIZENS SAVING SCHEMES
Senior citizen savings scheme (SCSS), as name suggests it is a saving scheme especially designed by the Government of India for senior citizens (above the age of 60 years). It offers a safe investment alternative with high interest rate to senior citizens.
Minimum Investment :- The minimum amount of investment required to open a SCSS account is Rs 1000 which is very affordable as per current economical conditions. Additional investment can be in multiples of Rs 1000 which can go upto Rs 15 lacks max.
Interest Rate :- The current interest rate on SCSS account is 9% (compounded annually). Although current bank fixed deposit rates are either higher or equal than the SCSS rates but the SCSS interest rates are not volatile as bank interest rates.
Tax Benefits :- The amount invested under this scheme is also eligible for deductions u/s 80C up to the specified limits of Rs 1 Lakh per annum.
Interest Payout :- Interest Payout is done on a quarterly basis.
Premature Withdrawal :- Premature withdrawal is possible under SCSS scheme but only after the completion of 1 year. Early withdrawal also attracts penalty, like for withdrawal after 2 years 1% of withdrawal amount and before the completion of 2 years – the penalty is 1.5%.
Tax On Interest Income :- Interest Income from SCSS is taxable and if the interest receivable during the year exceeds Rs. 10,000, TDS would also be deducted on the same.
Limited For Senior Citizens :- This scheme is limited only for senior citizens. Those who have taken voluntary retirement and are between the age of 55 and 60 years can only invest the retirement benefits.