Tuesday, May 19, 2009

Safe Investment Havens



At troubled times like these, safety of the investment is of prime concern to most investors across the country. When we check safety as a primary criterion, we may have to compromise on the return on investment (ROI)
Safe investments (Like the ones we are going to see in this article) would give you returns of around 8% per annum with a full 100% guarantee on the invested amount.
Even in such difficult times, I would suggest equities for investment because they would outpace the returns of all other asset classes always, considering the interests of the conservative investor is also important. This article is for the conservative investor for whom the motto “Safety First” is etched on stone and they would never compromise on that.

Let us have a look at some of these investment options and their strengths which would tempt us to choose them to park our funds.

1. Bank Fixed Deposits
2. Post Office Time Deposits
3. Kisan Vikas Patra
4. National Savings Certificate
5. Post Office – Monthly Income Scheme (POMIS)
6. Post Office – Recurring Deposits (PORD)
7. Public Provident Fund (PPF)
8. Senior Citizen Savings Scheme

Bank Fixed Deposits:

Bank FDs have been one of the most prominent saving instruments for the average Indian citizen. If you happen to ask a person who is of our father’s age (Assuming you are in your 20’s or 30’s) one of the first choices for saving money would be a Bank Fixed Deposit. These are very safe investments where the bank is bound to repay our money along with interest at maturity or even before maturity if you wish to close the account.

Positives:

1. 100% safe
2. Tenure ranging from one month to 5 years is available
3. Rate of Interest ranging from 5% to 9% (An extra 0.5% for senior citizens)
4. Tax benefits on investment upto Rs. 1 lac for 5 year tax saving deposits
5. No upper limit on investment

Negatives:
1. Interest earned on the deposit is fully taxable
2. Penalty charges may be levied if you wish to close your deposit prematurely (i.e., before the scheduled maturity date)

Post Office Time Deposits:

Post office time deposits are similar to Bank fixed deposits with one major difference. You open the deposit account in a post office instead of a bank.

Positives:
1. 100% safe
2. Tenure ranging from 1 to 5 years is available
3. No upper limit on investment
4. Rate of interest ranging from 6.25% to 7.5% (Compounded Quarterly)

Negatives:
1. Interest earned on the deposit is fully taxable
2. No Income Tax benefits

Kisan Vikas Patra
KVP is similar to the Post office Time Deposits. These are close ended deposit products launched by Indian Post office where our money would double in 8 years and 7 months. Assuming you invest 1 lac today in KVP, your money would be worth 2 lacs at the end of 8 years and 7 months.

Positives:
1. 100% safe
2. No upper limit on investment
3. Rate of interest 8.41% (Accumulated Interest is compounded yearly and paid on maturity along with our principal)

Negatives:
1. Interest earned on the deposit is fully taxable
2. No Income Tax benefits

National Savings Certificate:

NSC certificates are certificates of deposits issued by the government of India. Any Indian can deposit cash in NSC. This money would be used by the government for its cash needs.

Positives:
1. 100% safe
2. No upper limit on investment
3. Rate of interest 8% (Compounded half yearly)
4. Tax benefits. Investments upto Rs. 1 lac are exempt from income tax under sec 80C
5. Investment tenure is 6 years

Negatives:
1. Interest earned on the deposit is fully taxable

Post Office Monthly Income Scheme (POMIS)

The POMIS is a scheme launched by the Indian post office where an investor can invest a lumpsum amount on which the interest would be paid out monthly. This is used as a regular source of income for many senior citizens.

Positives:
1. 100% safe
2. Rate of interest is 8% and is paid monthly
3. Investment tenure is 6 years

Negatives:
1. Interest earned is fully taxable
2. Upper limit on investment is Rs. 4.5 lacs for individual accounts and Rs. 9 lacs for joint accounts

Post Office Recurring Deposit (PORD)

The PORD is a recurring deposit scheme that is launched by the Indian post office. In this scheme, an investor can deposit a small sum of money on a monthly basis and the amount would be paid on maturity as a lump sum along with interest.

Positives:
1. 100% safe
2. Rate of interest is 7.5% (Compounded Quarterly)
3. No upper limit on investment
4. Tenure is 5 years

Negatives:
1. Interest earned is fully taxable

Public Provident Fund (PPF)

PPF is similar to the normal Provident Fund with the only difference being, anyone can open a PPF account by visiting the nearest State Bank of India branch. PPF is also managed by the government of India. Once we open a PPF account we can deposit cash in our PPF account anytime.

Positives:
1. 100% safe
2. Rate of Interest is 8% (Compounded yearly)
3. Investment tenure is 15 years
4. Tax benefits under sec 80C for investments upto Rs. 70,000/-
5. Returns on investment are tax free

Negatives:
1. One can invest only Rs. 70,000/- per year
2. Must invest atleast Rs. 500/- every year to keep the account active.

Senior Citizens Saving Scheme

Senior Citizens savings scheme is a special deposit scheme meant for senior citizens (Individuals who are over 60 years of age) You can invest in this scheme through either post offices or through nationalized banks like SBI.

Positives:
1. 100% safe
2. Rate of Interest is 9% per annum (compounded quarterly)
3. Tax benefits on investments upto Rs. 1 lac under sec 80C
4. Investment tenure is 5 years

Negatives:
1. Upper limit on investment is Rs. 15 lacs
2. Interest earned on investment is fully taxable.

Recommendation:
As the options discussed above are all 100% safe they are a must have in ones investment portfolio. Based on your age, the share of these investments in your portfolio would vary. As a rule of the thumb, you must have a % of your investments equaling your age in these instruments. Assuming you are 30 years old, 30% of your investments should be in such options and the remaining 70% in other options like equities, real estate, gold etc.

Happy Investing!!!


7 comments:

  1. it was really benefical anand ,well I am a permanent resident of canada and have indian passport which safer options I have to invest in India ?

    my email is :
    anmol.indocanadian@gmail.com

    ReplyDelete
  2. Hi Anand,

    Need guidance from you. can you please share your views about the "HDFC Sampoorna Samruddhi" plan? it is savings and investment plan and traditional one. i am bit confused about the sum assured, what exactly it is? is it a money you will get after maturity over and above your premium paid? lets take a example if i am paying 100000/- per annum for 5 years.i totally paid 500000/- to this scheme and i received the policy document which said maturity benefit is 2,91,852/- i am still trying to understand how a sum assured is less then the total premium paid?

    Also can i get the benefit for senior citizen (0.25%) and i am having home loan with HDFC (0.255) as many insurance companies are offering.

    I am really confused man. can you please help.

    Thanks and Regards

    ReplyDelete
  3. Mr. Vikrant
    Sum assured is the bare minimum amount that will be paid to you. I think this is a traditional insurance policy (not a ULIP)

    Based on what I found on the internet, there are many bonuses they offer at the end of the full term.

    How long is the policy duration and how long is the premium payment period?

    I suggest you call up the insurance agent who sold you this product and ask the big question. After paying 5 lacs, why is the sum assured not even 3 lacs? If we wont get even the money we paid, what is the point of going for an endowment insurance?

    Are you over 60 years old? If so, with age proof (like passport or drivers license) you can avail senior citizen rates. But, I am not sure if home loans offer any discounts for senior citizens

    ReplyDelete
  4. Hi Anand

    Thanks for your response. the premium pay term is 5 years and i will pay in total 5 lacs.Actually that agent said you will get minimum 750000/- on maturity. still i am not sure.

    and i am thinking to take this policy for my uncle and he is 58 years of age and its his retirement corpus . he said the sum assured is calculated according to your yearly premium.

    i am so confused, hence need your help. is this possible that in any case i would get amount near 750000/- if they are saying sum assured is 2,91,000/- even after adding all bonuses?

    i know i can cancel this policy during fee look period that is why i reached here, the trusted place for investment.

    Thanks and Regards

    ReplyDelete
  5. @ Vikrant

    What is the maturity period? I saw that this policy has many maturity periods. So, if the Maturity period is at the end of 10 or 15 years from date of commencement, then maybe at that time the policy may be worth that over 7 lakh amount.

    A point to note here is that this looks like a normal Endowment policy that is not linked to the stock market. So, the rate of returns must be = Atleast the premium paid + a nominal interest rate of around 5-6%. In this case, you have lost nearly 40% in a 5 year period which looks amazingly unfortunate.

    You must first call up the insurance agent and find out what the hell is going on and second, call up the bank's customer care and inquire how come a normal insurance policy is worth so less when compared to the money invested.

    I sure hope you get some good response.

    Note: Are you sure of the policy name? If the policy is an ULIP, considering the stock market performance over the past 2 years, it is practically possible that, a 5 lakh investment is worth only around 3 lakhs.

    ReplyDelete
  6. Hi Anand,

    i asked the same question to customer care, but you know one thing all uneducated people are working in these type of call center. first you need an excellent luck to get your call connected to executive and even after that you are not sure you will get connected to an policy aware person.

    the policy maturity period is 5 years. i asked them why the hell this policy has been invented by the HDFC? and for my surprise they said that this plan has been widely accepted!! crazy Indians.

    Anyways i am not going to get into this bullshit. they are clearly telling me that "boss you invest 500000/- we will make it 300000/- that too in 5 years" hahahah what the heck.

    If you are expecting good response from customer care then you must have been out of India. sab gawar logo ko pal ke rakha hai aise call centers me. they even don't know what are the policy HDFC offering.

    please share your views. the captcha in your dite is very difficult bro please make it easy.

    Thanks and Regards

    ReplyDelete
  7. @ Vikrant

    First of all, there is no way an Insurance policy (that is not market linked) can do this. There is definitely some catch in the policy document which we are missing.

    Just visit the branch where you signed the papers and ask for an explanation. Who in his sane mind will invest 5 lacs to get back 3 lacs at the end of 5 years?

    If you dont get a satisfactory response then raise a formal complaint with IRDA with all the details you have.

    http://www.irda.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo226&mid=14.3

    If the policy is really eroding people's wealth, it should be scrapped and the people selling it punished.

    IRDA Grievance Call Centre (IGCC) can be accessed through
    o a toll free number 155255 for voice calls
    o complaints@irda.gov.in

    Address for communication for complaints by paper/fax: Consumer affairs Department, Insurance Regulatory and Development Authority,9th Floor, United Towers, Basheer bagh, Hyderabad -500 029 Fax 91 – 40 - 66789768


    Also, What captcha? i did not understand.

    ReplyDelete

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