Where to Invest 1 Lakh?

A sudden windfall of 1 Lac from a matured recurring deposit or a gratuity from your employer may put you in a dilemma. You must be wondering the best options to park the lump-sum fund and help it grow. However, at the same time, you would wish to insure against financial emergencies. The best course is to pursue a risk-based approach that helps your money grow yet hedge your portfolio from sudden financial surprises. Of course, the first step is to evaluate your risk tolerance and explore investment horizons matching your persona. Accordingly, here are some worthwhile suggestions in the present landscape.

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National Savings Certificate (NSC): 

The National Savings Certificate (NSC) is a government-backed initiative under the small savings category. It is a fixed-income, low-risk investment option under a sovereign guarantee. You can purchase the certificate from any post office. It is ideal for small and mid-income investors looking for safety of funds and tax savings. 

Key Information: 

  • Scheme Name: 5 years National Savings Certificate (VIII Issue)

  • Investment Amount: Minimum Rs.1000, followed by multiples of Rs.100 without any upper limit. In addition, you can purchase any number of certificates. 

  • Interest Payable: 6.8% compounded annually and payable at maturity effective up to 31 March 2022. Accordingly, Rs.1 Lac grows to Rs.138949 in 5 years. 

  • Maturity: On completion of 5 years from the issue date. 

  • Pledging of Account: You can pledge the certificate as security for obtaining a loan from a bank.

  • Tax Benefit: Exempt up to Rs.1.5 Lac in a financial year under Section 80C of the IT Act, 1961.  (*Tax benefit is subject to changes in tax laws. Standard T&C apply.)

  • Risk Profile: Low to Nil. 

Kisan Vikas Patra (KVP):

One of the oldest government-sponsored small savings schemes running since 1988 and is issued by all post offices across the country is Kisan Vikas Patra. The 2011 modified scheme plugged certain deficiencies. Accordingly, you need a PAN card for investments above Rs.50000 and income source disclosure exceeding Rs.10 Lac. 

Key Information: 

  • Scheme Name: Kisan Vikas Patra

  • Investment Amount: Minimum Rs1000 and multiples of Rs.100 after that. 

  • Interest Payable: 6.9% compounded annually. The investment doubles in 10 years and 4 months.  

  • Maturity:  The Ministry of Finance declares its maturity from time to time. 

  • Pledging of Account: You can pledge the certificate as security for obtaining a loan from banks and other institutions.

  • Tax Benefit: No tax exemption is allowed on the investment. 

  • Risk Profile: Low to Nil. 

Public Provident Fund:

Popularly known as PPF, Public Provident Fund is offered to individuals in all post offices or banks. The small savings scheme was launched in 1968, and its acceptance amongst Indian investors has never faded for its tax savings efficiency. PPF enjoys an E-E-E tax benefit regime during its life cycle. It is a government-backed fixed income risk-free investment option. 

Key Information: 

  • Scheme Name: 15 years Public Provident Fund (PPF)

  • Investment Amount: Minimum Rs.500 and a maximum of Rs.1.5 Lac in a financial year contributed in a maximum of 12 installments annually.

  • Interest Payable: The Ministry of Finance notifies the applicable interest every quarter. Accordingly, the current rate is 7.1% compounded annually and valid until 31 March 2022. Moreover, interest is applied and credited to the account at the end of every financial year. 

  • Maturity: The account matures after 15 years from the opening date but is extendable for another 5 years after that.  

  • Loan Facility: You can obtain a loan from the PPF account after one year from the end of the financial year.

  • Tax Benefit: Contribution is exempt up to Rs.1.5 Lac in a financial year under Section 80C of the IT Act, 1961. (*Tax benefit is subject to changes in tax laws. Standard T&C apply.)

  • Risk Profile: Low to Nil. 

Government Bonds:

Retail investors can purchase government bonds directly after RBI’s November 2021 modified policy guidelines. As per these guidelines, domestic participation in the bonds market is enabled. Government bonds are issued as debt instruments to raise funds for infrastructure development. While central government bonds are referred to as G-Secs, the state government is known as State Development Loans. It is mandatory to hold a bank account to invest while lodged in Demat form.  

Key Information: 

  • Investment Amount: Minimum Rs.10000 and multiple thereof without any upper limit barring Capital Gain Bonds (54EC) at Rs.50 Lac.

  • Interest Payable: The coupon rate is fixed for the entire tenure and disbursed periodically. 

  • Maturity: It varies from one year to several years declared when issued.  

  • Tax Benefit: Liable for taxation according to your income bracket.

  • Risk Profile: Low to Nil. 

Sovereign Gold Bonds (SGB):

The RBI issues the bonds on the government’s behalf denominated in gold by weight. Accordingly, the current tranche for Series X is 28 February to 4 March 2022, and the issue bonds on 8 March 2022. You can buy the bonds from banks, post offices, and stockbrokers, both online and offline. However, you must be a PAN cardholder to purchase them.

Key Information: 

  • Scheme Name: Sovereign Gold Bond X Series

  • Investment Amount: Minimum investment is 1 gm, and the maximum is 4 kg of gold. The current tranche price is Rs.5109 per gram on 4 March 2022.

  • Interest Payable: Fixed 2.5% on the initial investment and paid twice every year. 

  • Maturity: The bond tenor is 8 years with an exit option after the 5th year on the interest payment date. 

  • Tax Benefit: Interest income is taxable under the provisions of the IT Act, 1961. However, the redemption value is exempt from capital gains tax. (*Tax benefit is subject to changes in tax laws. Standard T&C apply.)

  • Risk Profile: Low to Medium. 

Gold Exchange-Traded Funds (ETF):

Investment in the ETF is similar to buying gold on paper without the hassle of holding them physically. However, you must own a Demat account to invest in the fund, similar to holding mutual fund units or dematerialized shares.  

Key Information: 

  • Scheme Name: Gold Exchange-Traded Funds (ETF)

  • Investment Amount: The minimum amount to invest is 1 unit, equivalent to one gram of pure gold. However, the physical gold is stored in depositories from which the units derive their underlying value.

  • Returns on Investment: Gold ETFs are traded in the stock exchange like mutual fund units. Accordingly, its value is determined based on its performance in the market. 

  • Maturity: There is no lock-in for your investment in the ETF. The value fluctuates according to the gold’s market price. Thus, you can exit from the ETF when the prices appreciate and are favorable. 

  • Tax Benefit: Your tax liability is based on your applicable income tax slab if the ETFs are disposed of within 36 months of acquiring. Whereas, after 36 months, 20% capital gains tax plus 4% cess is applied. 

  • Risk Profile: Medium to High. 

Equity Mutual Funds:

Mutual Funds are investment vehicles where pooled money from many individuals with a joint financial objective is allocated primarily in stocks. As a result, the yields are higher as their performance is dependent on market forces. In addition, you can readily invest in the scheme through multiple agencies and stockbroker firms, other than directly from the fund houses offering individual schemes. 

Key Information: 

  • Scheme Name: Fund name is dependent on the fund house launching a particular scheme. 

  • Investment Amount: The minimum expected investment is Rs.1000 without any cap. However, the SIP route is convenient, with the minimum amount tied at Rs.500. 

  • Mandatory Requirement: You need a Demat and trading account to invest in the equity mutual fund schemes. There are about 8 types of schemes under the genre. 

  • Returns on Investment: Equity mutual funds yield the highest among all schemes. However, returns are dependent on market fluctuations apart from the overall economic scenario. 

  • Maturity:  You can freely redeem your units belonging to open-ended schemes. On the other hand, Equity Linked Savings Scheme (ELSS) has a lock-in of 3 years. 

  • Tax Benefit: You pay tax at 15% of the profit plus 4% cess for short-term capital gains. On the other hand, you pay 10% plus 4% cess exceeding Rs.1 Lac profits in a financial year. However, profit below Rs.1 Lac is tax-free.  (*Tax benefit is subject to changes in tax laws. Standard T&C apply.)

  • Risk Profile: Medium to High. 

Bottom Line:

Most of the investments for cornering returns bear an element of risk, and you must factor them in harmony with your risk tolerance. However, understanding returns on investment directly proportional to the risk helps make informed decisions. Accordingly, the investment vehicles range from low to high risk allowing you to choose the ideal for your 1 Lac investment scheme.


  • Is there any concession in the price for investing in Sovereign Gold Bond?

    A: There is no hard and fast rule for extending preferential prices for investment in the SGB vehicle, but banks offer an Rs.50 discount on the price if subscribed online through the net banking channel. 
  • Is there any provision for investing in an equity mutual fund without a Demat account?

    A: Yes, you can invest in an equity mutual fund with a Demat account if you choose the growth investment option that reinvests the returns. 
  • What is the procedure to redeem your G-sec?

    A: You can redeem the government bond before the maturity date by trading in the secondary market at the stock exchange. 
  • Can you apply for premature closure of KVP before the maturity date?

    A: Yes, you can close the KVP after 2 years and 6 months from the issue date besides other conditions like the holder’s demise.
  • What is the tax impact on the NSC investment?

    A: While the investment amount is tax-exempt under Section 80C for a financial year, the interest accrued during the financial year is exempt subsequently for each year of accrual.
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