Financial security is a major area of concern for people from both the low and middle-income brackets. In most cases, however, people tend to focus on simply saving for a rainy day in order to create nest eggs and ensure that their future is trouble-free. Following this line of thought is not problematic per se, but as the case is, people tend to miss out on the entire concept of wealth generation and growth. Saving money is just stacking away cash and not turning it over in any sense. Therefore, investments become the default option for anyone looking to make their money work for them and not let it sit idle in a vault or safety deposit box.
When people think of investment, they generally talk about equities and stock markets. However, the risks of playing the stock market are just as great as the rewards are. This poses a problem for the regular white-collar salaried individual who would like to take a more conservative approach towards wealth generation. With financial security in mind, the risk appetite is not particularly aligned with the demands of traditional equity or forex trading.
Broadly speaking, there are two major reasons for investing in stable, limited return investment options:
Someone looking for investment plans with minimum risk but with a stable wealth can consider bonds and diversified investment spreads like mutual funds. These investment options are stable, where money invested is shielded from market fluctuations, Though the returns are limited, investment in almost every case is guaranteed. Let’s look at some of the top investment options available today.
These cannot be largely considered investment tools, something that hasn’t dissuaded its immense popularity. At its foundation, they are fundamentally income insurance policies with a typical term of 10 years or more. They offer moderate wealth growth and guaranteed returns of approximately 4 to 5.5% at the end of the policy term. These plans are non-participatory and provide, basic insurance cover and the usual tax benefits under Section 80C of the Income Tax Act.
One of the biggest USPs of these insurance products is that the returns are guaranteed something, which attracts as much interest as bank savings accounts and post office instruments. They are very popular among middle-income groups while also having a substantial customer base in the high-income bracket because people with high-risk appetite use these instruments to hedge against uncertainties. Moreover, these plans shift the risk from the customer over to the insurer and even if interest rates fluctuate, it won’t affect customers by any margin.
Fixed deposits (FDs) are financial instruments, specially designed for the offer investors with low-risk appetites. As one of the best investment plans, FDs offer an opportunity to the investors to put their money into an account with a higher interest rate as compared to regular savings accounts. However, FDs do not offer any liquidity and unlike recurring deposit accounts (RDs), money can’t be withdrawn till the account matures. The interest rates vary between 4% and 11%. The maturity period can vary anywhere between 7 and 45 days and go up as high as 10 years. FDs also offer investors income tax and wealth tax benefits. However, earnings garnered from an FD account are not tax-free and are taxed according to the income tax slab of the depositor. Here are a few additional details you need to look into before settling for investing in an FD account:
Most experts would disagree on the risk assessment aspect of mutual funds in terms of limited-risk guaranteed return investments. However, the fact is that there are certain mutual fund options, which do provide stable and in some cases fixed return on investment. However, the returns are on the lower side.
Government bonds are just as stable as FDs. A bond is a debt instrument, which is secured by the government itself and has a fixed rate of interest attached to it as well. However, bonds offer much greater liquidity as compared to fixed deposit accounts because certain types of bonds can be traded on the secondary market. Given how similar FDs are to such bonds, it’d be a good idea to use the same parameters to choose which government bonds, or for that matter, any debt instrument to buy. Interest rates and financial rating for the issuing agency or institution takes top priority.
Endowment plans are generally issued by insurance carriers and combine life insurance benefits along with a modified savings scheme. These contracts are designed to provide lump-sum maturity benefits at the end of the policy term or upon the death of the life insured. Policy terms are usually limited to 10, 15 and 20 years and certain plans also provide assured payouts against the sum insured at critical life stages. In some cases, the insurer also declares yearly bonuses, which however do not compound. Therefore, return on investment is generally low but such plans do offer stable returns.
There are multiple options in terms of post office savings-investment schemes. They have varying tenures, tax benefits, and interest rates but generate a lower rate of returns. However, your money will always be free of risk and secure under these schemes. Post office schemes are perfect for long-term investors who are not particularly concerned with major returns.
This is a government-initiated investment option, which was launched with an objective to secure the life of the Indian citizens after retirement. The plan offers pension solutions to individuals. The scheme aims to provide a guaranteed return to the investors by investing in a bond, equity, government securities, and other investment alternatives as per the reference of the investors. As NPS is a government-backed scheme, it is considered as one of the best investment plan and safest options of investment.
The scheme offers two choices of investment to the investors auto and active. Under the active option, the fund allows the investors to invest in assets as per their own choice and risk ability. Whereas, under the auto option the money automatically gets invested into different assets. Under this scheme, the investors can contribute regularly into the NPS account during his/her working life and can withdraw a part of the accumulated amount as lump-sum and use the remaining fund to purchase the annuity after retirement. As a guaranteed return plan, NPS can help an individual to secure life after retirement and gain returns as a regular annuity.
NPS is managed by the Pension Fund Regulatory and Development Authority of India (PFRDA). For tier-I account, the investors can make a minimum contribution of Rs.500-Rs.1000 and for tier-II account the minimum contribution applicable is Rs.250.Currently, the plan offers an expected rate of interest between 8%-10%. On the maturity of the scheme, the investors are allowed to withdraw 60% of the fund, whereas it is mandatory to keep 40% of the fund in the account in order to receive the pension.
This is another government-backed best investment plan option, which is specifically designed for Indian residents above the age of 60 years. The scheme matures after 5 years from the date of opening the account and can be extended once up to an additional 3 years. To cater to the requirements of the senior citizens, the plan offers guaranteed returns to its subscribers. Senior Citizen Savings Scheme investment plan is an effective long-term option of investment, which offers security and many other benefits to the investors. The plan can be availed by any individual above the age of 60 years through certified banks and post-offices across the country. Moreover, individuals who have opted for superannuation or voluntary retirement at the age of 55-60 years are also eligible to invest in this scheme.
SCSS allows the maximum contribution of up to Rs.15 lakhs individually or jointly into the account in multiples of Rs.1000. Also, tax exemptions up to Rs.1.5 lakh can be claimed under section 80C of the Income Tax Act. As compared to Bank FDs and other investment plans, the Senior Citizen Savings Scheme offers a good return rate of 8.6%. The interest rates on SCSS are reviewed and changed quarterly by the Ministry of Finance.
Another option of the best investment plan is Unit-Linked Insurance Plan. It is a life insurance product, which provides risk cover to the insured along with the benefit of investment returns. Recently, ULIP plans have become a popular choice of investment for most investors. It offers a perfect combination of market-linked investment and life insurance at an affordable rate. Recognized as one of the best investment plans in the current market a portion of the premium paid towards ULIPs is invested in market-linked securities like equity, debt & bond to gain high returns and create wealth over the long-term period.
Moreover, along with the benefit of investment returns, ULIPs also provides insurance coverage to the family of the insured in case of any eventuality. With the guaranteed return in the long-term, the ULIP plan also works as a tax saver option. The insured can save on taxes on the premium paid up to the maximum limit of Rs.1.5 lakhs and investment returns U/S 80C and 10(10D) of Income Tax Act.
This is another guaranteed return investment plan option, which comes with a tenure of 7 years and offers an interest rate of 7.75% per annum. RBI taxable bonds are issued only in Demat mode and are credited in the investor’s Bond Ledger Account (BLA).
The investors can issue these bonds at a minimum price of Rs.100, and a certificate of holding is given to the investors as proof of investment. The RBI Taxable Bond is offered in two different option i.e. cumulative and non-cumulative. In the cumulative option, the investors are allowed to re-invest the interest. Whereas, in the non-cumulative option the investors can avail of the interest as a regular income.
Liquid funds or money market funds are a type of mutual fund scheme, wherein the money is invested in short-term certificates and government securities. As a liquid fund, this fund option allows the investors to withdraw the money whenever they require. As a short term investment plan of 3-5 years, this is a lucrative option of investment and is best suitable for investors who want to gain returns after a short interval of time. Under this fund option, the money is majorly invested in money market instruments and offers a higher interest rate of 7%.
In a Nutshell!
Every investment scheme has its own set of inherent risks. However, some offer stability more than others do, albeit against low returns on investment. Therefore, in case your risk appetite is not high enough to go for the equity market, there are other options in the row mix suited for your level of risk. However, as with all investment plans, you will need to do your homework, before you start investing your hard-earned money. Invest your money wisely is all that we can advise!
Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer. Tax benefit is subject to changes in tax laws. *Standard T&C Apply