Generation, following the footsteps of their elders? There may be a few in a hundred, who would do so.This holds good for financial planning too, and even going about choosing the type of financial instruments.
Youngsters normally prefer to invest in equities with greed to earn higher returns, as against investors belonging to the older generation, who look for stable and regular returns from investment instruments.
Young greedy investors, who had been fascinated by the dazzling skyward rally of the equity markets in early 2008, have witnessed their portfolio value virtually halving.
With their portfolio worth reducing, investors have been forced to look for avenues outside D-Street. “Which avenue to choose in this scenario?” is the question perplexing the investors, hit by the global meltdown and volatility of the markets.
Have we ever tried to consider and review investing into instruments used by our grandparents and people of the older generation? Most of us might have never thought of investing into instruments like Post Office Money back scheme, National Saving Certificate and the like.
We normally hear about them from our grandfathers, and senior citizens, particularly in the context of retirement planning. Lets thus call such instruments, as `grandfather` instruments, within the realm of our discussion on considering them as a prospective investment option, and try to review them as under : -
Public Provident Fund (PPF) scheme was introduced by the government in 1968. This `grandfather` instrument, can be opened by any individual assessee, while a guardian can open the account on behalf of minor.
A PPF account can be opened by any individual assessee. (Guardian can open the account on behalf of minor). Along with the exempt (Income Tax) interest of 8% per annum, calculated on the minimum balance from the fifth day till the end of the month, the investment tool also can be used for tax planning purpose, u/s 80C of the I.T. Act.
One can build a decent corpus by investing the principal amount over a period of 15 years. The minimum lock-in period is 7 years. On expiry of the 15 year duration, the PPF account can be prolonged for duration of 5 years at a time.
During the period, the minimum amount one can invest is Rs 500 and then in multiples of Rs 5. The maximum amount in a financial year can be Rs 70,000, in lump sum or installments.
PPF can also help you acquire a loan of up to a maximum 25% of the balance from the third financial year to the sixth financial year. However, the loan option is not available once you start withdrawing, that is sixth year after opening of account.
Post Office Monthly Income Scheme (MIS) is mostly opted by Voluntary Retirement Scheme (VRS) takers and retired people looking for fixed monthly income.
While PPF limits the account to one person, here, one can open multiple MIS accounts and each account can be converted into a joint account and vice versa.
MIS requires a minimum investment of Rs 1,500 or in multiples thereof. The upper limit for a single account is Rs 450,000 while that for a joint one is Rs 900,000. Alongside one can also claim a bonus of 5% on maturity. (Revised on Dec. 8, 2007)
However, unlike the case in PPF where interest is tax free, the interest income of 8% in this case is taxable. It is however not subjected to TDS (tax deducted at source) deduction. Also, the balance is exempt from tax. Alongside, one can claim a bonus of 5% on maturity of the instrument which is 6 years. (Earlier, it was 10%; the same has been revised to 5% with effect from Dec.8, 2007.)
National Savings Certificates (NSCs), are certificates issued by government of India that can be availed in the denominations of Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000 at all post offices across India. This ‘grandfather’ instrument carries an interest of 8% which is compounded half yearly and has a maturity period of 6 years.
Though the interest of 8% is subjected to tax, a full amount of Rs 100,000 can be deployed towards tax planning exercise, eligible for deduction u/s 80C of the I.T. Act.
Kisan Vikas Patra (KVP) works in a similar way to NSCs and can be availed in same denominations across post offices in India.
They attach an annual interest rate of 8.25% and maturity period of 8 years and 7 month. They have been propagated as a safe route for investors who wish to double their investment. That is if one procures KVP certificate of Rs 100, one will earn up to Rs 200 on maturity.
While these instruments may be low on their returns aspect as compared to equities and mutual funds, they beyond all doubts, are backed by government, and hence are comparatively safer.
So `grandfather` instruments like these would prove to be safer and prudent to park your funds into, and improve the worth of your portfolio, particularly when the stock markets are highly volatile, as is the case in the current scenario.
Moreover, by investing in these instruments, you can follow the footsteps of your parents or grandparents and also build your retirement corpus.
No comments:
Post a Comment