Individuals who are planning to start investing for the first time may be nervous and may find it difficult to decide the products. Irrespective of age one should invest in instruments depending on the risk capacity and returns. Many Indians are still reluctant to start investing.
Beginners should be careful when selecting any instruments, as each financial product comes risk, return and tax applicability. As there is no fixed rule to follow one has to pick the instruments depending on his goals.
There are variety of financial products available in the market which differ in tenure, returns, taxation, etc,.
Here are some of investment options which a beginner can consider.
In recurring deposit, one can contribute every month with pre-specified amount in any bank. This will help you in the systematic planning of your finances.
Tenure- The minimum tenure is 1 year and maximum up to 3-5 years depending on the bank.
TDS- TDS is applicable on interest on recurring deposits which means that TDS will be deducted for interest over Rs 10,000. However, opening RD in post office will not attract TDS as per the latest guidelines.
Ideal for those in lower tax bracket and who are looking for a safe investment with capital appreciation.
Beginners who can bear risk can start investing in stock market by considering some of the best Bluechip stocks at lower levels.
Tenure- It is better to consider investing for long term to reap the maximum benefits. There is no fixed tenure for investing in stock market.
Taxation- Stocks sold within one year of investment will attract short-term capital gains tax.
Equity Mutual Funds
Funds collected are invested in equities in such instrument. Young investors who have risk appetite and can manage if there is any loss can consider investing equity mutual funds.
Risk and return are high as returns are dependent on equity market.
Investment can be made through number of options such as Systematic Investment Plans, Systematic Transfer Plans (STP), Asset allocation tips from fund houses etc.
Investing in equity mutual funds will not be eligible for tax if it is redeemed after one year of investment.
High safety and tax benefits makes PPF a popular instrument among Investors. Interest rates are higher in PPF compared to bank fixed deposits. Individuals who are looking to build corpus for retirement can consider this option.
Tenure- PPF should be considered only as long term investment as the lock in period is 15 years.
Taxation- Interest earned on PPF is tax free. If you invest up to Rs 1.5 lakhs, you get tax benefits under Sec 80C for the PPF
National Pension Scheme
National Pension Scheme (NPS) will help an individuals to plan his pension and retirment amount. There are options one can choose based on the risk and return.
NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
Taxation - NPS is eligible to get an additional tax benefit of Rs 50,000, as it is part of Sec 80CCD now.
Withdrawal-NPS subscriber will be allowed to withdraw only a maximum of three times during the entire tenure of subscription under the National Pension System and not less than a period of five years shall have elapsed from the last date of each of such withdrawal.
Debt Mutual Funds are the funds which invest in debt instruments such as Treasury Bills, Government securities, Certificate of Deposits (CDs), Commercial Papers (CPs), bonds, money market instruments.
Conservative investors can consider as they are invested in safe instruments. However, one cannot expect high returns from such instruments while, they can give better returns when compared to bank fixed deposits.
There are different types of dent funds such as liquid, ultra short-term, short-term, income accrual, dynamic bond, and gilt funds.
Taxation - Debt Mutual funds are taxed as per individual tax slabs if held for less than 36 months. Under long-term capital gains, tax will be applicable at 20% of the gain with cost indexation benefits.
Post Office Saving Schemes
Post office schemes are offered by the Government of India and considered as very secure.
There are different schemes such as Post Office Monthly Income Scheme, Post Office Time Deposit (TD) Scheme, Post Office Savings Account, National Savings Certificate, Senior Citizen Savings Scheme (SCSS) Account and PPF.
Each scheme is unique in it own way designed to cater different needs. Tenure and taxation differ with each scheme. Know more.