Where To Invest If You Have Rs 1 Lakh To Rs 5 Lakhs?

KTDFC Deposit

This is a government of Kerala backed fixed deposit and amounts of up to Rs 2,000 crores are guaranteed by the government of Kerala. The interest rate on 1, 2 and 3 year deposit is 8.25 per cent.

We suggest that you deploy at least 25 per cent of the amount that you have into these deposits. So, if you say Rs 1 lakh to invest, you should deploy Rs 25,000. On the other hand, if you have Rs 5 lakhs, you should deploy Rs 1 lakh at the very least.

These are largely secure deposits and presently it is very difficult to get 8.25 per cent interest. Good for returns and safety. 

Shares of HPCL

You can invest at least 25 per cent of the sum in the shares of HPCL. The company offers you a tax free dividend yield that works to 5 per cent.

The shares at a price of Rs 313 also leave great scope for moving higher. The Stock has moved lower from levels of Rs 480 to the current levels, largely on a six per cent dip in the markets.

Apart from the dividend, the stock is also trading relatively cheap on the valuations front at a price to earnings multiple of just about 6 times one year forward earnings. If you can hold the stock for another 2-3 years, it should fetch decent gains.

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PPF

We suggest the public provident fund for at least another 25 per cent of your balance of Rs 1 to Rs 5 lakh.

This is because the interest earned is tax free in the hands of the investor. Apart from this you get tax benefits under Sec 80C of the Income Tax Act. The rate of interest being currently offered is 7.9 per cent which is way better than banks.

There is a loan that can be availed after the third year onwards. The only drawback is the long holding period of almost 15 years. The PPF cannot be attached under Court decree order.

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NSC

We suggest the National Savings Certificate for the remaining balance of 15 per cent of the amount.

This is one more option that investors have where the interest rates are pretty decent and it also comes with a high degree of safety.

The interest rate at 7.8 per cent is much better than what banks are offering. An amount of Rs 1.5 lakhs invested enables one to get a tax deduction under Sec 80C of the Income Tax Act. However, the interest income is not exempted from tax. There is no tax deducted at source and one has to file tax returns to show the interest component.

Ujjivan Small Finance Bank

For the remaining 5 per cent, you can go for the deposits of Ujjivan Small Finance Bank, which offers an interest rate of 8 per cent over its 1 and 2 years deposit.

This is a small finance bank, which is regulated by the RBI. The bank has to adhere to RBI norms as it comes under the purview of the RBI, it can be considered as relatively safe.

Interest earned on the deposit is not tax free and hence overall post tax yields may fall. However, in the present context of low interest rates, the options are very limited to earn upto 8 per cent interest.

Other investment options

If you want to hedge your risk and diversify your portfolio, gold would not be a bad idea. However, gold prices have peaked recently and at the current rate of Rs 30,000 for 22 karats may not offer a favorable risk reward ratio.

Hence, we suggest that if you are looking to deploy money, do wait for prices to fall. Ensure that you look at safety and liquidity before you invest. Apart from this also make sure that you understand the tax liability of instruments.

Today, all instruments apart from the PPF and ULIP have a tax liability, including shares.