If you have a surplus from your salary, you can park them in a range of instruments. Your choice of instruments would include fixed yielding instruments, gold, debt etc. However, it really depends on your risk appetite. If you are willing to take risk, equity investments and equity mutual funds would be the right place to invest. If you are looking at a safety, bank deposits or solid company deposits would be ideal. Here are 5 places to invest from your monthly salary.
Public Provident Fund
This is the first place to consider for three reasons. The first is that the interest income is exempt from tax. The second is that the investment qualifies for a tax break under Sec80C of the Income Tax Act. Above this, the interest rates are reasonable and there is immense safety in the product.
The interest rate at around 7.9 per cent is much better than banks. Remember, interest earned on bank deposits is not tax free, when compared to the PPF. In any case, most government banks have reduced interest rates and are offering around 7 per cent interest. The only problem is that the PPF is for 15-years, and one has to be long-term investor.
Equity Mutual Funds
Equity Mutual Funds is another great place to park your money. However, this is for investors who have an appetite to take risk. Salaried individuals, who are young, can look for investment in equity mutual funds.
There are a host of equity mutual funds that individuals can invest. If you are looking at an ever greater risk, go for small cap and mid cap funds. However, if you are a risk averse investor, a better proposition would be the large cap equity mutual funds, where returns would be less volatile.
The beauty of mutual funds is that one can invest through small amounts by way of Systematic Investment Plans (SIPs). These plans allow you to invest amounts as low as Rs 500 every month.
If you are looking to hedge your risk a great bet would also be gold. You have various options here, including gold ETFs, gold futures, gold coins or gold schemes launched through jewellers. However, the best form would be gold ETFs, as there is no threat of robbery, as they are in the electronic form. Also, another advantage is that they track physical gold and so to that extent, they give you gold prices.
However, one needs to study the tax implications on the various forms of gold before investing. If you are looking to systematically invest in gold for a marriage or other occasions, jewellery schemes would be a good bet.
Bank recurring deposits
Bank recurring deposits are good for those looking at building a corpus. The interest rates are not too great, given that interest rates in the economy have fallen. At best, you can get an interest rate of around and near 7 per cent. Here you invest a specified sum every month, like Rs 5,000, Rs 10,000 etc.
The interest on bank deposits are not exempted from tax and hence, you have to add the same to your total income to determine your tax liability. The returns post tax are not too great. In case you do not fall under taxable income too, the rates of interest do not make this attractive. However, in terms of safety, this is a great place to be in. At least, you protect your capital unlike equity mutual funds where the returns are very uncertain.
Tax free bonds
If you are in the highest tax bracket, tax free bonds are the way to go. The interest on these bonds are exempted from tax. So, the post tax yields are superior depending on the purchase price. Some of the tax free bonds issued by various entities include, Indian Railways Finance Corporation, HUDCO, REC etc.
You can buy the bonds in the same way you buy shares. They are listed on the BSE and NSE. On the date of the book closure you get interest, which is exempt from tax.