Salaried folk should make it a point to save money from their salary at regular intervals and at an early age, so as to benefit from the law of compounding. Starting early always helps to meet life's goals, so make sure you do so early and regularly. Here are some of the 5 best investment options that salaried individuals should consider at an early age.
1. Public Provident Fund
Public Provident Fund offers you an interest rate that is even higher than that offered by banks. It currently offers you an interest rate of 7.9 per cent, which is way higher than the fixed deposits of State Bank of India, which gives you an interest rate of 6.25 per cent on its deposits.
PPF offers you tax benefits under Sec80C of the Income Tax Act. However, beginning from the next financial year, if you opt for tax assessment under the new tax regime, you would not be entitled to Sec80C benefits.
The 15-year duration of the PPF is also advantageous in the sense, it allows you to build a corpus over a longer period of time. The Public Provident Fund is backed by the government of India and is hence very safe.
2. Systematic Investment Plans of Mutual Funds
Systematic Investment Plans of mutual funds have also generated good returns over the last few years. For example, if you had to invest a sum of Rs 10,000 each month in the Axis Long Term Equity Fund over the last three years, you would have invested Rs 3.6 lakhs, but, your corpus now would be Rs 4.9 lakhs. The fund has generated a phenomenal returns of 26 per cent in the last 1 year and 17 per cent in the last three years.
Most of the equity mutual funds over the last 1, 3 and 5 years have beaten returns from fixed deposits. However, we wish to inform readers that returns are not certain and there can be a tendency for returns to be very volatile. There is no certainty that your returns would be protected.
3. Company fixed deposits
We are not recommending any bank fixed deposits simply because the returns on them are abysmally low at the moment. However, salaried individuals can look at company fixed deposits, which are AAA rated and offer a high amount of safety.
Among these include names like Mahindra Finance, Bajaj Finance and PNB Housing Finance. The returns on these deposits can range from 8 per cent to 8.5 per cent, while the yields on a three year deposit can be as high as 9.5 per cent on cumulative deposits.
It's important to remember that company fixed deposits can be a risky investment and hence look for high quality and AAA rated instruments. There would be a TDS that would be applicable if the interest amount exceeds Rs 5,000 in any calendar year.
4. Small saving schemes of the post office
Small saving schemes of the post office is extremely safe and tends to give higher returns than bank deposits. For example, the National Savings Scheme gives you an interest rate of 7.9 per cent and a sum of Rs 100 fetches Rs 146.25 after a period of 5 years. One can also look at time deposits, which fetch an interest rate of 6.9 per cent for 1, and 3 years and about 7.7 per cent for five years. While the interest rates may not be the best, they are still much higher than what banks in the country are offering. Remember, all of the post office saving schemes are very safe.
5. Equity shares
Equity shares is another good avenue for salaried investors to park their money. However, we wish to state that if you do not have the expertise, please do not invest. You might want to seek professional help. Remember, you can either seek the help of professional advisers, if you are ready to pay the fees or else you can invest in mutual funds.
Equity shares have over the longer term generated good returns, provided one has invested cleverly with due research.
Investors with patience and a long term holding period of 3-5 years tend to benefit from equities,
In any case, be cautious and seek advise in case you lack the expertise.
About the author:
Sunil Fernandes has spent 25 years covering business and finance. He has worked with leading dailies like Deccan Herald, Hindustan Times and Gulf Times. Apart from this, he has also worked with business and investment magazines like Dalal Street Investment Journal and Oman Economic Review.