Beginners to investing in India, should keep two things in mind in the initial stages of their investment. The first is simplicity of the product and second is risk free investment. As an individual matures as an investor he can consider more complex instruments. Here are a few best options that beginners to investing should consider.
National Savings Certificate
The NSC or the National Savings Certificate is a very safe and simple option. If you invest Rs 100, you get Rs 146.25, after 5 years. So, if you invest Rs 1,00,000 you would receive Rs 1,46,250 after a period of 5-years. This is not bad at all.
The current interest rate on the NSC is 7.9 per cent compounded annually. This is not bad at all considering that government owned banks are not offering such high interest rates.
The amount invested in the NSC qualifies for tax rebate under Sec 80C of the Income Tax Act. So, a sum of Rs 1.5 lakh invested would stand to give you tax benefit.
This is a good and easy to understand scheme for beginners.
Public Provident Fund
The PPF offers you tax benefits on two fronts. The first is that an individuals gets tax benefits under Sec 80C of the Income Tax Act and the second is that the interest earned is completely exempt from tax.
The account can be opened easily at banks and post office. This is a very simple instrument to understand, as you just need to open an account and keep depositing money as per your choice, but, at least once every financial year.
The interest rate will vary every year, but, at the moment, the interest is way ahead of bank deposits. This is an instrument that is backed by the government and is hence very safe.
Bank recurring deposits
If you are saving regularly from your salary bank recurring deposits is not a bad bet at all. You can deposit money each month or at a specific period of your choice. This is an instrument that is also safe and easy to understand.
Unlike the interest earned on a PPF, which is completely tax free in the hands of investors, the interest earned on a recurring deposit is very much taxable.
So, investors really need to consider their own tax liability before investing.
Kissan Vikas Patra
This is another good option for beginners to investing. Amount invested doubles in 113 months (9 years and 5 months. So, if you have invested Rs 1 lakh, it would become Rs 2 lakhs in 9 years and 5 months.
However, it is possible that you might want to withdraw the money before a period of 9 years and five months. You can do so anytime after 2 and half years.
The Kissan Vikas Patra can be purchased from any departmental post office.
Safe company fixed deposits
Company fixed deposits offer a higher interest rate than bank deposits, which is why they can be considered. However, you need to invest only in safe fixed deposits. Among the safe deposits that one could consider is Mahindra Finance, LIC Housing Finance, PNB Housing Finance and Bajaj Finance.
Investors should stay away from deposits that are unsafe. We suggest that you invest in companies which have a strong backing of groups like a Bajaj group or a Mahindra Finance, HDFC etc.
National Savings Time Deposit
These deposits are safe as they are backed by the government of India. This deposit offers you an interest rate of 6.9 per cent on a 5-year deposit. For 1, 2 and 3 year deposit the interest rate offered is 6.9 per cent. Investors looking to invest for the long-term should invest in these deposits as they are relatively safe.
It's important to note, that these deposits do not qualify for tax breaks and the interest is taxable. So, investors must accordingly consider the same before investing.