The Indian economy has largely remained insulated against the backdrop of global economic upheaval. As a result, investing remains an ideal way to build a hedge against inflation or financial insecurity.
Here’s the lowdown on a few of the investment tools that are suitable for any investor with a long-term investment horizon and financial goal.
Government Securities: The government has initiated the direct purchase of bonds for retail investors, which could earlier be traded in government bonds through gilt mutual funds to promote domestic participation.
The government announced the date of the auction related to its bond offering. The state government issues State Development Loans (SDLs), while the central government issues Government Securities (G-Secs). An investor is required to have a bank account to buy these bonds, or one can also hold them in a demat (dematerialised) account.
Typically, the government highlights the price of bonds at the time of offering. An investor can also participate through commercial banks listed by the government. A securities account is required for this, however.
Usually, the government bonds are fixed-rate bonds. However, a few of the interests are determined during purchase.
The maturity of the government bond may range from a year or more, as per the offering.
Public Provident Fund (PPF): Being a government-backed investment option, it is free from risks and assures guaranteed returns.
Available in almost all the banks and post offices, there is no age limit to invest in a PPF. The only exception is in the case of a minor, wherein the account will be managed by the guardian till the age of 18.
Investment in PPF can be initiated from Rs 500 to Rs 1.5 lakh per annum. One can deposit from one to 12 times a year. Currently, the interest rate on PPF is about 7.10%. However, the interest rates tend to fluctuate every quarter.
Usually, the maturing period is about 15 years, and an individual can also withdraw the partial amount after five years. Both investment and interest on investment are tax-exempt.
Post Office Monthly Income Scheme: This is one of the popular investment schemes for those looking forward to earning passive income and aiming for some returns. The Indian postal service provides this service to single accounts, joint accounts, and minor accounts with guardians.
A minimum of Rs 1,000 is required to open the joint account, while a maximum of Rs 4.5 lakh and Rs 9 lakh are necessitated for single and joint accounts, respectively. The scheme pays 6.60% per annum, which is paid monthly. Interest earned from the deposit attracts tax.
The account can be suitably closed after five years from its opening date. However, premature closure is also allowed with a 2% deduction between one and three years and 1% from four to five years.
Sovereign Gold Bonds (SGBs): These are the securities issued by the Reserve Bank of India (RBI). SGBs are issued in multiples of grams of gold with a minimum investment of 1 gram.
Typically, SGBs are available for auction from the date announced by the central government. These bonds are issued by the central bank several times a year. An individual can purchase these bonds either online or offline from banks, post offices, or stock brokerage.
Each unit holds the value of one gram of pure gold, which is based on the average closing price of gold’s previous three business days. An individual can buy a maximum of 4 kgs of SGBs and trusts can buy a maximum of 20 kgs. The investment amount is currently available at a discount of Rs 50 each.
Generally, the maturity period of SGBs is eight years. The option for early redemption is also available after five years.
The return on Investment of SGBs is 2.5%, paid twice a year. The interest earned is taxable as per an individual’s income tax slab bracket. However, there is no tax levied on gain earned on maturity.
Equity Mutual Funds: An equity mutual fund is an avenue to invest in diverse stocks to generate respectable returns. An individual can invest in equity mutual funds through SEBI-authorised individuals, agencies, brokers, or applications online or offline.
Most of the mutual funds require a minimum investment of Rs 1,000, while there is no restriction on the maximum amount. Investing in equity mutual funds requires a demat and a trading account.
An investor can redeem their investments in open-ended mutual fund schemes. In case the equity is linked with saving schemes under the equity mutual fund umbrella, a lock-in period of three years is there from the date an investor exits investment.
Generally, equity mutual funds provide more interest as compared to other types of mutual funds. Market fluctuations and overall economic scenarios highly influence the returns. In Short-Term Capital Gains (STCGs), a tax of 15% is levied with an additional 5% as a cess. In case the Long-Term Capital Gains (LTCGs) are less than Rs 1 lakh, then they are tax-free. Otherwise, the amount is taxable at the rate of 10%, along with 4% as a cess.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.