Making your money work for you is easier than ever.
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Securing your financial future is one of the most important goals that you pursue during your working life. Savings have a prominent place in our lives but the motivation to save may differ from person to person. In order to secure yourself as well as your family from future uncertainties and continue maintaining a certain standard of life, it is imperative to make sure that your money continues to grow.

With new investment avenues coming up, there is an incredible opportunity to make your money work harder for you and generate better returns in the long run. Here we will analyze different investment opportunities that offer you significantly better returns compared to traditional avenues.

ELSS vs. Tax Saver Fixed Deposit

To maintain the parity in comparison, we will compare ELSS with Tax Saver Fixed Deposit, both of which are eligible for tax exemption under Sec 80C of the Income Tax Act.

ELSS or Equity Linked Savings Scheme is a tax saving mutual fund that invests your money in the equity market. The returns that you can expect from the ELSS are directly linked to market performance. Tax Saving Fixed Deposits are a particular type of fixed deposits wherein your money earns fixed rate of interest as described in the FD receipt.

ELSS scores over Tax saver FD in multiple aspects, such as: –

      • ELSS has the shortest lock-in period of three years as compared to the five year lock-in for Tax Saver FD. You can not take a loan against FD, but you can take a loan on ELSS after completion of lock-in period.
      • FDs provides you returns in the range of 6%-7% over the tenor. Returns earned on ELSS are in the range of 12%-15% in the long run.
      • The interest earned on FDs is liable to taxation as per the prevailing income tax rates while the dividend earned as well as long-term capital gains up to Rs 1 lakh on maturity of the ELSS is exempt from taxation.

Hence, it would be safe to say that ELSS offers you a better opportunity to make your money work harder for your secure future.

SIP vs. RD

Systematic Investment Plan (SIP) is a way to invest a fixed amount every month in the mutual fund scheme of your choice. RD or recurring deposit is offered by a bank or post office, where you invest a fixed amount every month for a fixed tenure at a given rate of interest.

When we compare SIP with RD, it is evident that the former has several benefits over the latter, such as:  

      • The amount deposited or the interest earned on the RD is fully taxable whereas if you take ELSS route with the SIP, you are eligible for deduction up to Rs. 1.50 Lakhs under Sec 80C of the income tax act.
      • The rate of return on recurring deposit will stay fixed throughout the tenor while in case of SIP it will vary according to the market. As per past evidence, returns on SIP are far superior to RD.
      • RD is suitable only for short-term goals, and premature withdrawal attracts penal charges. SIP is suitable for both short-term and long-term goals.
      • RD instalment is payable every month while you can choose the frequency for SIP as per your convenience, i.e. weekly, monthly or quarterly.

It is evident from the above analysis that SIP is far superior in offering returns as compared to RD.

Liquid Funds vs. Savings Bank Account

Savings Bank account is the standard bank account that any individual can open with a bank to keep their savings. Liquid mutual funds invest in liquid instruments with maturity of up to 91 days.

When compared, liquid funds offer you much higher returns as compared to a bank account. Here is analysis for your perusal:

Exit load: Liquid funds don’t levy exit loads and are as liquid as a savings account.

Returns: The rate of returns offered on savings account are the lowest in the market and average around 4% p.a. Returns on liquid funds can be significantly higher – around 7%-9% p.a.

Tax implications: The taxation benefit on liquid funds is better as compared to a savings account. When you hold a liquid fund for more than three years, you have to pay 20% LTCG Tax after indexation. In most cases, your tax liability would be nil or minimal. In case of savings bank interest, you are eligible for exemption of only up to Rs. 10,000/- in one year.

With the above analysis, it is a safe bet to say that liquid funds deserve your attention compared to a savings bank account. We can ascertain that without making much effort and by taking only smart decisions, you can make your money work harder towards creating a corpus for your financial requirements.

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