Updated: Nov 13, 2020
From childhood, all teach us about budgeting, finance, and saving like using a piggy bank. I am from a middle-class family. Not actually though by remembering our bank balance and way of living of that time I can say we were not exactly middle class was much less than
that. There was no pocket money concept in our family.
My dad used to give me enough money to travel to college by bus but not enough to buy breakfast from the canteen. I used to breakfast at home and mom used to give tiffin for lunch. I started to walk to college to save money which was given to me for a bus ticket.
At the end of the month, I used to buy the things that I wanted like earphones, sports kit, or eat a favorite dishes in the hotel.
I wish at that time if they would have told me about investing or I would have given them my savings to invest so that it could’ve given me better return till now.
But now I realized that even they don’t know about investments, what all they know is there’s some insurance which can give their family money after death. They did not even save money for their retirement.
I think my grandparents also did not teach them about investments. So, guess what? My grandparents also don’t know about investing.
Well before I tell you about where you should invest your money to get better returns, I would like to tell you “Learn to Earn before Investing”.
What is a Fixed Deposit (FD)?
A fixed deposit commonly called FD is an investment tool where you put your lump sum amount in banking companies at a higher rate than a savings account. To do a FD you don’t require saving accounts in that bank but it is better to have one (if you don’t have a savings account where you’re doing FD you’ll have to do a KYC process).
Well fixed deposits (FD) offer the fixed interest rest and have no market risks (that is greater stability). Banks give fixed interest rates ranging from 6% to 8% (vary from bank to bank).
They give more interest rate to senior citizens (maximum 0.5 to 0.75% more than regular). A fixed deposit is an assured yielding product. Peoples who want to get assured return without any risk factor can consider this as a good investment.
The problem with FD is it comes with taxation (FD investments are eligible for tax deductions under Income Tax Act Section 80C).
Note: Some bank takes penalty if you break the FD before maturity. Read all terms and conditions carefully.
Recurring Fund (RD)
When you set up a RD a fixed amount is deducted every month from your account from which you first deposit made.
Interest rates of RD are fixed and same as a FD (vary bank to bank). RD is accepted for minimum of 6 months and up to 10 years. A savings account is must for RD.
Note: A RD is not exempted from tax. 10 percent of tax is deducted at source (TDS) but if interest you earn on RD is less than 10,000/- INR then tax is not deducted.
If you fail to provide PAN details then 20 percent tax will be deducted at source.
'Mutual funds’ investments are subject to market risks. Their interest rates vary depending on the market but if you put your money for a longer period it can give you better returns than a RD or FD.
You can invest in a lump sum or by Systematic Investment Plan (SIP).
You can buy the shares of a specific fund or divide your money and invest in multiple funds.
Through mutual funds, you can invest in bonds, stocks, money market instruments, or in other assets. But actually you don’t buy the specific stocks or shares of any company instead you give money to a
specific investment company to buy shares and stocks of other companies. That means a mutual fund is an investment and a company both.
If Infosys is having a rough time and mutual fund you selected is invested its money in Infosys you’ll not lose a lot of your money because mutual fund distributes its money in lot of shares of different companies. But if you invested directly in shares of Infosys, well then you’ll end up losing a lot…
You can’t ignore tax on mutual funds also. If you made profit by selling your shares, your capital gain will be taxed. In equity 17.47% tax will be deducted on your capital gain. However, if you hold your shares & even had profit on them you will not be taxed.
Lump-sum or SIP
Actually it depends on your choice. If you have a bulk amount in hand, you can invest using lump sum but good practice is to do SIP. Anyway, important point is for how much time you keep it invested.
If your investment horizon is long try to invest in equity mutual funds. There are lots of choices available, you just have to select a fund that suits your goal, financial condition, risk capacity & duration for which you can keep your money invested.