Definitive Investment Guide for Your Hard Earned Money to Grow Safely

Saving the earned money as a platform for a healthy financial future is a wise decision. But, keeping the idea of inflation in mind, it must be remembered that saving money is not enough. Although saving is a safe option, investment helps the money's potential to grow. This implies a higher rate of return which in turn accumulates an enhanced wealth corpus in the long run.

Possible Avenues of Investment in India and Their Taxation

There are several investment options currently available in the market. The investment options can be short-term, mid-term and long-term. Based on the aim, the financial goal and the risk appetite of the investor, the selection can be made.

• Bank FD

Studies reveal that almost 53% of the household savings are invested in FDs. This is in itself proof that it is considered to be one of the safest investment options. The contemporary pandemic conditions have also forced many retail investors to resort to fixed deposits for better preservation of the capital.

There are several types of Fixed Deposits schemes offered by the banks.

• Regular Fixed Deposit
  It is a standard fixed deposit requires a fixed amount of investment for a fixed tenure at a predetermined rate of interest
  1. Tenure of Investment: Can be anything from 7 days to 10 years
  2. Rate of Interest: Varies from bank to bank. Usually, most banks offer a slightly higher rate of interest to the senior citizen
  3. Premature Withdrawal: Allowed but with charges
• Tax-saving Fixed Deposit
  This sort of fixed deposit comes with a lock-in period of 5 years with a tax benefit.
  1. Tenure of Investment: 5 years
  2. Rate of Interest: Usually quite high, with a better rate for the senior citizen
  3. Tax Benefit: Amount invested up to INR 1.5 lakh can be exempted under Income Tax under Section 80C. But the interest accumulated is taxable.
  4. Premature Withdrawal: Not allowed
• Special Fixed Deposit/Non-withdrawal FDs
  The special fixed deposits are offered for a specific period of time. 
  1. Tenure of Investment: Usually between 290 and 390 days
  2. Rate of Interest: These sorts of schemes offer a higher rate of interest than the standard schemes
  3. Premature Withdrawal: Not allowed
• Senior Citizen Fixed Deposit
  Any person attaining 60 years of age is eligible for holding this scheme. The payout is offered at regular intervals like monthly, quarterly or yearly.
  1. Tenure of Investment: Can be anything from 7 days to 10 years
  2. Rate of Interest: Banks and other NBFCs usually offer a 0.25-0.5% higher rate of interest to the senior citizen.
  3. Premature Withdrawal: Allowed but with charges
• Regular Income Fixed Deposit
  These sorts of schemes are suitable for those who are dependent on the income from fixed deposits. If offers a regular payout, either monthly or quarterly basis.
  1. Tenure of Investment: Can be anything from 7 days to 10 years
  2. Rate of Interest: Varies from bank to bank. Usually, most banks offer a slightly higher rate of interest to the senior citizen
  3. Premature Withdrawal: Allowed but with charges

Taxation on Fixed Deposits

• No Income Tax Benefit on Fixed Deposits other than Tax Saving 5-year FD, where the amount deposited up to INR 1.5 lakhs a year qualifies for a tax deduction U/S 80C of the Income Tax Act, 1961.
• Interest earned on FD is taxable as per slab
• TDS is also deducted at the time of interest payout @10% ROI for interest payout more than INR 40,000 (INR 50,000 for the senior citizen U/S 80TTB)
  Note: 80TTB limit of INR 50,000 is inclusive of the interest income from the fixed deposits, recurring deposits and savings account.

Bank Recurring Deposits

Bank Recurring Deposits or RDs is yet another popular investment tool, requiring fixed monthly investment for the predetermined duration. The RD schemes are considered to be more flexible than the fixed deposits. It is considered to be a safe and secured investment option to save for any unforeseen “rainy day”.

Amidst different banks, there exist differences between the interest rates. But, whatever the rate is for the general public, the senior citizens are offered a slightly higher rate of interest.

Advantages of RD

1. Allows saving money monthly, with a minimum deposit amount to be INR 100
2. Flexible tenure ranging from 7 days to up to 10 years depending on the financial prospects of the individual investor
3. Minors are eligible too to hold RD accounts under the proper guardianship of their respective legal guardians
4. The senior citizens generally enjoy a slightly higher rate of interest than the general public
5. RDs can act as collateral deposits in case of taking loans

Tax Benefits on RDs

1. There are no provisions for tax benefits on RD schemes. Interest is taxable.
2. A TDS of fixed 10% is deducted on the accrued returns if the total interest amount crosses the limit of INR 10,000 in a single financial year.

Premature Withdrawal

1. Premature withdrawals are applicable in case of RDs, but most of the banks charge a small penalty for that. 
2. However, many banks allow partial withdrawals after a certain span has elapsed since the investment.

Post Office Deposit Schemes- Recurring Deposit Schemes

The Post Office Recurring Deposit is one of the most favourable investment tools for the general public. This is one of the 9 small savings schemes with government backing. 

1. Minimum Tenure of Investment: 5 years
2. Interest Compounding: Quarterly
3. Ideal For: This investment is ideal for even the most inexperienced investor with minimal risk involvement.

Suitability and Eligibility for Post Office Deposit Schemes- Recurring Deposit Schemes

The individuals with fixed income who are interested to enhance their wealth corpus within a stipulated span might prove to be ideal for choosing this investment tool. The eligibility criteria for holding this account are:

1. Any Indian national above 18 years
2. Minors above 10 years
3. Guardians or parents willing to operate the accounts on behalf of a minor

Any adult Indian national can operate this account both singly or jointly. However, in case of a minor, joint holding is only permitted with the legal guardian.

Important Features of Post Office Deposit Schemes- Recurring Deposit Schemes

1. Negligible Deposit: The minimum deposit value can be as low as INR 100 per month. There is no fixed maximum investment limit. Any interested investor can open an RD account in the Post Office with either cash or cheque.
2. Interest: Offers a comparatively higher rate of interest than many other popular options with the enhanced earning assurance of the compounded quarterly interest.
3. Operation: The Ease of operation is yet another contributing factor for the popularity of PO RD accounts. In case of a joint account, a joint operation of both the holders is permissible. In case of minor accounts, the minor can operate under the guardianship of their respective guardian.
4. Nomination: Nomination facility is available under this scheme. It can be availed either at the time of opening the account or decided upon after the account is being opened.
5. Rebate: The rebate facility is applicable in case of advance deposits. But, it is limited to up to only 6 such deposits.
6. Transfer: The ease of fund transfer, adds to the popularity of the scheme. Moreover, a single investor is permitted to open multiple accounts under this scheme in different post offices.
7. Withdrawal: Easy hassle-free withdrawal is possible with PO RD. After the account is opened, the investor is eligible to withdraw up to 50% of the balance after 1 year.

Rate of Interest of Post Office Deposit Schemes- Recurring Deposit Schemes (PO RD)

As of 1-Apr-2020, the rate of interest is 5.8% p.a. compounded quarterly.
The compound interest is extended quarterly that ensures a healthy corpus at maturity. The formula of interest calculation is A=Px(1+R/N)^(Nt) where,

• A= Maturity Amount
• P=Recurring amount
• N=Number of times the interest is compounded
• R=Rate of interest
• t=Tenure

If Mr A invests 6,000 INR to PO RD at 7.2% p.a. interest for 60 months, then the maturity balance will be 4,34,379 INR as per the formula.

Taxation of Post Office Deposit Schemes- Recurring Deposit Schemes

1. Interest:
   The generated interest is liable to taxation. The percentage is dependent on the tax slab.
2. TDS:
   Moreover, if the interest exceeds 10,000 INR p.a., TDS is applicable. The investors with active PAN must pay TDS at the rate of 10%, otherwise, 20%.

Application of Rebate Facility of Post Office Deposit Schemes- Recurring Deposit Schemes

• Advance payment of the due instalment allows rebate facility to up to 6 instalments and at least 6 months in advance. 

A practical example will clear the doubt:
 Mr X decides to deposit 1,000 INR for 10 months under PO RD. The rebate system allows a rebate of INR 1, for each INR 10 advance payment. Therefore, INR 1,000 is eligible for a total of INR 100 rebate.

In case delayed deposits, a penalty is applied. After a maximum of 4 delays, the account is discontinued. It can be revived within 60 days after the 5th default.

Post Office Deposit Schemes- Fixed Deposit Schemes (PO FD)

It is also called a Time Deposit. The Post Office Fixed Deposit is considered to be a favourable alternative to the bank fixed deposits. It is also known as “Post Office Time Deposit”. It is a safe investment tool with a guaranteed return.

How to Invest in Post Office Deposit Schemes- Fixed Deposit Schemes?

Investment can be done online through the India Post website or their mobile application or offline by visiting the nearest branch or through an agent.

Tenure of Investment: Usually ranges from 1 year to 5 years. 
Note: The interest increases with the rise in tenure. Sometimes, the ROI for Post Office Deposit Schemes- Fixed Deposit Schemes could be higher than Bank FDs as well. 

Who can Invest in Post Office Deposit Schemes- Fixed Deposit Schemes?

1. Resident Individual:
   Any legal national resident is eligible to open a PO FD account. 
2. NRI:
   It is not applicable for the NRIs. 
3. Who is It Ideal for?
   It is an ideal investment tool for investors with low-risk appetite with assured returns.

Features and advantages of Post Office Deposit Schemes- Fixed Deposit Schemes 

1. Flexibility: 
   1. Minimum Investment limit: INR 1,000 
   2. Maximum Investment limit: No upper limit restriction. 
   3. Minor Investment: 
      This account can also be opened in the name of the minor but only the respective legal guardian will be eligible for operating it. An inter-branch transfer is also possible.
2. Nomination: 
   There is the flexibility of nomination under this scheme. Nominees can be changed as well.
3. Interest: 
   The rate of interest for PO FD is declared by India Post from time to time and is guaranteed for the tenure. On maturity, the investor also earns interest with the return.
4. Maturity: 
   On maturity, the investment may be withdrawn or renewed for the same tenure. Depending on the rules and customs of the post office, premature withdrawal is also applicable.
5. Tax Implication: The fixed deposit investments done within 5 years are eligible for tax redemptions under Section 80C of the Income Tax Act. The interest paid by the post office is liable to TDS. If no TDS gets deducted, it needs to be declared in the return of income.

Tax Benefits for the Senior Citizens for Investment in Post Office Deposit Schemes- Fixed Deposit Schemes

The current law states that the senior citizens are eligible up to INR 50,000 tax redemption under Section 80TTB for the interest received from Post Office deposits. There is no tax benefit for regular individuals.

Interest rates for Post Office Deposit Schemes- Fixed Deposit Schemes

At the beginning of each quarter of the final year, the government revises the rate of interest for POFD. It is decided based on government securities.

 Public Provident Fund or PPF

The Public Provident Fund or PPF is a post office savings scheme although some of the nationalised banks and private banks also offer the facility. It is a government-backed investment instrument.

How to open a Public Provident Fund Account?

Several banks and post offices deal with PPF accounts. The investor must be

1. An Indian citizen
2. Is eligible to open only one account or another account in the name of the minor
3. HUFs and NRIs cannot open a PPF account
4. Necessary paperwork must be completed before opening the account

Documents required for Public Provident Fund

1. PPF application form
2. Photo identity proof- 
   Aadhaar Card, PAN card, Passport, Driving license, etc.
3. Address proof- 
   Passport, Aadhar card
4. Signature proof- 
   PAN Card, Passport, etc.

Rate of Interest of Public Provident Fund:

1. The interest rates of PPF are revised by the government every quarter. The current rate is 7.10% as on 1-Apr-2020. 
2. Thus, the rate of interest is also dependent on the PPF balance. It is calculated based on the minimum balance of any investor’s account between the 5th day and the last day of each month.

Features of Public Provident Fund

1. Tenure of investment: 
   The minimum tenure of investment is 15 years although it can be extended by a block of 5 more years.
2. Investment amount: 
   The minimum investment amount can be as low as INR 500 while the maximum limit is INR 1,50,000 in a single financial year. No interest is provided on investment above INR 1,50,000.
3. Frequency deposit: The frequency of deposit can be either once a year or in a maximum of 12 instalments.
4. Mode of payment: 
   The mode of payment can be done through online, draft, cheque or cash.
5. Risk: 
   This is a government-backed investment tool, therefore, it involves minimal risk.
6. Joint account: 
   There is no provision for a joint account under this scheme.
7. Nomination: 
   There is the provision for the nomination. It can be done at the time of opening the account or subsequently.
8. Loan: 
   There is the availability of loan options. However, this facility can be availed between the 3rd and 5th year of the investment. After the 6th financial year, 2nd loan application can be made, provided the 1st loan is entirely repaid by that time.

Tax implications of Public Provident Fund:

1. PPF investment falls under the EEE category. 
2. This implies that the investment, interest and the redemptions all receive tax benefits up to INR 1,50,000 p.a. under Section 80C of the Income Tax Act.
3. Premature closures are possible only under certain circumstances with a penalty of 1%.
4. Post office Monthly Income Scheme (PO MIS)

Post Office Monthly Income Scheme (PO MIS) involves a fixed amount of investment under a fixed rate of interest each month. This is a low-risk investment tool, generating a steady income flow. 

Features of Post office Monthly Income Scheme (PO MIS) 

1. Maximum Amount of investment: 
   The investor can invest a maximum of INR 4.5 lakhs for a single account and INR 9 lakhs in case of the joint account. 
2. Rate of interest:
   The current rate of interest is 6.6% p.a. as on 1-Apr-2020 with a monthly payout facility.
3. Capital protection: 
   This is a safe option for investment as it is backed by the government. Therefore there is no risk of capital default.
4. Tenure: 
   The scheme comes with a lock-in period of 5 years. It can be withdrawn on maturity or can be reinvested.
5. Low-risk option: 
   The investment scheme is not dependent on the market risks, therefore considered to be a safe avenue for investment.
6. Guaranteed returns: 
   There is the scope of earning guaranteed monthly returns.
7. Tax Benefit
   There are no tax benefits on Post Office MIS Schemes.
8. Eligibility: 
   Any valid Indian resident is eligible to open a PO MIS account. It can be opened in the child’s name too only if he/she is above 10 years.
9. Payout: 
   The payout is done after 1 month has elapsed since the investment is made.
10. Multiple account ownership: 
    Any investor can open multiple accounts provided the total amount of investment does not exceed the mark of INR 4.5 lakhs.
    1. Joint account: Joint account option is applicable under this scheme
    2. Nominee: The investor can choose a beneficiary who can claim the balance even if the investor dies
    3. Ease of transaction: The interest can be collected directly from the post office or transferred to the savings account
    4. Transfer options: If the investor settles to a different city, then the account can be transferred to the new place easily
    5. Reinvestment: Post maturity, the corpus can be reinvested for another term for better enhancement.

How to open a Post office Monthly Income Scheme (PO MIS)?

1. You need to collect a PO MIS form from the nearest post office
2. Then you need to submit the form along with photocopies of identity proof, residential proof, 2 passport-sized photos
3. The forms must be duly signed by the nominee(s)
4. The initial investment must be done in cheque or cash. In the case of PDC, the mentioned date will be considered as the account opening date.

Effects of premature withdrawal of Post office Monthly Income Scheme (PO MIS) 
 

1. Mutual Funds
   The mutual funds are considered to be one of the best investment options for individual investors for better fund management under a wider exposure. The issue of asset allocation can be handled with expertise with mutual fund investments. There are several types of options of investments in mutual funds—debt funds, equity funds, hybrid funds, ELSS, etc.
   
   
   1. Debt mutual funds
      The debt funds invest in a host of securities, depending on the credit ratings. The credit ratings imply the risk of default in the disbursement of the returns promised by the debt instrument issuer. It is highly dependent on market performances.
      1. Who should invest Debt mutual funds?
         With a promise of decent returns, debt funds are lucrative investment options for the investors with both short-term and mid-term financial goals. The short-term spans for 3 months to 1 year while the mid-term ranges from 3 years to 5 years.
      2. Types of Debt mutual funds
         1. Dynamic bond funds
            Here the fund manager continuously changes the portfolio composition as per the fluctuating situation of the market. These funds possess average maturity periods as they take interest rate calls.
         2. Income funds
            These funds take a call from on the rates of interests with predominant investments in debt securities with extended maturities. As a result, this becomes a safer and more stable investment tool.
         3. Short-term and Ultra short-term debt funds
            These are investments in debt securities with shorter maturities with a span of 1 year to 3 years. These are less affected by the movements of the interest rates.
         4. Liquid funds
            These funds invest in the debt instruments with a maturity period of not more than 91 days. It is almost risk-free with no certain incidents of negative returns. It offers more liquidity with higher returns when compared to bank investments.
         5. Gilt funds
            These are investments exclusively in the high-rated government securities with low credit risk. It is an ideal choice for fixed income investors with minimal risk of default.
         6. Credit opportunities funds
            These funds try to earn better returns either by taking a call on the credit risks or by holding low-rated but high-interest bonds. This game of credit opportunities makes it a bit riskier.
         7. Fixed maturity plans
            These are closed-ended debt funds investing in fixed income securities like corporate bonds and government securities.
            
             
      3. Features of Debt mutual funds
         1. Risk: 
            Debt funds are a sufferer of credit risk as well as interest rate risk making them riskier investment options than bank FDs
         2. Returns: 
            Although it offers assured returns, there is no fixed return policy in this case. The overall economic condition affects the rate of returns
         3. Cost: 
            The debt fund managers charge a fee for fund management which is termed as “expense ratio”. The maximum limit of the expense ratio cannot exceed 2.25% of the total assets.
         4. Investment horizon: 
            In the case of debt funds, the longer the horizon, the better the returns. Depending on the financial requirements, choices can be made.
             
      4. Tax implications of Debt mutual funds
         The capital gains of the debt funds are taxable and the rate of taxation depends on the holding period of the investor. The holding period signifies the span of investment in the debt funds. 
         1. STCG:
            The Short Term Capital Gain(STCG) is the capital gain made within a span of fewer than 3 years. STCG tax is at the individual’s tax slab as per income.
         2. LTCG:
            The Long Term Capital Gain (LTCG) is the capital gain made for investment holding of 3 years or more. A standard 20% tax after indexation is applicable on LTCG.
             
      5. Top 5 Debt Mutual Funds in India
         1. DSP Government Securities Fund-Regular Plan-Growth
         2. Edelweiss Government SecuritiesFund Regular –Growth
         3. Reliance Income Fund-Growth Plan
         4. L&T Triple Ace Bond Fund Growth
         5. Aditya Birla Sun Life Floating RateFund-Regular Plan-Growth
             
   2. Equity Mutual Funds
      Equity fund investments can be managed both actively and passively. The equity funds principally invest in the stocks and are also termed as “stock funds”. The main categorisation is done based on the size of the company, the style and nature of the holding investments in the portfolio. It generates high returns and is considered to be the riskiest investment tool. 
      
      Note: This is a high risk with high return. However, if you wish to grow your portfolio safely by investing in equity mutual funds, then you can opt for Large Cap Funds, where the risk is lowest or passive mutual funds.
      
      
      1. What is considered as Equity Mutual Funds?
         The equity mutual funds invest a minimum of 60% of their assets in the equity shares of several companies. The investment style can be either growth-oriented or value-oriented.
         
          
      2. Who should invest in Equity Mutual Funds?
         1. Budding investors: This is an ideal investment option for an aspiring investor who wants significant exposure in the stock market
         2. Market-savvy investors: Investors who possess thorough knowledge regarding the market performances and practical foresight are eligible to invest here with calculated risk-taking.
      3. Features of Equity Mutual Funds:
         1. Cost of investment: Continuous equity transactions affect the expense ratio of the investment. Therefore SEBI has restricted the expense ratio at 2.5% for equity funds
         2. Holding period: The investors enjoy capital gains while redeeming their fund units. These capital gains are taxable and the rate of taxation depends on the holding period.
         3. Cost efficiency and diversification: Equity fund investments generate exposure to multiple stocks with nominal investment.
      4. Types of Equity Mutual Funds
         1. Sector and theme-based: 
            The equity funds that focus on investments in any particular sector, fall under this category. This one-sidedness makes it riskier. However, it can be diversified based on market capitalisation.
         2. Market capitalisation-based:
            1. Large-cap: 
               Large-cap companies have better prospects and establishment. Therefore, large-cap funds offer assured stable returns.
            2. Mid-cap: 
               These funds get invested in mid-cap sized companies which are not as stable as the large-cap ones.
            3. Small-cap: 
               These are investments in shares of several small-cap funds. These funds are more prone to market risks and volatility.
      5. Advantages of Equity Mutual Funds
         1. Expert fund management
         2. Cost-effective
         3. Convenient
         4. Diversified
         5. Systematic investment options
         6. Flexible
         7. Liquid
      6. Tax implications of Equity Mutual Funds
         1. The short-term capital gains of STCG are taxable at the rate of 15%. 
         2. In the case of LTCG, if the gains exceed INR 1 lakh in one financial year, then the taxable rate is counted at 10%.
             
   3. Hybrid Mutual Funds
      Instead of opting for equity mutual funds, it is best to opt for Hybrid Mutual Funds if you wish to grow your money safely. This is a combination of both debt funds and equity funds. Depending on the individual interest of the investor, this combination is decided. If offers to maintain a balanced portfolio offering a regular income flow. The fund manager decides the best alternative depending on the individual needs and risk appetite of the investor.
      1. Types of hybrid funds:
         1. Equity-oriented: 
            Here, there is an investment of a minimum of 65% of the total assets in equities and other equity-linked instruments of the company across various sectors. The remaining 35% gets invested in debt securities and other money market instruments.
         2. Debt-oriented: 
            Here, there is an investment of a minimum of 60% of the total assets in options like debentures, bonds, government securities. The remaining 40% gets invested inequities.
         3. Balanced funds: 
            At least 65% investment of the total assets is required in equities and equity-related schemes, while the remaining percentage gets deposited in cash and debt securities. It offers tax benefits on LTCG up to INR 1 lakh.
         4. Monthly income plans: 
            Here the chief investments are done in fixed income securities while a certain part of the corpus gets invested in equity and equity-linked instruments.
         5. Arbitrage funds: 
            These funds buy stocks at the low prices in one market and sell at high prices in another market. The fund manager always keeps an eye for maximizing the benefit options.
             
      2. Considerable factors of Hybrid Mutual Funds:
         1. Risk-return assessment: 
            As this is a comparatively volatile area, therefore careful consideration of the risks and returns is essential for maximum benefits.
         2. Making the right choice: 
            Depending on the monetary horizon, financial target, risk appetite and the total investment of the investor, choosing the correct tool is of utmost importance.
             
      3. Tax implications of Hybrid Mutual Funds
         1. LTCG is taxed at 10% without indexation if the fund exceeds INR 1 lakh while STCG is taxed at 15%. 
         2. The nature of taxation is like a pure debt fund and the capital gains are taxed depending on the respective tax slab.
             
   4. Equity Linked Savings Scheme (ELSS)
      Equity Linked Savings Scheme or ELSS is a quite popular investment option as it comes with the dual advantages of corpus enhancement in the long-term along with tax benefits. It has a lock-in period of 3 years with a potential to offer maximum returns under the 80C options. It is advisable to choose SIP rather than a lump sum in this respect. This is a variety of diversified equity mutual fund.
      
      1. Features of Equity Linked Savings Scheme (ELSS)
         1. At least 80% of the total investible corpus gets invested in equity and equity-linked instruments
         2. Diversified investment pattern
         3. Comes with a lock-in period of 3 years but there is no maximum tenure
         4. The invested amount receives tax redemptions under Section 80C of the IT Act
         5. The income is treated as LTCG and is accordingly taxed
      2. Advantages of Equity Linked Savings Scheme (ELSS)
         1. Diversified investment: 
            Most of the ELSS funds operate with several types of companies across various sectors, ranging from small-cap to large-cap. If offers diversity in the investment portfolio assuring better prospects
         2. Nominal investment amount: 
            Most of the ELSS allows the investor to begin with a meagre INR 500 investment
             
      3. Considerable factors of Equity Linked Savings Scheme (ELSS)
         1. Tax planning and investment:
            It is considered to be a strong tax planning tool from a financial perspective. It is suitable to fulfil long-term targets.
      4. Some of the important ELSS funds in India
         1. Axis Long Term Equity Fund
         2. Quant Tax Plan Fund
         3. Canara Robeco Equity Tax Saver
         4. BOI AXA Tax Advantage Fund
             
2. National Pension Scheme (NPS)
   This is an investment product designed for post-retirement. Saving for retirement is one of the primary factors that need to be considered while planning for investment. The earlier it is started the better. It will create a wealth corpus to a considerable extent.
   
   However, awareness for investing for post-retirement is on the rise. Studies have shown that most of the investors of the NPS belong to the age group of 26-45 years on an average.
   
   
   1. Account types of National Pension Scheme (NPS)
      There are 2 types of accounts under this scheme—tier I and tier II. The tier I account offers multiple tax benefits but withdrawal is not permissible till the investor reaches 60 years. This account is mandatory and is automatically functional.
      The Tier II account can only be opened if there is already a tier I account.
       
   2. Procedure for investment in the National Pension Scheme (NPS)
      These are market-linked investments, deploying funds under 3 different types of funds governed by the asset classes where the investor’s investment gets invested.
       

1. Tax benefits of National Pension Scheme (NPS)
   The individual investors can avail tax benefit claim under the Tier I NPS  up to INR  lakh in a single financial year under Section 80C of ITA. An additional claim of up to INR 50,000 can be done in one financial year under Section 80CCD(IB). 
   
   However, Tier II investments are not eligible for any tax benefit. For the salaried employees, the rate of deduction from the taxable income for contributions up to 10% of the salary; while the rate is 20% of the gross total income for the self-employed individuals under Section 80CCD(1).
    
2. Types of annuities available in the National Pension Scheme (NPS)

1. Advantages of National Pension Scheme (NPS)
   1. Assured Pension for life
   2. Despite the death of the subscriber, the family is taken care of
   3. Automated risk reduction depending on the age of the investor
   4. No commitment to investing
   5. Tax benefits beyond Section 80C
   6. Tax benefits on the maturity amount
2. Who can open an account in the National Pension Scheme (NPS)?
   1. Any Indian citizen between the age group of 18 and 65 are eligible to open an NPS account.
3. Some fund management companies for NPS
   1. SBI
   2. LIC
   3. UTI
   4. HDFC
   5. ICICI
       
4. Withdrawals of National Pension Scheme (NPS)
   The subscriber is eligible to withdraw from the Tier I account post-retirement. Although only up to 60% of the corpus can be withdrawn after the retirement as this amount receives tax benefits. The remaining amount needs to be invested in any annuity scheme approved by a registered insurance company. The Tier II subscribers have no restrictions on withdrawals. 
    
5. Insurance
   From a financial perspective, it can be said that the entire amount spent on insurance cannot be considered as “investment”. While investing in gold, stocks, mutual funds, bonds, securities, the investor is investing with the idea of overall wealth corpus enhancement. But while buying any insurance, the idea is to have a safeguard against any unforeseen harmful occurrence. 
   Premiums paid towards insurance plans qualify for an Income Tax deduction under section 80C of the Income Tax Act, 1961.
   
   There are various types of insurance plans in the industry.
   1. Unit Linked Insurance Plans ULIP
      1. A unique combination of insurance and investment
      2. The premium value gets bifurcated between the insurance coverage and the rest towards investments.
      3. Note: There are equity-oriented funds as well as debt-oriented funds available for investment. So, in order to grow your money safely, you can invest in in the debt-oriented funds of ULIP
      4. Features of ULIPs
         1. The premium can be paid either monthly, half-yearly or annually
         2. The tenure usually ranges from 5 years to 15 years
         3. Certain charges get deducted from the premium paid for fund management, policy administration, allocation charges. The rest of the premium value gets towards life insurance and investments in bonds, stocks or mutual funds.
         4. Under this scheme, the policyholder is free to choose between debt-oriented funds or high-risk funds, depending on the risk factor.
         5. The high-risk funds are more exposed to the equity market, which makes them slightly riskier. Whereas, the debt funds are comparatively risk-free.
         6. The accumulated premiums form a unit fund which in turn gets allotted to the investors after which net Asset Value (NAV) is declared. The NAV is directly dependent on the fund performance.
         7. ULIPs come with an average lock-in period 
             
      5. ULIPs are ideal for:
         This is an ideal investment tool for a long-term purpose with the combined advantages of both the investment as well as life-cover built-in. The risk appetite needs to be low to medium with tax benefit options. The decision regarding the choice of ULIPs should never be rushed. Careful consideration of all the relevant factors is essential for optimum benefit and satisfaction.
          
   2. Endowment Plans
      1. Life insurance schemes that offer a balance of both the insurance coverage along with the savings option. 
      2. The policyholder receives the assured sum on the predetermined date depending on the terms and conditions of the policy plan.
      3. On the untimely death of the holder, the nominee receives the assured sum along with the bonus amount
      4. Acts as a useful investment source during post-retirement
      5. Types of ENDOWMENT Plans in India
         1. Pure Endowment Plans with profit:
            Here, the basic sum assured is provided to the policyholder with a declared bonus either on the maturity of the plan or on the death of the policyholder along with bonus
         2. Pure Endowment Plans without profit:
            Such endowments never participate in any generation of profit of the company. However, the individual companies provide guaranteed additions for the policyholder.
         3. Anticipated Endowment Plans:
            These are Money Back Endowment Plans with guaranteed returns such that the sum assured is paid to the policyholder at predefined intervals and the rest as maturity benefit. 
      6. Features of Endowment Plans
         1. Both survival and death benefits: 
            In case the policyholder dies, the nominee will receive the entire assured sum with bonuses. If the holder outlives the policy tenure, he/she will receive the entire maturity amount.
         2. High returns: 
            Endowments are useful corpus-enhancement tools providing necessary financial protection to the entire family. The payout of both the survival and the death benefits are higher than term plans.
         3. Frequency of premium payment: 
            Depending on the nature and financial conditions of the respective policyholder, he/she can choose the frequency of the premium payment as monthly, quarterly, half-yearly or annually.
            
             
         4. Flexible coverage: 
            The life coverage can be enhanced by adding riders to the basic plan like accidental death, critical illness, total permanent disability. Moreover, there are certain plans with premium-waiver schemes in cases of permanent disabilities or critical illnesses.
         5. Tax benefits: 
            The policyholder can avail tax exemption under Section 80C and Section 10(10D) of the ITA on premium payments, final payout and maturity, subject to terms and conditions.
         6. Low risk: 
            As the amount does not get directly invested in the stock market or the equity market, therefore, these are comparatively low-risk investment options when compared to ULIPs or mutual funds.
         7. Offers Bonus:
            1. Reversionary bonus: This is the excess amount that is added to the maturity value or death with profit plan. Once declared, it cannot be withdrawn even if the policyholder dies or the policy gets matured.
            2. Terminal bonus: The insurer will add a discretionary amount on completing a fixed-term like 10 or 15 years to the payment made on the maturity of a policy or the death of the insured.
      7. Available riders/additional benefits for Endowment Plans
         Certain optional riders of the endowment plans are as follows:
         1. Critical illness: If the policyholder gets genuinely diagnosed with certain critical illnesses like cancer, paralysis, kidney failure, heart attack, he/she is liable to receive a lump sum amount.
         2. Accidental death: If the policyholder chooses this rider, then the insurer will pay an additional death benefit apart from the death benefit to be provided to the beneficiary.
         3. Disability: If the policyholder suffers from permanent/partial disability, this rider can be chosen.
         4. Premium waiver: If the policyholder is permanently disabled or suffers from any critical ailment(s), this condition is applicable.
         5. Hospital cash: This involves the daily allowance along with post-hospitalisation costs if the policyholder gets hospitalised.
      8. Endowment Plans are ideal for:
         The individual’s risk appetite, investment horizon, income, age, current life stage all factors combinedly decide the need for any endowment plan. The premium cost is also an essential deciding factor in this respect. 
6. Gold Investment
   India is one of the highest consumers of gold and it has remained to be one of the most popular products in the entire investment portfolio of an individual. However, as an investor, you need to understand that Gold Investment is not limited to only jewellery and ornaments and other physical forms of gold. It has expanded itself in other genres keeping the demand of the age and offers unique benefits to the investors
   1. Types of Gold Investment in India
      1. Gold ETF
         Gold Exchange Traded Funds  Gold ETFs are units that represent physical gold which can remain either in paper form or dematerialised form. These funds mainly trade on stock exchanges and are open-ended funds. The investors can easily buy gold ETFs online and preserve them in their Demat account. 1 unit of gold ETF is equivalent to 1 gm. of gold.
         1. Advantages of Gold ETF:
            1. Cost-efficient
            2. No additional charges or premiums attached
            3. Can be easily bought at the international rate devoid of any markup
            4. No need to pay wealth tax in this case like physical gold
            5. No need to worry about storage and theft
         2. Some of the best Gold ETF Schemes of India
            1. Invesco India Gold Fund
            2. Aditya Birla Sun Life Gold Fund
            3. SBI Gold Fund
            4. Nippon India Gold Savings Fund
            5. HDFC Gold Fund
                
      2. e-Gold—Buying gold in electronic form
         This is another popular and convenient method of gold investment. The investor needs to possess a valid Trading account with specified NSE or National Spot Exchange dealers. Exactly like share trading, the e-gold units can be transacted through NSE. 1 unit of e-gold is considered to be equivalent to 1 gm. of gold.
         1. Advantages of e-Gold
            1. Favourable option  for long-term investment
            2. Can be easily preserved in the Demat account
            3. After the specific target is achieved, the investor can easily take the physical delivery of the acquired gold value or encash the electronic units
            4. Transparent pricing
            5. No issues with the quality as with physical gold
            6. Seamless trading
            7. No need to worry about theft and storage issues as with physical gold
            8. Easy to operate
                
      3. Investments in GOLD SCHEMES
         The Government of India has recently launched 3 new gold investment schemes—the Gold Sovereign Bond Scheme; the Gold Monetisation Scheme; the Indian Gold Coin Scheme:
         1. GOLD MONETISATION SCHEME
            
            This scheme works like a gold savings account. The investor will earn interest on the deposited value of the gold, depending on the weight including the appreciation of the gold value. The investors are free to choose the form of gold for investment—coins, jewellery or bars.
            The idly stored gold can earn interest. This encourages gold investment and adds value to the savings too. Depending on the financial goal of the investors, this scheme can be short-term, mid-term or long-term.
             
         2. SOVEREIGN GOLD BOND
            This scheme is also a good alternative to buying physical gold. The investors who invest in this scheme receive a paper against their investment. On maturity, the investor can redeem these bonds and encash them or can sell it on BSE at the prevailing market price.
            
            These bonds are available in both Demat forms and digital forms. One of the major highlights of this scheme is that the investment can be used as collateral against loans. The minimum investment value here is 1 gm.
             
         3. INDIAN GOLD COIN
            The gold coins are currently available in the denominations including—5gm., 10 gm. and 20 gm. This encourages even small-scale investors with a small capacity to invest too. One of the most significant features of this scheme is that it offers transparent “Buy Back” facility, across all the relevant showrooms throughout the country.
             
      4. Gold Mutual Funds
         Under this scheme, the gold investment is principally done in Gold ETFs and other related assets. The gold mutual funds do not directly invest in physical gold but acquire the same position through investing through Gold ETFs.
         1. Benefits of Gold Mutual Funds
            1. No need to maintain any Demat account to avail this scheme
            2. No pressurisation for buying complete units
            3. Systematic investment is also available
            4. The minimum investment value could be as low as INR 500 per month
            5. Easy management and not the threat of theft or burglary
         2. Some of the most popular Gold Mutual Funds in India
            1. Axis Gold Fund
            2. Aditya Birla sun Life Gold Fund
            3. Canara Robeco Gold Fund
            4. HDFC Gold Fund
            5. ICICI Pru Regular Gold Savings Fund
      5. Gold coins and Bullion
         Gold investments done through coins, bars and bullions is one of the most popular methods and age-old practice. There is no question regarding the purity of the metal in this form. Therefore, investors need not worry regarding the quality of the product.
         1. Benefits of Gold coins and Bullion
            1. The metal remains at its purest form
            2. No worries regarding the quality of the product
            3. Easily recognisable
            4. Buyers can be found easily under this scheme
   2. Documents required for investment in Gold
      If the deposit amount exceeds INR 2 lakh, then the PAN card is essential. For Gold ETF investment, the investor must open an account with a brokerage firm along with a Demat account with the same organisation. For SGB investment, the required  KYC documents include Aadhar card, voter card, PAN card or passport.
   3. How gold investment proves beneficial?
      1. Offers profitable returns, safety and liquidity
      2. Proves to be a safe haven during dark times
      3. Inflation-beating investment tool
   4. Taxation
      1. Taxation on Digital Gold Investment
         Owning digital gold assets for less than 36 months ensures returns that are not directly taxable. For long-term capital gains, 20% returns outright tax along with 4% cess and surcharge needs to be paid. The amount of tax payable is dependent on the holding period.
      2. Taxation on Physical Gold Investment
         In the case of STCG, the gold sale returns get added to the annual income of the investor and then the taxes are charged as per the applicable tax slab rate. STCG investors must pay 20% of the returns as taxes along with any other applicable surcharge. Moreover, 4% of cess is also calculated with indexation benefits. Apart from these Goods and Services Tax are also applicable at the time of buying.
      3. Taxation on Paper Gold
         In the case of long-term capital gains through gold mutual funds or gold ETFs, the tax rate stands at 20% along with 4%  cess. The investors below 36-month of investment, are not directly taxed and are added to other sources of income and the combined value determines the tax slab rate. Investment in Sovereign Gold Bonds earns an interest of 2.5% p.a. These are treated as income from other sources and are taxed accordingly. 
         After 8 years of consecutive SGB investment, all the returns acquired become tax-free. But in case of premature exit, the applicable tax rate differs from person to person. Most of the SGB offerings come with an average lock-in period of 5 years. 
      4. Tax-saving options on LTCG from Gold Investments
         Sections 54F and 54EC of the ITA, offer provisions to reduce tax liabilities in gold investments. The former section mentions reinvestment of the returns from gold LTCG into any sort of residential property. It ensures tax redemption from the entire earnings.
         Section 54EC mentions that investment of the returns into eligible bonds becomes tax-free. 
      5. Taxation on inherited gold or on gifted gold
         There is no provision for taxation on receipt of gold gifts from close friends, relatives, etc. However, if it is received from any non-relative, taxes are applicable if the value exceeds INR 50,000. Inherited gold from any blood relative will imply no tax payment. But inheritance from any other source(s), will imply tax liability if the value exceeds INR 50,000 mark.
7. Real Estate
   Real estate investment is more than just an investment to most Indias. We associate real estate investment with the home. However, historically real estate is a very traditional and popular investment opportunity for many investors. Since the cost of houses rarely goes down in India, it is considered to be quite a safe investment option.
   1. Real Estate Investment is considered as one of the safest long-term investment options
   2. It is the 2nd largest employer of the country after agriculture
   3. Slated growth of the sector is estimated to be 30% over the next 10 years
   4. Real Estate Investment is known for its assured appreciation in the long-term even if the growth is slow
   5. However, you may invest in the growing real estate sector in India through the mutual fund route as well by investing in Real Estate funds, if you do not wish to invest a large corpus and yet get the benefits of the growing industry.
   6. Advantages of Real Estate Investment in India
      1. Risk-Return Tradeoff: 
         Investment in real estate has multiple layers of risk, from liquidity risk to market risk. Some investments yield very high returns whereas some could be a total loss. Real estate investment is cyclical in nature.
      2. Large Investment:
         Anyone can invest in the real estate sector but it is quite a large investment. It is usually considered for staying/renting purposes. However, the good news is that real estate can be bought on loans as well and being a secured loan, the rate of interest is quite competitive.
      3. Rental income: 
         Most people consider real estate as their passive income option in terms of rental income. However, the rental yield of India is only at about 2% whereas the cost of loan options is more than 6.5% as of November 2020.
          
   7. Considerable factors during 1st-time real estate investment:
      1. Check for Real Estate Regulatory Authority of India (RERA) for verifying the registration of the housing project
      2. Consider and compare the maintenance charges, available amenities like gym, swimming pool, library, social clubs, security, water charges, electricity charges, etc. 
      3. Establish a careful and practical budget and plan to proceed accordingly
      4. Possess a long-term perspective in case of location selection. A residential place will be favoured if it is nearer to bus-stops, malls, schools, hospitals. Such a location will favour higher rental income and increased property value.
      5. The objective of acquiring the estate must be clear—whether it is for current personal use; to be used as a source of rental income or for reselling purposes.
      6. The first time real estate investors are eligible to avail benefits offered by Pradhan Mantri Awas Yojana. It offers tax benefits under Section 24 of the ITA on home loan interest rate and Section 80C offers tax benefits on the principal payment along with payments towards stamp duty and registration.
      7. Consider and compare the interest rates along with the home loan features before settlement.
   8. Types of real estate properties in India:
      1. Undeveloped real estate: 
         The investors can acquire a piece of raw land and use it for a variety of purposes like maintaining ranches and farms, agriculture, etc. The value of the property is largely dependent on its proximity to urbanity and zoning purposes.
      2. Residential properties: 
         This is a very common usage of real estate be it for single homes or multiple highrise complexes. Whatever be it, it requires constant and careful monitoring and maintenance consistently.
      3. Commercial properties: 
         This section involves office buildings, commercial centres, industrial properties. There are a lot of legal aspects that need constant attention in this case.
   9. Tax benefits on real estate
      1. Section 24
         This offers tax exemptions on the interest payable for home loans. The tax deductions apply to the total income acquired by an individual through house property. There are only 2 types of deductions that can be availed here—Net Annual Value and Interest on Borrowed Capital. 
      2. Section 80C
         This section offers tax benefits during the repayment of the principal amount in case of home loan. The return of income value is considered while claiming for tax benefits. The income should be for that particular year on which the investment as made is considered. The maximum tax saving limit here is INR 1.5 lakh; there is no minimum limit.
      3. Capital gains
         This can be either long-term or short-term. The investor can claim capital gain on income taxes which is dependent on the income, the family status, etc.
      4. Depreciation
         This is the most effective tool for a tax benefit in the real estate sector. This helps in a considerable reduction of the tax liabilities. But write-off of any property is only applicable in case of any income-producing property depending on the wear and tear.
8. Commodities
   Investment in the commodity market refers to trading in assets like foodgrains, oils, minerals, etc. There are 2 types of commodities—soft commodities like crops and hard commodities like extracts from mining. Any investments in this sector can be done through commodity-based mutual funds involving a true commodity fund, natural resource fund, index funds, etc.
   1. Advantages of Commodity Investment
      1. Possibility of ample diversification of the investment
      2. Helps in acquiring an advantageous position during a market upswing
      3. Acts as a positive edge in case of crises like wars, financial crises, inflation and natural disasters
      4. Offers higher liquidity
      5. The deposit margin money ranges between 5% and 10% on an average on the entire value of the agreement
      6. But commodities are quite volatile. This volatility makes them a bit riskier investment option, especially in the short term. However, if the investment is held on for the long term, it could be quite a safe option, as the price of commodities is ever rising.
   2. Taxation rule of the commodity market profits
      1. The tax implication largely depends on how it is treated by the investor—capital gains, business income or any speculative transaction
      2. Commodity derivatives get traded on commodity exchanges and the transactions are routed through commodity brokers
      3. Provisions for carrying forward the losses and setting them against the profits are applicable here
      4. In the case of non-speculative losses like delivery-based contracts, it can be carried forward for 8 years
      5. Loss settlement is dependent on the kind of contract

Once you have understood the various products that can be used in order to grow your hard-earned money safely, you need to understand the various types of risks in an investment product and then choose the same accordingly. The so-called safe investment opportunities also have some inherent risks in them.

Types of Risks on Investment

Creating a planned investment portfolio is a challenge in itself. Most of the types of high-return investment instruments are subject to market risks. Several other related factors get involved in the way of maintaining a successful investment portfolio. This article will shed light on the various types of possible risks that an investor might face while investing.

What is meant by Investment Risk?

Analyzing from a practical financial perspective, it is seen that most of the investment instruments do jot provide assured guaranteed returns. The reason is that when an investor is investing, he/she is undertaking a certain amount of risk. Each type of investment comes with different sets of risk involvement.

The general shows that the more the level of risk undertaken the better the rate of potential returns. The reference can be drawn from the bond markets with interest rates and stock markets with potential returns. A heavily risky portfolio is also prone to potential losses in the investment market. But at the same time, it is also true that with minimal risk involvement, a large number of potential gains go amiss. The investment risk is actually the difference between the expected rate of returns and the actual value of returns.

As per the opinions of the financial experts, the total risk is a combination of both unsystematic and systematic risk. With more additions of the securities to the portfolio, the unsystematic risk level decreases gradually.

Market Risk (Equity)

The market risk is the most commonly discussed risks in the investment market which is suffered by the investor is dependent on the overall market performances Market risks are also termed as “systematic risks”. This type of risk cannot be entirely eliminated through diversification, although it can be hedged in different manners. The market risk factors include geopolitical factors, recessions, change of the interest rates, wars and attacks, natural catastrophes, etc. This risk tends to influence the whole market trend at the same time

Reinvestment Risk (FD)

This type of risk encourages the proceeds available for reinvestment offers a lower returns rate. The investments with long-term maturity wth high interim cash flow are most prone to this risk.

Liquidity Risk (Real Estate, Physical assets, etc.)

This reflects the capacity of sale of a particular investment in the competitive market. It is also known as marketability risk. Investments with less liquidity are prone to this.

Concentration Risk (Sectoral Investment)

It is observed in the more concentrated portfolios that are less diverse in their nature. The returns on the underlying assets become more co-related.

Credit Risk (Fixed income)

This risk arises if any borrower fails to repay the loan on time. This loss might be complete or partial in nature.

Inflation Risk

Also termed as purchasing power risk, it focuses on the chance factor that inflation will gradually lessen the actual value of the investor’s assets. Debt securities are the most plausible example of this.

Horizon Risk  (Long-term investment)

This risk dealing with the unexpected shortening of the investment horizon under circumstances like losing a job, or incurring heavy losses. It may force to sell off certain long-term investments.

Longevity Risk

This type of risk is normally attached to the insurance companies where the life expectancy of the pensioners is increased. This eventually results in a higher payout ratio.

Interest Rate Risk

This risk focuses on the issue that changed interest rates eventually affecting  (for inter-currency investment)

This is the risk that deals with the change of the value of the invested amount compared to a foreign currency during the investment tenure will negatively affect the value of an investment.

Now, we move to the actual process of investment, which needs to be followed irrespective of the product.

Step by Step process of Investing

1. Investment objectives and goals: 
   All financial investments should be ideally target-oriented. This makes the route easier to follow. Each investment, if linked to a financial goal, continuity and fulfilment become much easier. You need to classify each goal as a short-term, mid-term or long-term goals and then choose the product accordingly.
    
2. Emergency fund: 
   No investment is considered to be foolproof unless there is an active emergency fund. This is a very essential tool while handling any sort of unforeseen difficult circumstances. You can use investment products like fixed deposit, recurring deposit, debt mutual funds, etc. for your emergency corpus.
    
3. Cash flow management: 
   Careful monitoring of the cash flow will reduce the tendency of reckless expenditure. This is very vital while planning for investment planning.
    
4. Pay your debts: 
   Disposing of the debts as early as possible is essential for effective investment planning. The debts and associated interests affect the financial health in the long-run. 
   A home loan is one of the only good loans since there is an associated tax benefit from the same as well. Other loans, especially credit card outstanding and personal loans can be deterrent in your investment portfolio as it has a very high rate of interest. 
    
5. Understand financial products: 
   Amidst the host of the financial investment tools available, careful consideration is essential so that the selected ones fulfil all the necessary requirements of the individual investor. All major investment products have been listed above.
    
6. Insure adequately: 
   Properly planned insurance investments are the highlights of efficient investment planning.

Thus, after associating each investment product with the respective financial goal, it becomes easy to follow and continue the investment strategy if you stick to the basic process of investment. However, there are certain mistakes that need to be avoided in order to succeed in creating your healthy investment portfolio.

Top #8 Mistakes to avoid while investing

1. Investment is all about planning, executing and then reviewing. If any of the steps are not diligently followed, your dream of having a great investment portfolio might be far off
2. Like Warren Buffet had said, watching your investment grow is like watching a tree grow. It requires patience. 
3. Timing the market is super difficult and is best avoided. So, in order to reap the maximum benefits of compounding and rupee cost averaging for your systematic and disciplined investment, you need to “remain invested”. Looking for a quick return and a high churn of the portfolio is not healthy for your investment corpus.
4. Investment is just a tool to reach your financial goals, be it gold or real estate, there should be no emotional attachment with any investment product. Else you will not be able to use redeem it or sell it when needed.

So, if you follow the basic steps of investment, keeping your financial goals in mind and remain invested, there is no chance of not achieving your financial goals. It is a science which needs to be adhered to keeping the risks in mind and creating an emergency corpus. Reviewing your investment portfolio annually is a healthy habit, which is done diligently can help you grow your investment portfolio safely in a disciplined manner.