What are various Long-term financial options available for

investment?

Post Office Savings Schemes, Public Provident Fund, Company Fixed

Deposits, Bonds and Debentures, Mutual Funds etc.

Post Office Savings:

risk saving instrument, which can be availed through any post office.

It provides an interest rate of 8% per annum, which is paid monthly.

Minimum amount, which can be invested, is Rs. 1,000/- and

additional investment in multiples of 1,000/-. Maximum

amount is Rs. 3,00,000/- (if Single) or Rs. 6,00,000/- (if held

Jointly) during a year. It has a maturity period of 6 years. Premature

withdrawal is permitted if deposit is more than one year old. A

deduction of 5% is levied from the principal amount if withdrawn

prematurely.

Post Office Monthly Income Scheme is a low

Public Provident Fund:

maturity of 15 years and interest payable at 8% per annum

compounded annually. A PPF account can be opened through a

nationalized bank at anytime during the year and is open all through

the year for depositing money. Tax benefits can be availed for the

amount invested and interest accrued is tax-free. A withdrawal is

permissible every year from the seventh financial year of the date of

opening of the account and the amount of withdrawal will be limited

to 50% of the balance at credit at the end of the 4th year

immediately preceding the year in which the amount is withdrawn or

at the end of the preceding year whichever is lower the amount of

loan if any.

A long term savings instrument with a

Company Fixed Deposits:

medium-term (three to five years) borrowings by companies at a

fixed rate of interest which is payable monthly, quarterly, semiannually

or annually. They can also be cumulative fixed deposits

These are short-term (six months) to

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where the entire principal alongwith the interest is paid at the end of

the loan period. The rate of interest varies between 6-9% per annum

for company FDs. The interest received is after deduction of taxes.

Bonds:

more than one year with the purpose of raising capital. The central or

state government, corporations and similar institutions sell bonds. A

bond is generally a promise to repay the principal along with a fixed

rate of interest on a specified date, called

It is a fixed income (debt) instrument issued for a period ofthe Maturity Date.

Mutual Funds:

which raises money from the public and invests in a group of assets

(shares, debentures etc.), in accordance with a stated set of

objectives. It is a substitute for those who are unable to invest

directly in equities or debt because of resource, time or knowledge

constraints. Benefits include professional money management,

buying in small amounts and diversification. Mutual fund units are

issued and redeemed by the

the fund's net asset value (NAV), which is determined at the end of

each trading session. NAV is calculated as the value of all the shares

held by the fund, minus expenses, divided by the number of units

issued. Mutual Funds are usually long term investment vehicle

though there some categories of mutual funds, such as money

market mutual funds which are short term instruments.

These are funds operated by an investment companyFund Management Company based on

What are various Short-term financial options available for

investment?

Broadly speaking, savings bank account, money market/liquid funds and

fixed deposits with banks may be considered as short-term financial

investment options:

Savings Bank Account

use, which offers low interest (4%-5% p.a.), making them only

marginally better than fixed deposits.

is often the first banking product people

Money Market or Liquid Funds

funds that invest in extremely short-term fixed income instruments

and thereby provide easy liquidity. Unlike most mutual funds, money

market funds are primarily oriented towards protecting your capital

and then, aim to maximise returns. Money market funds usually yield

are a specialized form of mutual

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better returns than savings accounts, but lower than bank fixed

deposits.

Fixed Deposits with Banks

and minimum investment period for bank FDs is 30 days. Fixed

Deposits with banks are for investors with low risk appetite, and may

be considered for 6-12 months investment period as normally

interest on less than 6 months bank FDs is likely to be lower than

money market fund returns.

are also referred to as term deposits

What are various options available for investment?

One may invest in:

§

and/or

Physical assets like real estate, gold/jewellery, commodities etc.

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instrume nts with post offices, insurance/provident/pension fund etc.

or securities market related instruments like shares, bonds,

debentures etc

Financial assets such as fixed deposits with banks, small saving

What care should one take while investing?

Before making any investment, one must ensure to:

1. obtain written documents explaining the investment

2. read and understand such documents

3. verify the legitimacy of the investment

4. find out the costs and benefits associated with the investment

5. assess the risk-return profile of the investment

6. know the liquidity and safety aspects of the investment

7. ascertain if it is appropriate for your specific goals

8. compare these details with other investment opportunities available

9. examine if it fits in with other investments you are considering or you

have already made

10. deal only through an authorised intermediary

11. seek all clarifications about the intermediary and the investment

12. explore the options available to you if something were to go wrong,

and then, if satisfied, make the investment.

These are called the

Twelve Important Steps to Investing.

What is Investment?

The money you earn is partly spent and the rest saved for meeting future

expenses. Instead of keeping the savings idle you may like to use savings in

order to get return on it in the future. This is called Investment.