The ability to track the performance of your money using multiple investment vehicles will primarily hold the key to wealth building. Even assuming that you are just starting out on this exercise, it helps to know the different strategies that you can adopt to invest your money diligently. Given below are 10 different options to help you along the way.
Savings Bank Account
This is often the point where you start a banking account. A savings bank account offers the convenience of accessing your money any time you need. But, the downside is that the rate of return on your outstanding balances is a measly 5% or less.
Money Market funds
This is also called liquid funds and the returns are better compared to a savings bank account. This is a specialized kind of mutual fund that would invest in very short term instruments offering fixed income. You will also enjoy the flexibility of issuing cheques from this account making it better than the savings bank account. Your returns however will be lower than a fixed deposit.
Fixed deposits with Banks
Sometimes fixed deposits are referred to as term deposits also. You will enjoy the flexibility of varying periods between 30 days and 10 years or more. When you choose this option for 6 months or less, your returns could be lower than the money market funds. You should also know that when you redeem your deposit or take a loan before the maturity date, you will incur additional cost reducing your net returns.
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Post office Savings (POSS)
This is a low risk instrument and popular because the returns tend to be higher in comparison to Fixed deposits with banks. For retired individuals or those with a need for regular income, the monthly income plan works ideally. Another attraction offered by the instrument is the absence of TDS or tax deducted at source.
Public provident Fund (PPF)
If you are looking for absolute returns and liquidity is not a concern, then PPF by far is the best instrument in the market. This gives you a post-tax return of11% and a pre-tax return at 15.7% on an assumed tax rate of 30%. You will also enjoy a 20% tax rebate on the amount invested every year. However, your investment in PPF is locked in for 7 years from the date of your investment.
Fixed deposits with companies
Although the company fixed deposits market is not as vibrant as it used to be some 2 decades ago, there are still some corporate entities accepting fixed deposits and paying decent returns. You can learn more about company fixed deposits here.
Bonds and Debentures
Apart from fixed deposits with companies, bonds and debentures constitute a good investment vehicle for those looking for rebates on capital gains tax. In today’s scenario however, fresh opportunities in the primary market are hardly available or sporadic. But, some securities might still be available via the secondary markets.
Think of mutual funds as an investment partnership with friends. Money from thousands of investors, in tiny lots as lows as a few thousand rupees is pooled to make the larger corpus. Opposed to an informal arrangement between friends, mutual funds operate under a legal frame work and are governed by a board of directors.
Insurance policies do not constitute an exclusive investment vehicle. You must also factor in the death benefit cover, the periodic returns from the policy (which is also post-tax), the cost of investing (yes, you could have some upfront expenditure in buying your policy).
Investing through the primary market or the IPOs used to be a juicy route to wealth building until a few decades ago. But, things have changed dramatically now and no company is offering its shares at par value. Investments via the secondary market can be your best option when you have adequate knowledge on how to play the secondary market.