A fixed-income is a debt security for a specific period, usually issued by banks. A Fixed Deposit is like loaning the bank your money. In return, they pay you interest. FDs are the most popular investment vehicle for retail investors in India because investors find banks very convenient to deal with.
These deposits are perceived to be highly safe and sufficiently liquid. FDs can help you secure your hard earned money for a long duration while giving you higher risk-free returns on your money than a regular savings account.
Indian banks offer a wide variety of fixed deposit schemes to suit almost every need.
Company Fixed Deposit is the amount deposited by investors for a fixed period of time with a company which offers a fixed rate of return. These deposits are accepted by manufacturing companies, financial institutions and non-banking finance companies, and are governed by Companies Act 58A. Here’s a list of all the products:
Interest rates are subject to revision by the above said companies, without any prior notice.
What is equity? You hear this word everyday, when you watch business news channels, when you travel in local train or in any other situation, but what is it exactly?
Equity is defined as stock or any other security representing an ownership interest in a company listed on the stock exchange.
An equity share is a right to a share in the profits of a Company. If you want a share in the company’s profits, you can do so by buying an equity share.
Perhaps, the best way to create wealth, it is a means to achieve returns that beats inflation by a wide margin.
A mutual fund (MF) is a professionally managed type of collective investment scheme that pools money from many investors i.e. your money and invests it in stocks, bonds, short-term money market instruments, and/or other securities to yield returns. If you are apprehensive of investing in the stock market because of its unpredictability, play relatively safe with MFs.
You will receive units of the MFs in proportion to the money put in. The value of each unit is also impacted when management fees and other expenses are deducted from the overall pool of funds.
The value of a unit is called the Net Asset Value (NAV) of the MF which changes on a daily basis.
Investors who wish to purchase or sell units of a mutual fund after the scheme is fully functional must do so at a price that is linked to the NAV or the Net Asset Value.
Public Provident Fund (PPF):
If you haven’t already started on a long-term savings strategy, you could begin with a Public Provident Fund (PPF) subscription . A government-guaranteed fixed income security, this is very apt as a long-term savings instrument. Yearly subscriptions can be as low as Rs. 500 to as high as Rs. 1,00,000.
It counts being among the most secure investments you can have in this country. The interest earned on the PPF subscription is compounded; that means you not only earn interest in the money you put in, but you earn interest on the interest earned too. All the balance that accumulates over time is exempt from wealth tax.
A flip side, its an extremely illiquid investment instrument. Its lengthy lock-in period works out to 16 years since the last contribution is made in the 16th financial year. In all, the PPF is a very good savings instrument, and you should consider investing in it.
Bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) to use and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals (ex semi annual, annual, sometimes monthly).
Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (i.e., they are owners), whereas bondholders have a creditor stake in the company (i.e., they are lenders). Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely.
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National Pension Scheme:
National Pension Scheme (NPS), a government-sponsored pension scheme, was launched in January 2004 for government employees. It was opened to all sections in 2009. A subscriber can contribute regularly in a pension account during her working life, withdraw a part of the corpus in a lumpsum and use the remaining corpus to buy an annuity to secure a regular income after retirement.
1. What is NPS ( National Pension Scheme )?
The National Pension Scheme is a social security initiative by the Central Government. This pension program is open to employees from the public, private and even the unorganized sectors with the exception of those from the armed forces. The scheme encourages people to invest in a pension account at regular intervals during the course of their employment. After retirement, the subscribers can take out a certain percentage of the corpus. As an NPS account holder, you will receive the remaining amount as a monthly pension post your retirement.Earlier, the NPS scheme covered only the Central Government employees. Now, however, the PFRDA has made it open to all Indian citizens on a voluntary basis. NPS scheme holds immense value for anyone who works in the private sector and requires a regular pension after retirement. The scheme is portable across jobs and locations, with tax benefits under Section 80C and Section 80CCD
2. Who should invest in the NPS?
The NPS is a good scheme for anyone who wants to plan for their retirement early on and has a low-risk appetite. A regular pension (income) in your retirement years will no doubt be a boon, especially for those individuals who retire from private sector jobs. A systematic investment like this can make a massive difference to your life post-retirement. In fact, Salaried people who want to make the most of the 80C deductions can also consider this scheme.
3. Features & Benefits of NPS
A portion of the NPS goes to equities (this may not offer guaranteed returns). However, it offers returns that are much higher than other traditional tax-saving investments like the PPF. This scheme has been in effect for over a decade, and so far has delivered 8% to 10% annualized returns. In NPS you are also allowed the option to change your fund manager if you are not happy with the performance of the fund.
b. Risk Assessment
Currently, there exists a cap in the range of 75% to 50% on equity exposure for the National Pension Scheme. For government employees, this cap is 50%. In the range prescribed, the equity portion will reduce by 2.5% each year beginning from the year in which the investor turns 50 years of age. However, for an investor of the age 60 years and above, the cap is fixed at 50%. This stabilizes the risk-return equation in the interest of investors, which means the corpus is somewhat safe from the equity market volatility. The earning potential of NPS is higher as compared to other fixed income schemes.
c. Tax efficiency – NPS tax benefit
There is a deduction of up to Rs. 1.5 lakhs to be claimed for NPS – for your contribution as well as for the contribution of the employer.– 80CCD(1) covers the self-contribution, which is a part of Section 80C. The maximum deduction one can claim under 80CCD(1) is 10% of the salary, but no more than the said limit. For the self-employed taxpayer, this limit is 20% of the gross income.– 80CCD(2) covers the employer’s NPS contribution, which will not form a part of Section 80C. This benefit is not available for self-employed taxpayers. The maximum amount eligible for deduction will be lowest of the below: a. Actual NPS contribution by employer b. 10% of Basic + DA c. Gross total income– You can claim any additional self contribution (up to Rs 50,000) under section 80CCD(1B) as NPS tax benefit.The scheme, therefore, allows a tax deduction of up to Rs 2 lakh in total.
d. Withdrawal Rules After 60
Contrary to common belief, you cannot withdraw the entire corpus of the NPS scheme after your retirement. You are compulsorily required to keep aside at least 40% of the corpus to receive a regular pension from a PFRDA-registered insurance firm. The remaining 60% is tax-free now.
e. Early Withdrawal and Exit rules
As a pension scheme, it is important for you to continue investing until the age of 60. However, if you have been investing for at least 3 years, you may withdraw up to 25% for certain purposes. These include children’s wedding or higher studies, building/buying a house or medical treatment of self/family, among others. You can make a withdrawal for up to 3 times (with a gap of 5 years) in the entire tenure. These restrictions are only imposed on tier I accounts and not on tier II accounts. Scroll down for more details on them.
f. Equity Allocation Rules
The NPS invests in different schemes, and the Scheme E of the NPS invests in equity. You can allocate a maximum of 50% of your investment to equities. There are two options to invest in – auto choice or active choice. The auto choice decides the risk profile of your investments as per your age. For instance, the older you are, the more stable and less risky your investments. The active choice allows you to decide the scheme and to split your investments.
Please Click on Below Links to Download NPS Forms
NPS Subscriber Registration Form
NPS Contribution Instruction Slip