We all know about the risks associated with investing in Stock Markets and thus prefer to stay away from the same. We also know that Real Estate is always a good investment option but requires a large chunk of cash to be deployed at the time of purchase.
With Stocks and Real Estate not being the preferred option of many due to their inherent limitations, Fixed Income plans have always been a hit in India. They not only offer safe returns but also suit the pocket of every investor.
When we talk about Fixed Income Plans, the first thing that comes to mind is Bank Fixed Deposits. We all are aware about the characteristics of Bank Fixed Deposits, so in this article I’ll try to dig deep into 3 popular Fixed Income Plans in India except Bank Fixed Deposits
I. Public Provident Fund
II. Corporate Fixed Deposits
III. Senior Citizens Saving Schemes
Public Provident Fund was launched by the Govt to encourage the habit of savings amongst Indians and to deposit these savings with the Govt. at a time when the Indian Govt. didn’t have much reserves of its own.
By depositing money in your PPF Account between the 1st and the 5th of the month, you can earn interest for that month as well. In case you want to use this Investment to avail loans, interest on Loans against PPF account is charged at 2% above the PPF Rate, which works out to 10%. This is very low as compared to the Interest Rates on Personal Loans offered by Banks.
The Interest offered on Corporate Fixed Deposits are more than the returns offered on Bank Fixed Deposits as they are more riskier than Bank Fixed Deposits and usually they offer 1-2% extra interest as compared to Bank Fixed Deposits.
The following points should be kept in mind while investing in Corporate Fixed Deposits:-
If you are a senior citizen above the age of 60 years, you can also invest in the Senior Citizens Saving Scheme. For those who have taken voluntary retirement, the age eligibility is 55 years. However, if you have retired from armed forces, there is no age restriction.
Debt Instruments have always been a useful tool to boost up your portfolio, provided you examine each instrument carefully on its merits and demerits, and invest accordingly.
While investing in Fixed Income Plans, an investor should always keep in mind that the promise of high returns by any instrument is not necessarily the best reason to be investing in it. Other factors like Tax benefits, Option for Premature Withdrawal, and Riskiness of the Investment should also be considered while making any investment.
As a thumb rule, also try to diversify your investments as this will not only help you reap benefits of all options available but will also minimise the risks associated with each option.
Happy Investing 🙂
This Article has been authored by CA Karan Batra, who is a finance and tax blogger who blogs on www.charteredclub.com
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View Comments
Fixed income securities should be a part of your portfolio. Percentage of it depends on the age factor and current income and savings level of the investor. Good article Mr. Karan!!!
I agree with you. An efficient portfolio should always contain an element of Fixed Income Securities depending on the age and the risk which the Investor is willing to take.
The higher the age - the higher should be the component of Fixed Income Securities as the risk factor associated with these form of securities is almost NIL
And thnx for the appreciation :)
how much sum assured for myself
annual income 3lakh family wife ,01 child(01yrs male)
@Amit
Sum assured should be on basis of multiple things like age, annual income, any liabilities (home/car loan etc), number of dependents, future expected expenses (child education, marriage etc), future expected increase in income and monthly expenses.
Considering only your annual income and child/wife dependency, you should take insurance with minimum 50 lac sum assured.
Hi Pankaj,
My father retired recently from a govt job and thus wants to invest the savings of his total service in some good scheme. He is planning for Post office savings scheme or Senior Citizens Saving Scheme in sbi as he wants to have a fixed monthly income from that amount. So, which one is better among these? And are there any better schemes available?
The Interest offered on Senior Citizens Saving Schemes is more than Other fixed Income Options. As your father is eligible for investing in Senior Citizen Saving Scheme, you should invest a large chunk of your investment in this scheme and allot funds to other Fixed Income options as well depending on your fund requirements....
@Nitin
Adding to Karan's suggestions:
As of now, fixed deposit interest is high in all the banks and you may also consider opening fixed deposits with bank. You may easily find more than 10% rate of interest for senior citizens in most banks. For longer period like five years, interest rate is around 9.5%.
As interest in fixed deposit at this point is more than Senior citizen savings scheme, it seems to be better option considering premature withdrawal benefits too.
Interest from SCSS (Senior citizen savings scheme) is also taxable like fixed deposits, but amount is locked for five years. As of now SCSS offers 9% rate of interest. Max investment limit in SCSS is 15 lakh and it also provide tax benefit under 80-C.
If tax savings requirements are there, I would advise you to choose a tax saver fixed deposit, which has lock-in for five years and at this point giving around 9.25% rate of interest for senior citizens.
Fixed maturity plans (FMP) mutual funds can also be considered as they have better in taxation than fixed deposits.
While investing in any Fixed Income Option, always check if their is any lock-in period or not as most of the banks who are offering high interest rates have a fixed lock-in period.
Thanks to both of you (Pankaj & karan)!
I am a senior citizen age 65 yr.
i want to put 3 lac in FD ,axis bank is giving 10.25 % return for senior citizen on FD
i m having pension income of 1.2 lac per yr
As mentioned in FD for senior citizen tht an interest above 10000 is taxable. So do i ve to pay IT on returns from FD of 3 lac
Wil it get deducted at source or can i get IT exempted by declaring/showing my total income of the yr which is still below taxable limit for senior citizen
kindly advice
@Kshitiz
As your total income in year is below taxable limits, you can submit form 15-H to bank, to avoid tax deduction by bank.
Thanks a lot Pankaj,
From whr wil i get this form 15 H.
How do declare my pension income ( from Office or from Pension account in bank whr my pension is comin)
Kindly Advice
Regards
@Kshitiz
You can get form 15H from bank itself.
There is no need to provide pension income proof to bank. No document needs to be attached with 15H. Just plain declaration that your income is below taxable limits with signature would be enough.
Thanks a lot Mr Pankaj
regards
my ppf a/c in sbi bank. i want change the bank or port to post office. how can it possible?
@Ashwini
Its possible to get PPF account transferred from one bank to another or to post office.
Visit SBI bank where you hold your PPF account and ask them for a PPF transfer form.
I am having SCSS a/c with S.B.I. in maharashtra branch but i want to transfer the a/c at uttar pradesh branch at AGRA. Bank is not allowing why.
@Kishan
An SCSS account can be transferred from one deposit office to another. A depositor may apply in Form G, enclosing the Pass Book thereto, for transfer of his account from one deposit office to another. If the deposit amount is rupees one lakh or above, a transfer fee of rupees five per lakh of deposit for the first transfer and rupees ten per lakh of deposit for the second and subsequent transfers shall be payable. [Rule 11 and GOI Notification GSR.(E) dated March 23, 2006)
Check details on this page: http://www.rbi.org.in/scripts/FAQView.aspx?Id=62
TO
MR PANKAJ BATRA
THANK YOU VERY MUCH FOR THIS VALUABLE REPLY.
Hi Pankaj, I have heard of Shriram Transport NCD launched recently. How good is this option for fixed incomes perspective? What things we need to check or consider before investing in NCD?
Thanks !!
@Divya
Shriram Transport NCD is offering good return (upto 11.40%). Minimum investment amount is also small (Rs 10000).
From liquidity perspective also these are good as these are going to list on NSE and BSE both.
Company won't be deducting any TDS on returns as its a listed NCD, but returns would be taxable as per income tax slab rates.
Regarding safety, Shriram is a stable company and its CRISIL and CARE ratings have also been good. So you can go ahead and invest in these.
Thanks Pankaj. Its really helpful !!
Thanks; Mr. Batra ji : My 90% problem is solved by answers of the questions I am going for Senior Citizens saving scheme and depositing the amount where I can get regular income to meet my day to day expences and deduction under section 80C of Income Tax. But I want to deposit only the amount upto 100000/ every year. Can I get rebate every year and have I to open new account every year for depositing in this scheme till it reaches its highest limit, multiple accounts are permitted or not?
@S.S.Sharma
There can be only one deposit in the account. You will have to open new account every year.
Thanks for valuable guidance will ask questions as and when I require your guidance.