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This guide is mainly written for young people. Boys and girls, who just start earning know little about tax, mutual funds, PPF etc. However, it can still be used by people who already know about money management too. It covers all the basics in an easy to understand, simplified way! If you know someone who has just started earning and will find this information useful, please do recommend it to them.
This guide is a little sad! When you get your first salary, the last thing on your mind is “investing” and “tax” and other such issues. You probably want to use your salary to buy yourself something or spend the money on entertainment, watching movies, partying etc. However, this guide is going to tell you that you need to manage your money. You can enjoy yourself, but you also need to save and invest and use your money properly. So I guess the obvious question is...
Why should you invest?
You will not have to work!
You probably have heard the phrase “Let your money work for you!”. Just incase you do not understand what exactly this means, let us explain. The whole idea of investing is that you create or buy an “asset”.
What is an asset?
An “asset” is something that generates money. Just to give you an example, if you buy a flat for 4 lakh and then rent it out for Rs.3000 a month then you have created an asset. An “asset” that generates Rs.3000 a month. However, this is just one type of asset. Assets are of many kinds. If you have a “copyright” or patent in your name, for which you get paid a certain amount when anybody uses it, then that too is called an asset. If you own a small pay phone from which you make just Rs.20 each day, then that too is called an asset! The above given explanation is very crude, but that is the basics of investing. You want to invest the money you make in assets. Assets that generate money. The idea is that once you invest your money in enough assets, you can stop working. All your assets will make money for you. You can then use this money to enjoy life. Or you can use this money to invest in more assets that generate more money! So all this gives us the phrase, “Let your money work for you!” This is the main aim of investing. However, there are many other smaller aims of investing and we have explained them to you next...
Investing for making the "big buys!"
If you are not married yet, then sooner or later you are probably going to get married. After that you will probably going to go in for a house. After that you will probably go in for a vehicle. Then you might want to go for a long vacation. Then you might want to buy a buy a bigger house. Then you might fall sick and have a big operation. Why are we saying all this? These are events that occur in almost everyone’s lives. All of them are “big buys”! They take up a huge amount of money. If after a few years you randomly decide to do one of these things, then arranging the money for this suddenly will be a problem. If you have a salary of Rs.10-20 thousand and you have to arrange for Rs.2.5 lakh next month, then will you be able to do so? Probably not. You might say, that now-a-days, loans are easily available. I will just take a loan! I will just buy on credit! BAAAAD IDEAA!! BAD IDEA!!!!
Why is taking a loan a bad idea?
Obvious reason: Assume you have to make a “big buy” of Rs.15 lakh (Like a house etc.) Now, when you take a loan for making the purchase, you will not only have to pay the Rs.15 lakh. You will also have to pay the interest. So you might end up paying Rs.18 lakh for something that actually costs you Rs.15 lakh. 3 lakh more!!!! If for some reason you think that 3 lakh is a small amount and it is okay to waste it, think not only about the 3 lakh. Think about the earning power of the 3 lakh. The 3 lakh can be invested in an asset that makes around Rs.2,000 each month! If you told you, “Would you like an extra Rs.2,000 each month for free, for doing nothing?” what will you say? I bet most people will not throw it away. Then why throw away 3 lakh? Besides this, the other problem with credit is that once you buy something on credit, you get into to habit of taking a lot of things on credit. Now, this point is a little hard to appreciate. However, there are a lot of people out there who get into the habit of buying everything on credit because credit makes it so easy for you to buy things. People love the “Buy now. Pay Later!” idea. They get hooked to it. There are people who buy a big house, a big car, a big T.V. etc. all on credit. Because of this, they have to pay their monthly installments for all these items and their monthly installments alone take up half of their salary. The rest of their salary, is taken away by basic things like food and other necessities. If any part of the salary remains it goes into the maintenance of the big TV, big house or the fuel for the big car. These people can forget about investing and creating assets. They live a hand-to-mouth existence. If for some reason they loose their job, or fall ill and are unable to work, then they will not be in the position to pay their monthly installments and all their big T.V., big car, big house etc. will be taken away from them. In case they expire, they leave the credit burden for their family to bare! So, do you want to live this way? If you do not then “good financial planning” and “good investing” is the key! In case you forgot the original pint, you need to invest so that you can make the “big buys” that you need to make!
Investing for TAX SAVING!
The major reason why a large number of young people invest is to save tax! In fact, thank God for tax. If tax did not exist, the youth would never even think about investing! Incase you do not know how this whole “tax saving” and investing thing works, let us explain that first. You see the Govt. wants us to invest in certain things. Some of the things that the Govt. wants us to invest in are for our own good. The other things are for the good of the nation. So to encourage people to invest their money in the “these things” the Govt. says that, “If you invest your money in these things, you do not have to pay ‘income tax’ for earning that money!” Incase you are confused, I will just give you are very basic and crude explanation on how income tax is calculated and paid. You see, “income tax” is all about your “income” i.e. the money you earn! You have to basically pay a portion of what you earn to the Govt. Suppose you do a job and you earn Rs.20,000 every month you will have to pay a part or a “percentage” of that money to the Govt. What is the percentage that you have to pay? That depends on the “tax bracket” you fall in. What is a tax bracket? You see, the Govt. feels that rich people can afford to give more money towards the development of the country and poor people cannot give much. Also the really poor people cannot give anything at all since they are struggling financially. So the Govt. has decided whether you are “very poor” or “poor” or “rich” or “very rich” depending on how much income you make. If you fall in the “very rich” category than you have to pay a big percentage of your money towards the county. If you fall in the “very poor” category you do not have to pay anything to the country. This is basically what tax brackets are. The Govt. has decided what percentage of your income you must pay as “income tax” depending on how much you make or which “tax bracket” you fall in. Now there is a legal way of paying less tax than what you are supposed to pay. And this way is though “investments”. If you invest part of your income into Govt. bonds, infrastructure bonds, life insurance etc. then your income will reduce and you will have to pay less to the Govt though income tax! However, this is not true for any type of investment. It is true only for certain types of investments as stated by the Govt. Also, if you invest your money in these tax saving things, it does not just “go away”! You actually create an asset. An asset that produces money for your self. So, instead of loosing the earning power of the money by giving it to the Govt. though income tax, you could use the money to create an asset and also save tax in the process. Again, incase you lost the original point in all the explanation, invest your money to save tax!
What we have told you above, are just the very basics of saving tax. There is a lot more to learn! If you are interested, we suggest you read the book "How to save income tax though tax planning?". You can get yourself the book from ebay.in If you are new to ebay, do not worry, you can just sign up from here free and buy whatever you are interested in right now! It's quite easy! Once you are signed-up you can search for "How to save income tax though tax planning?" We recommend that you buy the book from Ebay.in since it is quite safe & secure. If you are not comfortable with Credit Card payments, there are always other options like DD, money order etc. that you can go in for. Besides that, you can get a very good deal if you buy from ebay!
Inflation..and how it eats your money!
Inflation is an economic concept. What the cause of inflation is, is not important to us from the point of view of this article. What is important to us is the effect of inflation! The effect of inflation is the prices of everything going up over the years. A movie ticket was for a few paise in my dad’s time. Now it is worth Rs.50. My dads first salary for the month was Rs.400 and over he years it has now become Rs.75,000. This is what inflation is, the price of everything goes up. Because the price goes up, the salaries go up. If you really think about it, inflation makes the worth of money reduce. What you could buy in my dad’s time for Rs.10, now a days you will not be able to buy for Rs.400 also. The worth of money has reduced! If this is still not clear consider this, when my father was a kid, he used to get 50paise pocket money. He used to use this money to go and watch a movie (At that time you could watch a movie for 50paise!) Now, just for the sake of understanding assume that my dad decided in his childhood to save 50paise thinking, that one day when he becomes big, he will go for a movie. Many years pass. The year now is 2006. My dad goes to the theater and asks for a ticket. He offers the ticket booth guy at the theater 50paise and asks for a ticket. The ticket booth guy says, “I am sorry sir, the ticket is worth Rs.50. You will not be able to even buy a “paw wada” with the 50paise!!” The moral of the story is that, the worth of the 50paise reduced dramatically. 50paise could buy a whole lot when my dad was a kid. Now 50paise can buy nothing. This is inflation.
What does this tell us?
Do not keep your money stagnant. If you just save money by putting it your safe it will loose value over time. If you have Rs.1000 in your safe today and you keep it there for 10years or so, it will be worth a lot less after 10 years. If you can buy something for Rs.1000 today, you will probably require Rs.1500 to buy it 10 years from now. So do not keep money locked up in your safe. Always invest money. Always make your money grow! Whatever you do, do not just lock your money up in your safe and keep it stagnant. If you do this, you will be loosing money without even knowing it. The more money you keep stagnant the more money you will be loosing.
"The power of compounding!"
Compounding is a very interesting and powerful thing. It has great rewards in store for people who invest when they are young. If you invest later in life you will not be able to make use of the great “power of compounding”! Just to give you an example…assume that there are two people. Ram and Sham. Ram invests Rs.5000 each month for 10 years from the time he became 25. Sham invests Rs.5000 each month for “25 years” from the time he became “35”. Note that Ram invested Rs.5000 monthly for only 10 years. Sham invested Rs.5000 monthly for 25 years! Now, who do you think will have more money when they are 60? Think about it a little! Who do you think will have more money at age 60? Assuming that their money grows at 15% per year, at age 60 Ram will have Rs.4.6crores!! Sham will have Rs.1.5 crores!! A difference of Rs.3.1 crores!! Ha!! Think about how foolish Sham has been. When he was young and 25 years of age, he had not got married yet. His expenses were low. He had a lot of money extra each month. He would generally blow it off on parties! Later he got married. His expenses grew! He had very little money to invest. Finally at the age of 35 when he again started to have some financial control, he decided to start investing. Since his friend had stared earlier than him, he tried to make up for it but investing for 25 years. (15 years more than Ram!) However, still he ended up loosing 3.1 crore!! Don’t be a Sham! Don’t make this mistake. If you are wondering how this can happen, you need to understand how compounding works. Suppose you invest Rs.100 today. It grows at 15% compounded rate every year, then next year you will get Rs.115 i.e. Rs.100 + Rs.15. Why Rs.15? Rs.15 is 15% of Rs.100! Okay so now one year is passed. You have Rs.115. The next year you will get Rs.132. Why Rs.132? Rs.115 + Rs.17. Why Rs.17 ? Because Rs.17 is 15% of Rs.115! Now, try to use your imagination. Initially your money will grow at a slow rate. But once the money grows to a big amount the rate of growth will be very very very high! So, basically you need a lot of time to reach a very very high rate of growth. But once you reach the high growth rate then money will just start flowing! And if
there is one thing the youth have, it is time! In fact, you should invest as fast as possible. If you are not earning yet, invest your pocket money! Just to give you an idea, if you invest Rs.1 now. You let it grow for 30 years at 15% rate, at the end of 30 years you will have Rs.67! So think of it this way. If you want a good amount of money after 30 years, invest as much money as you can invest right now. For every one rupee you invest you will have Rs.67, 30 years from now! So if you invest Rs.5000 now, you will get Rs.3,35,000 30 years from now! So what are you waiting for. Invest the money now when your expenses are low and you have the chance. You have time on your side! I guess you probably now understand the need for investing. So, let us get right into it…
How to invest? - The basics!
Before we get into specific things that you should invest in, let us take a look at the general procedure of investing. How you should view investments, what are “risk-profiles” etc. These are the basic concepts of investing that will guide you though all your investments.
Step I: Setting Investment Objectives!
As we mentioned earlier, there are many reasons why you should invest. Some of them are “short” or “medium-term” things like the “big buys” that you want to make. Some of them are more “long-term” like “you want to retire at 45” or “you want to become a crorepati at 45” etc. Setting the objectives for an investment before making a particular investment is the first step! Just to give you an idea, let us take an example. Suppose there is a Mr.Raju and he wants to take his wife for a trip 5 years from now. Now, Mr.Raju has a elaborate trip planned for his wife. He calculated his expenses and it has come to Rs.400,000. Raju is wise and he knows all the bad effects of taking a loan from the bank so he has decided to invest some money every month so that 5 years from now he has Rs.400,000 in hand. This is Raju’s investment objective. This is what Raju keeps in mind while investing. So Raju finally does the required calculations and figures out that: If he invests only Rs.6,800 every month then after five years, if the money grows at 15% then he will have Rs.587,000. Raju thinks that this is perfect since he can afford to invest Rs.6800 each month. This is how investments are done. Before you make any investment, you must first decide “why are you making that particular investment?”. Then you will know how much money you need to accumulate and in how much time. Once this is known, you can calculate backwards and you will know how much you need to invest each month to reach your aim. Don’t just make random investments. This generally gives you the feeling that you are investing
a lot but later on you will realize that it was not much since you invested in an unorganized manner! Before making any investment, decide your investment objective. This means that you have to basically decide two things:
1. How much money you want to accumulate? 2. In how much time?
Step 2: What is your “risk-profile”?
In investments there is a relationship between “risks” and “returns”. The higher the risks the higher the returns. The lower the risks the lower the returns. There are some investments you can make which will “double” your money within a very short time. However, these investments are really “dicy” or “risky”. If they do not go as planned, you may end up losing the money you invested. For example, a friend of yours comes to you and says, “I have a great business plan! I want Rs.40,000 from you and within 6 months I will give you Rs.80,000! Please help me out…” This might work, or it might fail badly. The risk involved is high. However, the return of the investment is also quite high! A 100% rate of return in 6 months! There are other investments that are very secure. They have very little or no risk involved in them. For example, if you invest your money in a bank that offers a 6% interest rate, then irrespective of what happens, your money will grow at the small rate of 6% each year. So, basically, before you invest, you first need to check out what is the risk associated with the investment. Is it a risky investment? Can you end up losing all the money you invested? Or is a safe or “sure-shot” investment? Then you need to see your situation and your “investment objectives”! Can you handle the risk of the investment? Is it crucial that the investment pays off for your objectives to be accomplished? Is the time in which your objective must completed so low that you NEED to take up a risky investment with high returns? Think wisely about this and your situation and your objectives! If you do not, you may end up losing a lot of money! Think practically and realistically! We are not able to give you more practical information about this because everyone has a different situation and different objectives and can take up a different amounts of risk. Generally young people can take up more risk. They have time on their side! Even if something bad happens and the risk causes them to loose some money, they can always recover it since they are young. Since young people can take more risks, they can enjoy higher returns also. One more benefit of investing when you are young! Older people cannot take up so much risk! They do not have time on their hands. If they loose too much money, they do not have that much earning power and they may never recover from the loss.
Next, when we talk about all the possible ways in which you can invest your money, we will also talk about the risk and returns involved in each kind of investment!
Investing in Mutual Funds!
What are Mutual Funds?
Mutual funds are one of the most convenient way to invest! Mutual funds allow you to invest your money like an expert without being an expert! Basically, mutual funds are a way for you to outsource the whole “investing” headache to people who are experts at investing. Simply put, you give the money you want to invest to people who are experts at investing. They will invest your money and make it grow & for this service they charge you a small fee!
Why invest in mutual funds?
Good investing generally requires a good knowledge about the market, economics, world politics and a lot of experience etc. Most people who want to invest their money, do not have the time to follow and learn all these things. For them “Mutual Funds” are the best option. You do not have to worry about anything when investing in Mutual Funds. You just have take out the money for investing. The Mutual Fund managers are people who will do all the work for you and make your money grow! The actual process of investing in mutual funds is also quite easy. You do not have to do anything except for write a cheque and give it to the mutual fund company. You do not have the hassles of using a “broker” or a “demat” account or anything. Besides this, there are certain mutual funds that will “really” help you in your financial planning. There are certain mutual funds that are designed to help you invest and accumulate money for your “big buys”! All in all, we highly recommend that you use mutual funds for investing, as you are probably a new investor. Mutual funds have some risk associated with them. But the risk is not very high. It is generally considered to be a moderately safe investment. However, mutual funds can produce pretty good returns! One of the best things about mutual funds is that they are “liquid”! What is liquid? To understand what “liquid” means, let us try to understand what non-liquid investments are. There are some investments that take some time period to “mature”. This means that once you invest the money in the investment, you cannot withdraw it until the time period is up. Once the time period is up, then only will you be able to withdraw the money you invested and the returns produced. These investments are non-liquid. If on the other hand, you can withdraw the money invested and the returns at any point of time, then the investment is considered to be a liquid investment. Generally, it is good to try and put your money in liquid investments. This is because in case there is a sudden need for money like an operation, an accident etc. you should not have to borrow money. You should have the money available.
Mutual funds are very liquid investments. The process of re-claiming your money in most mutual funds will take a maximum time of 2-3 days.
How to invest in mutual funds?
There are many different kinds of mutual funds. Instead of trying to figure out what is good for you what is bad for you etc, you should get yourself a good mutual fund agent! You just call one of these agents up and tell them you invest in mutual funds. They will help you out with everything that you need to know. You just have to tell them what kind of “financial aims” you have and they will come up with a whole plan for you to reach your “financial aims”! In case you do not know any “mutual fund agents”, check out this site: Karvy You can ask for a mutual fund agent from Karvy though this form.
Assured Return Investments!
These investments that are 0% risk investments. Because they are 0% risk investments, they also give low returns. The retunes are fixed and not very high! However, for people who cannot take too big risks, these are good investments. Below, we have explained all your choices of assured return investments. The possible choices for assured return investments are: 1. Fixed Deposits (FD's) 2. Public Provident Fund (PPF) 3. Employees Provident Fund (EPF) 4. National Savings Certificate (NSC)
5. Kisan Vikas Patra
6. Post Office - Monthly Income Scheme 7. Post Office - Time Deposits We have explained all of these in the next few pages!
Fixed Deposits (FD's)
FD’s are one of the oldest and most common methods of investing. Incase you do not know how it works, you have to give the financial institution a certain sum of money for a certain fixed period of time. After that time period is over you will get the original amount with some interest that you have earned for the time period you invested your money. Just to give you an idea about the time periods and the interest rates you can earn, you can check this out. It is a link to the ICICI Bank FD interest rate chart. All the major banks and other financial institutions also have different FD offers. FD’s are not very “liquid” investments. If you invest your money in FD’s, you will not be able to withdraw it until the FD matures. Generally, if you need to remove your money before the maturity of the investment, you will be able to do so but you will loose the interest that you were
supposed to earn. There are some FD’s that allow you to claim your interest every month or every 6 months etc. There are many different schemes with many different offers! Besides this, if a particular interest rate is decided at the time of investing and the interest rate goes up while your money is invested, you will not be able to enjoy the higher interest rate. However, now-a-days the banks and the financial market is becoming very competitive. You need to check up on the different types of FD schemes available before making any FD investments. There are FD’s offered by non-financial institutions like companies etc. also. These are generally FD’s that will give good rate of returns. They are called Company FD’s. However, the risk involved is also moderately high. However, the companies try to get themselves an AAA rating according to the specifications of the RBI. If a company has an AAA rating, then it can be considered to be a safe investment.
How do I buy a company fixed deposit?
Company Fixed Deposits forms are available through various broking agencies or directly with the companies.
What is the minimum investment for a company fixed deposit?
Minimum investment in a Company Fixed deposit varies from company to company. Normally, the minimum investment is Rs.5,000. For individual investors, there is no upper limit. In case of recurring deposits, the minimum amount is normally Rs.100 per month.
What is the duration of the Company FD scheme?
Company Fixed Deposits have varying duration; they may vary from a minimum of 6 months to 5 years or even more. To check out some companies and the rates that they give, you could check out this link. You can also use Bajaj Capital to invest in these Company FD’s.
Public Provident Fund (PPF) Investing!
PPF is among the most popular small saving schemes. Currently, this scheme offers a return of 8 per cent and has a maturity period of 15 years. It provides regular savings by ensuring that contributions (which can vary from Rs.500 to Rs.70,000 per year) are made every year. For efficient "tax saving" there is nothing better than PPF! But for those who are looking for liquidity, PPF is NOT a good option. Withdrawals are allowed only after five years from the end of the financial year in which the “first deposit” is made. PPF does not provide any regular income and only provides for accumulation of interest over a 15-year period, and the lump-sum amount (principal + interest) is payable on maturity. The lump-sum amount that you receive on maturity (at the end of 15 years) is completely taxfree!! One can deposit up-to Rs 70,000 per year in the PPF account and this money will also not be taxed and be removed from your taxable income.
If you are relatively young and have time on your side, then PPF is for you.
How to invest in PPF?
A PPF account can be opened with a minimum deposit of Rs.100 at any branch of the State Bank of India (SBI) or branches of it's associated banks like the State Bank of Mysore or Hyderabad. The account can also be opened at the branches of a few nationalised banks, like the Bank of India, Central Bank of India and Bank of Baroda, and at any head post office or general post office. After opening an account you get a pass book, which will be used as a record for all your deposits, interest accruals, withdrawals and loans. However, be warned: you can have only one PPF account in your name. If at any point it is detected that you have two accounts, the second account that you have opened will be closed, and you will be refunded only the principal, not the interest. Again, two adults cannot open a joint account. The account will have to be opened in only one person’s name. Of course, the person who opens an account is free to appoint nominees.
Employees Provident Fund (EPF)
The EPF program is a fund, providing money upon retirement, resignation or death, based on the accumulated contributions plus interest. In this scheme both the employer and the employee contribute 12% of annual income towards the fund. Of this 24% contribution, 8.33% is given towards a family pension plan. The remaining portion (15.67%) grows at a rate of 9.5% per annum. This return is guaranteed. Also, investments up to a maximum of Rs 70,000 per annum are not taxed! Withdrawals from EPF is allowed under certain special circumstances like buying a house, children's wedding, etc. If you quit your job and provide a declaration that you do not intend to work for the next six months you can withdraw your EPF.
How to invest in EPF?
This is generally done though your company if you are an employee. You need to find out from your company!
National Savings Certificate (NSC)!
NSC is an assured return scheme and provides for tax saving too! Returns are at 8% for a duration of only 6 years, which is relatively smaller compared to other small saving schemes. Here, investors are required to make a single deposit and the interest is returned along with the principal amount on maturity. However, NSC is not at all liquid, as premature withdrawals can be done under specific circumstances only, such as death of the holder, forfeit by the pledgee or under court's order. NSC investors enjoy tax saving benefits. The interest earner is eligible for tax saving up to a maximum limit of Rs 12,000. Thus, NSC is an ideal investment for those investors who are looking at tax benefits on a longerterm basis and are not too bothered about liquidity.
How do I invest in National Savings Schemes?
NSC application forms are available at all post-offices.
What is the minimum investment and range of investment in NSC?
NSCs are issued in denominations of Rs.100, Rs.500, Rs.1,000, Rs.5,000 and Rs.10,000. There is no upper limit on investment in NSCs.
Kisan Vikas Patra (KVP)
Want to double your investments in less than nine years? KVP is for you! But there's a catch. The scheme, which offers to double your money in "eight years and seven months", offers NO Tax benefits! One can exit the scheme any time after 2.5 years from the investment date, though investors will have to bear the loss of interest for the invested time period. Though KVP is not meant for regular income, it is a safe avenue of investment for those without pressing tax concerns. Liquidity is also reasonably higher here.
How do I invest in Kisan Vikas Patra?
You can buy KVP by filling up the appropriate application form available at post offices across the country.
What is the minimum investment and range of investment in KVP?
The minimum investment in KVP is Rs.100. Certificates are available in denominations of Rs.100, Rs.500, Rs.1,000, Rs.5,000, Rs.10,000 and Rs.50,000. The denomination of Rs.50,000 is sold through head post offices only. There is no limit on holding of these certificates. Any number of certificates can be purchased. A KVP is sold at face value; the maturity value is printed on the Certificate.
Post Office - Monthly Income Scheme (MIS)!
Post office monthly income schemes provide a monthly income at 8 per cent per annum. On completion of six years, a 10 per cent bonus on the principal sum is provided. The scheme offers better liquidity, with investors having an exit option after one year from the investment date. Unfortunately, an exit after one year would also lead to a loss of 5% of the amount invested. While there is no loss of interest earnings, the loss of principal can be significant if the amount invested is high. Investors have to wait for a three-year period to withdraw from the scheme without penalty. The minimum investment for a single and joint account is Rs.6000, while the maximum limit is Rs.300,000 for a single account and Rs.600,000 for a joint account. In short, it is suitable for people who wish to invest a lump-sum amount initially and earn interest on a monthly basis.
How do I invest in a Post Office Monthly Income Scheme?
You can buy a post office MIS at any post-office in India.
Post office - Time Deposits!
Post office time deposits are available for periods ranging from 1 year to 5 years. The current rate for a one-year deposit is 6.25%. Interest payments are made annually. Investors have an exit option within six months without receiving any interest. There is a one-year lock-in for exit with interest. A penalty of 2 per cent is deducted from the relevant rate in case of premature withdrawals. Interest income from this scheme is eligible for tax benefits. So if you are a short to mediumterm investor looking for an annual interest income along with flexible investment tenure, time deposits are suitable for you.
How do I invest in a Time Deposit?
A Time Deposit account can be opened at any post-office.
What is the minimum investment for a Time Deposit?
The minimum investment in a Time Deposit could be as low as Rs.50. There is no upper limit on investment.
Insurance..Why take LIFE insurance?
Life Insurance is bought by almost everyone. And most people buy it for one core reason – to save tax! But this should not be the only reason to buy insurance! Here we have explained some of the reasons why life insurance is a VERY important part of personal money management!
Passing away early
One is never sure about life. We often come across people claiming that nothing is going to happen to them; that they are too young to pass away. But do they really know what the future holds for them? Just read newspaper headlines about the recent Tsunami, the earthquake, bomb blasts etc. that took place and such calamities to understand how the future can be unpredictable. Individuals need to insure themselves to secure the future of those who are dependant on them; especially if they happen to be to only earners in thire family. You wouldn’t want your family to go through hardships or rely on others/relatives, etc. This, in fact, is the MAIN reason why one should buy an insurance policy!
Living too long
Advances in the field of medicine have grown by leaps and bounds over the past few decades. Due to this, life expectancies have gone up. This causes another problem for individuals. It is generally observed that individuals who tend to live way beyond their earning years like say, till the age of 85 or 90, usually face a problem coming to terms with increasing costs of living. Also take into account the increase in medical expenses!
Insurance, if bought at the right time for the right amount provides the required money in such times. Individuals could opt for a pension plan offered by insurance companies, which suits their needs in terms of income, retirement age and expenses post-retirement. Such plans provide an "annuity", which means that individuals keep getting a fixed sum every month/year after they have retired.
Maybe an individual has planned well during his earning years to secure himself financially. He has created assets in such a way that he has a comfortable monthly income to support his family expenditure. But what if an individual were to have a health problem afflicting him or his spouse? What if the treatment were to cost him a sum beyond his financial capacity? Here again, life insurance can help you out in two ways. One, by way of a "medical rider" that provides for money in case of any medical emergencies! These riders are taken along with the life insurance plan and help cover the medical expenses. And secondly by allowing the individual to surrender the insurance policy. Of course this should be done only in case of an urgent need like a serious health problem. Surrendering the policy will help in the generation of a lumpsum amount that can be used for covering the high cost of medical expenses.
Life insurance has always been bought more for tax benefits than to insure human life. But the role of life insurance in an individual’s "tax planning" cannot, in any way, be undermined. Individuals can now invest upto Rs.100,000 in insurance premium to avail of a deduction from taxable income. Now that the extreme need for Life Insurance is understood, you must get your self some life insurance. If you do not do it for your self or if you do not even want to do it to save tax, do it for your family! If you have people who depend financially on you, you MUST MUST MUST get life insurance! There are many different Life Insurance Companies and many different life insurance plans. It is best to get your self a life insurance agent instead of deciding which plan to go in for yourself! In this article we have talked about all the basics of money management. We have not talked about more risky investments like stocks etc. We have just talked about safe investment options that anyone can use. To know about stocks and how to make money in the stock market, you could check out our article: How to make money in the stock market? Best Of Luck! Jai Hind.
Source : http://www.indiahowto.com/how-to-manage-your-money.html