There are numerous opportunities available for investment in 2019 to make your money grow by using the tools of compounding and time value of money.
Why Investment in Necessary?
Everyone in today's world want to earn more and save more to secure the future of their families and to make the best use of time to make more money with less span of time.
Investment is necessary because it helps to earn more by investing the idle money kept in your home in the form of cash or the money kept in your saving bank account in which the interest rates are 4-6%.
Where to Invest?
Following are the ways to invest the idle money kept by you and to earn more income :-
a) National Pension Scheme (NPS) - NPS is a Government Scheme aimed to help individuals with a steady income after retirement. It was initially launched for only Central Government employees, but later was opened up for all individuals.
There are 2 kinds of accounts under NPS, these are – Tier 1 account and Tier 2 account.
Tier 1 account is an account wherein the money in the account cannot be withdrawn till the person reaches the age of 60.
However, partial withdrawal is allowed (even before 60 years) from this account in specific cases. Such cases include critical illness, children’s education, wedding expenses, buying or constructing a house.
This account is compulsory for all central government employees. Under this account, they are required to contribute 10% of their basic monthly salary along with DA and DP.
The minimum amount that is required to be invested in this account is Rs 6000 in a year.
An investor who invests in the NPS Tier 1 account has tax benefits of up to Rs 2 lakh per annum under Chapter VI-A of Income Tax Act..
Deduction amounting to Rs 1.5 lakh under the NPS is covered under the overall ceiling of section 80C of the Income-tax Act, 1961.
Moreover, the investor is also eligible to get an additional tax deduction of Rs 50,000 under section 80CCD(1B).
On the other hand, the Tier II NPS account is more like a savings account and there is no restriction on withdrawal of money, at any point in time whatsoever.
The subscribers of this account are free to withdraw their money as and when they require.
In this, the minimum amount to open the account is Rs 1000 and the minimum balance required at the end of the year is Rs 2000.
However, there are no tax benefits for Tier II. Be it at the time of contribution or at the time of withdrawal.
You can register and contribute through the below mentioned link.
https://enps.nsdl.com/eNPS/NationalPensionSystem.htmlb) Mutual Funds - Mutual Funds refers to a pool of money collected from investors who aim at saving and making money through investment. The money so collected is invested in various asset classes like debt funds, equity oriented funds, tax saving funds, money market funds etc.
Types of Mutual Funds based on Asset Class
i) Equity Oriented Funds (EOF) - refers to the fund under the scheme of mutual fund and
a) in case where the fund invested in the units of another fund which is traded on a recognised stock exchange -
- a minimum of 90% of the total proceeds of such fund is invested in the units of such other fund and
- such other fund also invests a minimum of 90% of its total proceeds in the equity shares of domestic companies listed on a recognised stock exchange.
b) in any other case a minimum of 65% of total proceeds collected from investors are invested in equity shares of a domestic company. EOF are more risker than other funds and provide higher returns if compared to other category of funds.
ii) Debt Oriented Funds (DOF) - refers to the funds where the proceeds collected are invested in a fixed interest bearing instruments like debentures, fixed income assets, government securities etc. DOF are less risker than EOF and provide lower return as compared to EOF but it provides better return than fixed deposit in a bank.
iii) Money Market Funds - These funds are invested in liquid instruments like commercial paper, treasury bills etc. They are considered quite safe investment option as you get immediate yet moderate return on your investment.
iv) Hybrid or Balanced Funds - These type of funds are invested in different asset classes. These are time when the proportion of debt is lower than equity. These funds typically invest in mix of stocks and bonds.
v) Index Funds - Indexed funds track the indexes like Nifty 50 on NSE, Sensex on BSE and it has same stocks in its portfolio and in same proportion. As stocks come in and out of the indexes, similarly the fund managers changes the portfolio of index funds and in same proportion.
vi) Tax Saving Funds - Tax Saving funds are mutual funds that has the benefit of tax saving under sec 80 C of Income Tax Act. Most of the tax saving funds are Equity Linked Saving Scheme (ELSS) and make investment in equity markets.
Taxation of Mutual Funds
i) As per sec 111A of Income Tax Act, tax on short term capital gains (STCG) on sale of equity oriented fund (EOF) on which STT is chargeable is at the rate of 15%. In the case of Individual and HUF, the short term capital gain shall be reduced by the unexhausted basic exemption limit and the balance shall be taxed at 15%. For STCG, period of holding of EOF is 12 months or less and debt oriented fund is 36 months or less.
ii) As per sec 112A of Income Tax Act, tax on long term capital gains (LTCG) on transfer of units of equity oriented fund shall be liable to tax at the rate of 10% on such capital gain, if STT has been paid on acquisition of such units. In the case of Individual and HUF, the short term capital gain shall be reduced by the unexhausted basic exemption limit and the balance shall be taxed at 10%. For LTCG, period of holding of EOF is more than 12 months and debt oriented fund is more than 36 months.
c) National Saving Certificate (NSC)
- NSC is a type of investment which can be made in a post office in india and it gives rate of interest higher than fixed deposit in a bank and it is a fixed income investment.
- Currently NSC VIII issue is open for investment.
- Any person can invest upto Rs 1.5 lakhs to claim the benefit of deduction under section 80C of Income Tax Act.
- Maturity period of NSC is 5 years and 6 years.
- Interest on NSC is taxable under income from other sources.
- Banks and NBFC's accept NSC as a collateral for secured loans.
- NSC are currently issued in the denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000, Rs 10,000.
- Premature withdrawal of NSC is permitted in following cases only:-
i) On the death of NSC holder.
ii) On forfeiture by pledgee who is a Gazetted Government Officer.
iii) On the order of court for premature withdrawal of NSC.
d) Public Provident Fund (PPF) - If you go by its name it is a provident fund just like employee provident fund (EPF), recognised provident fund (RPF), government provident fund (GPF) but the only difference is that it is for general public. If you are doing business then you can also open the PPF account and start investing unlike the other provident funds which are only open when you are employee of an organisation whether government or private.
- PPF account can be open with any bank or post office.
- PPF account has a minimum tenure of 15 years and if the account holder wants to withdraw the funds before 15 years, then he/she can do so after completion of 6 years from the date of opening of PPF account.
- Amount deposited in PPF account can be claimed as a deduction under section 80C of Income Tax Act and the interest received on PPF is also exempt.
- Maximum amount deposited in a PPF account is Rs 1.5 lakhs.
e) Share Market - Anyone can invest in share market through mutual funds or directly in share market by opening a DEMAT account with any of the stock brokers registered with SEBI.
- Share market is basically you are investing in the companies listed on National Stock Exchange (NSE) or Bombay Stock Exchange (BSE).
- Investment in companies depend upon various factors like management of the company, whether you are able to understand the business of the company, return on equity, return on capital employed, how much company is dependent on long term debt for the operations of the company?, what is the future of business the company is currently doing?
f) Bonds - The main difference between the bondholders and shareholders are that bondholders are lenders of the company whereas shareholders are owners of the company. Following are the type of bonds that you can invest in India:-
i) Government Bonds - These type of bonds are issued by Reserve Bank of India (RBI) on behalf of Government of India (GOI) to raise money for the development of the country and to meet fiscal deficit and offer fixed rate of interest on them. Government bonds are considered as a viable investment by corporates, banks as well as financial institutions, however now it is suitable for individual investors also. Various types of government bonds are treasury bills, cash management bills, dated government securities,
ii) Corporate Bonds - These types of bonds are basically issued by companies in india to raise money for daily operation or future expansion. Companies can either raise money through equity or debt. Bonds are quite economical than bank loans for companies as they have to lower rate of interest on bonds as compared to bank loans. Corporate bonds are basically risker than government bonds, so the rate of interest is higher than government bonds.
iii) Zero Coupon Bonds - These bonds are basically issued by the companies in india. These are different from corporate bonds because in this no interest is paid at the time of maturity as bonds are issued at discount, so the investor earns the difference between the issue price and maturity value over the period of bond.
iv) Gold Bonds - In 2018 Sovereign Gold Bond (SGB) Scheme was introduced by RBI. Their value is denominated in multiples of gold grams. They are more basically more beneficial than physical gold because in this there is no risk to store the gold and the RBI also provides fixed rate of interest on the value bonds as in case of physical gold, there is no assurance of getting fixed return as the value of gold is keep fluctuating based on different scenarios in the world.
- Person resident in India as defined under Foreign Exchange Management Act (FEMA), 1999 are eligible to invest in SGB.
- Eligible investors include individuals, HUFs, trusts, universities and charitable institutions.
- Minimum investment is 1 gram and maximum investment is 4 kg for individuals, HUFs and 20 kg for trusts, universities and charitable institutions.
- The bonds bear the rate of interest of 2.50% per annum on the amount of initial investment.
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1. Classification of Financial Markets
2. Legal Protection to Consumers in India
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