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Wednesday, December 3, 2008

Savings and Investments

Today in this global economic crisis, everyone is worried about future money, where to put hard-earned (or how so ever you may have got) money as to get better and secure returns. And as per current situations, it is really a tough job to give good advice and many people have again started looking for our traditional savings instruments like PPF, NSC and other stuffs. And there is no doubt, that these instruments will ever fail or may not give you returns. These are really guaranteed instruments where one is always sure how much money he/she will be receiving at the day of maturity.

But always do a good amount of research before putting all your money even in these instruments. There are large numbers of schemes present where you will get guaranteed returns, and all have some different rate of interest or some have taxable interest, some are tax-free. And if somebody is not interested in saving tax while depositing money, you may find other schemes with some higher returns. So always analyze yourself, your requirements, do some research and then invest your money.

Now the question arises, should we stop putting our money into equity market?
The answer for this question is with you only. You have to analyze how much risk appetite you have. But as per some rules or equations defined by experts, one should have equity exposure depending on your age, and the formula is 100 - (your present age). Suppose you are 30 years old, then 70% (100 – 30) equity exposure you can have. But if you have faced this present heat, then you will certainly doubt this and I too start having doubts on these equations. So answer is with us only, how much we can expose ourselves to this market segment.

What I’ll suggest someone is always first do your investment of Rs. 1 lac under section 80c, if you come under tax bracket. And if you can afford home-loan, it is best to utilize that for 80c. But if you cannot afford home-loan and as per current property rates in metros, it is really difficult to take one. In this case, you have to make proper planning, do a thorough research, which options are best and again how much equity exposure you can afford. For section 80c, the best options that I like is to put some money around 15-30% in PPF (Public Provident Fund), do not confuse with PF or EPF. Some percentage of money (around 20-25%) you can put in Tax-Saving Fixed deposits, now I’ll prefer PSU banks like SBI, PNB or any other such bank instead of private banks irrespective of better services offered by private banks, and you may have got the reason for that…

Now you have done almost 55% of your savings, now time comes for equity exposure. For me it is a must to put some money in this segment also, just to move ahead than inflation but yeah with a risk involved. But ELSS as per overall records, have always given 10-20% returns if you invest for a period of minimum 5 years, may be there would be some exceptions that I may have missed-out. So I’ll suggest exposure for around 20-30% in this market. You may also consider going for ULIPs if you are really a fan of it, but for me it is a kind of No-No, you may find some of the reasons in my earlier post. It is always better to have term insurance plan than to go for ULIP. You can put 5-10% in LIC term plans.

Now your savings for section 80c have almost finished, and you can analyze your needs and make some calculations and change the above figures as per your needs and risks. And you will not end up in losses, I bet.

Now the big question comes for those reading this article, if I do not want to save tax, then what?

Then again I will repeat, analyze your needs and risk appetite, sorry for repetitions…
Again I’ll suggest you to go for PPF just to get secure returns but yeah with 15 years lock-in period, but your money is secure with Tax-Free returns. Go for some Fixed-deposits as per your need, check the interest rates, duration, and put your money in small chunks in order to have some liquidity.
Go for good Mutual Funds, ‘good’ you will find by doing some research. And if you have good risk appetite, you may expose to direct equity, but it needs some time to regularly check your portfolio, and if you are some what new to this, read my earlier article, you may find some good tips.
You can also go for commodities, like you may invest in Gold, I do not mean go and buy some jewellery or a bar, but go for Gold ETFs, again you may refer to my earlier post for the benefits of that.

And one thing more, do not invest all your money, always have some good amount of money into your savings account, you never know when you may need some urgently.

Well I think this is enough in this article, if I’ll get some other better options I’ll let you know. And if you have some better options or any other comments, please post a comment so that everyone will come to know about that. Always share your knowledge, it will only grow…



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