Steps for first investment

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The biggest benefit of proper investment is that it helps secure the financial future of the investor and comes in handy for important purposes such as treatment and education. Investment provides one financial freedom – it also helps the investors to increase their wealth. If the process can be done over a long period of time it yields better results. Following are some other beneficial features of investments:

  • fulfilling personal goals
  • improvement of knowledge
  • taking care of family members
  • improvement vision

Steps for investment planning

The first step in investment planning is to have a proper budget and then keep track of the expenses. With a proper budget the investor will be able to control the expenses and keep money that can be used for important purposes like children’s education, retirement, and paying debt.

First time investors also need to pay off their debts before starting to invest and also save for emergencies. They can start with a controlled savings program such as recurring deposit accounts or fixed deposits.

If the investor is a working professional, it is a good decision to invest in retirement insurance and pension plans. If the investors have children they can opt for education plans that make sure their wards receive the best in that regard. The fact that these investments have tax benefits makes them better propositions as well.

An investment in residential properties is a good option as interest paid on house loans has tax benefits. This is also applicable for bonds and other securities. It is also important understand why the investment is being done so that the right choice can be made.

Investors can also go for options like equity based mutual funds, which are deemed as risky investment choices. If they are unwilling to take risks, bonds and other types of securities can also be availed.

Leading investment options available in India

Tax Saving Investment Options in India

Fixed deposits: For non-senior citizens, the fixed deposits provide a yearly return rate of 9.25 percent. However, the rate can vary on the basis of guidelines followed by the bank and its tenure. The FDs have a minimum tenure of 15 days and a maximum lock in period of 5 years. Senior citizens can claim special interest rates in these cases. At present, they are paid at a yearly interest rate of 10%.

National savings certificates: The National Savings Certificates (NSCs) are backed and financed by the national government. These are safe options and have lock in periods of 6 years. The investors get a return rate of 8 percent. The NSCs qualify for tax exemption as per Section 80C of the Income Tax (IT) Act for any amount lesser than 1 lakh rupees.

Public provident funds: The public provident funds (PPFs) are similar to NSCs as in they are backed by the Indian government. The minimum investment needed for these is INR 500 and the upper limit is 1 lakh rupees. An investor can start a public provident fund at a main post office or GPO. The PPFs can also be opened at the branches of a nationalized bank.

Gold deposit schemes: The gold deposit schemes were inaugurated in 1999. Apart from individual investors, trusts, Hindu Undivided Families, and companies can invest in these. The minimum level of investment is 200 grams for gold bonds that have an interest rate of 3 to 4 percent, which is free of tariffs.

The interest rate in these cases is dependent on the lock in periods that can vary between 3 and 7 years. However, investors need to keep in mind that these options do not enjoy wealth tariff benefits or exemptions from capital gains taxes. The insured sum can be recovered in either gold or cash, depending on the preference of investors.

Non resident ordinary (NRO) funds: These are ideal for NRIs who want to put their earnings from outside India in the country and then maintain the investment in Indian currency. The best part of this form of investment is that the principal and interest can both be recovered.

Investment can be done in companies such as Non Banking Finance Companies that are registered with the RBI. The interest earned on these is eligible for tax benefits as per the IT Act. The TDS applicable for these savings instruments is 30 percent and this deduction includes education cess and necessary surcharge. The NRI investors can recover a maximum of 1 million US dollars for proper reasons and in lieu of valid tariffs.

Other Investment Options in India

Insurance Policies: Insurance is the most viable economic alternative and offers services to safeguard the life, money, and property of the investors. The profits are risk free and pretty acceptable as well. There are various options and the premiums are reasonable as well. The prominent types of insurance policies available in India are:

  • home insurance policies
  • health insurance plans
  • life insurance policies
  • car insurance plans

Share Market: Since the Indian share market is always variable, it is advisable for the investors to go for a portfolio with stocks from various industries as they are capable of providing long term growth. Prior to investment in stock market, people should make sure that they are prepared to risk the sum that is being invested but the returns are pretty high. It is better to keep the latest information from the world of share market so that the right decisions can be taken.

Mutual Funds: Mutual funds are also fairly risky investment propositions like the share market and provide decent returns. Ideally the following factors should be taken into account before selecting a mutual fund:

  • performance over the long term and short term
  • performance during bearish and bullish phases
  • pattern of returns
  • performance of fund managers

A first time investor can also go for a mutual fund that has received a 3 or 4 star rating from ICRA Ratings, Moneycontrol, Value Research Online or a similarly well known ratings agency to make sure that they do not go wrong with their investments.

How much should one invest?

While investing, an individual should take into consideration the present rates of inflation, health issues, retirement, and other important factors. Ideally in India someone taking home 20 thousand rupees a month should be saving at least 20 to 25 percent of that amount.

For people earning 18 thousand rupees a month, the mutual funds are an easy option. They should also opt for a good mediclaim policy that helps them to deal with all emergencies properly.

Best Portfolios for Investment

iMaximize: This plan from AEGON Religare Life Insurance offers benefits such as total premium allotment and triple protection facilities.

Jeevan Anand: This plan is being marketed by the Life Insurance Corporation, which is one of the most trustworthy providers of such services in India. It provides risk cover after maturity as well. Jeevan Anand also offers special bonuses and profit plans.

MahaLife Gold: This TATA AIG Life Insurance provides life cover for 100 years and high levels of guaranteed benefits.

Monthly Income Plan: The Monthly Income Plan of MetLife provides investors a guaranteed income every month and its bonus payout amount is pretty substantial as well. It also offers family protection services.

iGain III: This plan from Bajaj Allianz Life Insurance offers an allotment of 98 percent and is an exclusive ULIP that can be bought online.

ProGrowth Super II: This plan is being provided by HDFC Life Insurance. It offers features such as life cover, illness, and death benefits. The risk levels vary from low to moderate and the returns are assured as well.

Freedom Life Advantage: This Aviva Life Insurance plan offers complete protection and provides better investment returns. Additional features like loyalty additions are provided on a consistent basis.

Life Stage Wealth II: The investment plan from ICICI Prudential Life Insurance offers tax benefits on the premium payment and the advantages provided. The investors also have the advantage of being flexible with payment of premium.

Smart Save Plan: With this plan from India First Life Insurance the investors can save on a systematic basis. Partial withdrawal facilities are available after 5 years and the plan can be bought online in just 5 minutes.

Wealthsurance Milestone Plan: The investors of this IDBI Federal Life Insurance plan can choose the way they earn their return. There are three major options in this regard – fixed returns, market related returns, and variable returns. The premiums can also be paid according to the convenience of the investor and this plan offers tax benefits as well.

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Last Updated on 4/17/2012