Investment of Rs.5000 in Mutual Fund for 25 Years Aged Individual

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Mutual fund investments has become popular as risk appetite of individuals have gone up. Here are few queries asked the readers of this blog.

How should an individual aged 25 years and earning Rs. 25, 000 per month invest in mutual fund?

25 years is an excellent age to enter investing in mutual fund through systematic investment plan. If such an individual is ready to invest Rs. 5000 every month in SIP, then long term systematic investing through SIP is recommended. Once such an individual arrives at the time frame for which regular investments are planned, then he/she should assess the risk tolerance and decide on an appropriate asset allocation which can be a mix of equity and fixed income. Then select the funds to start build a portfolio.

Top rated (Rank-1) CRISIL funds for the year 2017 are:

Large Cap1 Year % Returns as on 12Jan2017Small & Mid Cap1 Year % Returns as on 12Jan2017
DSP BR Focus 25 Fund (G)15.4DSP-BR Micro Cap Fund - RP (G)20.5
Kotak Select Focus Fund - Regular (G)18.3Franklin (I) Smaller Cos (G)18.3
SBI Blue Chip Fund (G)12.8Mirae Emerging Bluechip Fund (G)21.2

Finally, review the performance of these funds at least every year and accordingly make changes or rebalance your portfolio to maximize the gains.

What if someone has invested in an ELSS in the year 2015 for 2 years and wants to redeem or take money out?

Equity linked savings scheme or ELSS have a lock-in period of 3 years. It means that unless your investments complete three years, you cannot redeem them.

If someone has Rs 1 Lac and wants to invest for child’s future in mutual fund, how can he go about it?

A sizeable corpus can be created for the child’s future by investing regularly through SIPs in mutual funds. Consider long term goal of minimum 10 years and start investing in the following top rated diversified equity funds by CRISIL (Rank-1):

Diversified Equity1 Year % Returns as on 12Jan2017
Birla SL Advantage Fund (G) 18.5
Birla Sun Life Equity Fund (G)26.1
Birla SL India GenNext (G) 16.2
Principal Emerging Bluechip(G)20.4
Sundaram Rural India Fund (G)31.5

Assuming 1 Lac is deposited in bank, SIP can be started in any of the above two funds for a monthly sum for long term. However it is the duty of the investor to track the performance of the invested fund regularly and assess the growth and realign whether it is moving in the direction of achieving the set financial goal.

Someone who is aged 35 years and has just started investing in mutual funds through SIP in the funds SBI bluechip equity, Birla sunlife top 100, Mirae asset emerging bluechip and BNP Paribas mid cap. Has the investor selected best funds under his/her portfolio or another fund should be invested in?

The fund selection looks good and instead of adding new fund, he/she should increase the allocation to any of the existing investments. This is because, the performance of these funds has been good. Here’s the table showing 1, 3, & 5 year performance.

Name of Fund1 Year3 Year5 Year
HDFC Equity6.3915.7416.06
Mirae Asset India Opportunities7.0518.9219.07
HDFC Top 2008.113.914.63

If this investor still wants to put money in mutual fund, then he/she can try opting for ELSS which carries a lock in period of 3 years.

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Zero Risk, High Return Investments for Low Income Earners in India

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Intelligent investments can make anyone’s wealth to grow substantially. Although the definition of good wealth is very broad, here, we will define it as anyone who starts investing little money and generates enormous wealth after certain years i.e. the returns are far better than the invested amount.

For individuals who earn less and are sole breadwinner of the family, there is a very limited money to invest as they have to meet demand of various things such as day to day expenses for grocery, food, travelling etc. However investment does not mean an individual should have large amount of money. There are many products for low income earners (or any category of individual) to invest in India requiring less but continuous investment with decent return and that too at an absolutely zero risk.

Broadly we will classify these into two categories:

  1. Guaranteed returns and zero risk
  2. High returns and high risk

Considering conservative nature of such low salaried people, we’ll discuss about no-risk investment products, in this article.

Guaranteed Returns and Zero Risk:

Post office monthly savings scheme: Although it requires good amount of investment but the advantage is that an investor would earn monthly income till the tenure ends. For e.g. if a lower income earner invests Rs. 1, 00,000 in MIS for a tenure of 5 years, then he/she would receive monthly income of Rs. 683 and Rs. 1, 00, 000 as a maturity value. This scheme guarantees return and your money will be always safe. It is ideally suited for retired individuals.

Public Provident Fund: This is the most favorite investment product preferred by most of the Indians. A yearly investment of Rs. 1, 00,000 for the standard tenure of 15 years will earn maturity amount of 29.6 Lakh @ 8.1% interest rate. The minimum amount to be invested is Rs. 500 annually. Read more on personal loan for Rs.5000 earner.

Bank fixed deposit: FD is another safe product for conservative investor. And especially for individuals with low monthly income or self earners who do not want to take risk with their hard earned money, FD is a very good bet. Every bank offers different tenure starting from 7 days, 1 month, and one year as per the bank’s guidelines. If someone has accumulated e.g. Rs. 50, 000 and invests in FD for 1 year; then the maturity value @ 6.5% would be Rs. 53, 250 (compounded annually). Similarly for an investment of Rs. 25, 000; the maturity amount will be Rs. 26, 625. Check out credit card for low salaried individuals.

Sukanya Samriddhi Yojana (SSY): This was launched in January 2015 under the Beti Bachao Beti Padhao mission. Accounts can be opened only in the name of the girl child and is a very good return investment product. If a low income earner, deposits a fixed sum of money every month/year for 14 years (which is the standard tenure), then on maturity (i.e. after 21 years) the returns would be excellent. For e.g. an investment of Rs. 1000 & Rs. 2000 every month for a period of 14 years, the returns @ the current rate of 8.6% would be Rs. 5, 83,944 & Rs. 11, 73,887 respectively.

There is a minimum limit of Rs. 1000 that has to be deposited every year. So higher the amount poor salaried/earning person invests, greater would be returns, which are guaranteed and fixed with no risk at all. Compared to PPF, it gives higher returns and has become favorite since its launch. However account can be opened only for a girl child. Have a look how investing Rs. 50, 000 every year will give return of over 26, 00,000 (26 Lakhs).

National Savings Certificate: Similar to PPF and SSY, NSC also offers decent return @8% compounded every six month. Investing Rs. 1000 per month for a tenure of 5 years, will earn maturity value of Rs. 14, 802.

There are many other investment avenues but the ones listed above are recommended by experts and give higher returns.

As you can see above, all of the zero risk investments products require small amount of money to invest. When people earning less, start saving regularly and invest the same, they can create good corpus in the long run. This can help them at the time of need.

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Invest Rs. 2000 per Month & Earn 11.73 Lakh on Maturity, Zero Risk

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You must have heard the idiom – Penny penny makes many. Same phrase can be applied to investment which will earn you good returns. Regular investment for long term in a high return and/or guaranteed product, even for a small amount can create excellent amount of wealth for you.

Although many investors believe in short term gains over long term but any financial advisor you approach will always recommend to focus on long term investment. This is because the wealth created helps in securing financial future of you and your family.

In this article we will consider an example of investing 2000 every month and the estimated returns.

Now there are two types of investment products and we’ll explore both:

  1. High risk: Mutual funds, direct equity, & ELSS. These investments do not guarantee returns, however returns are very high compared to the below mentioned no risk products.
  2. Zero risk: PPF, Sukanya Samriddhi, FD, NPS, APY, endowment/money back insurance policies, recurring deposit

Mutual fund: For investors who do not have technical knowledge of equities/bonds etc. should opt for mutual fund route. These funds are managed by expert fund managers. Your only role is to invest and track the returns at a regular interval. Where to invest and when to exit is decided by the fund manager. In the last 5 years, mutual fund investment has given a return of over 15% which has beaten all other investment products available in the market. So if you invest Rs. 2000 per month (Rs. 24, 000 per year, total of Rs. 1, 20,000) for a period of 5 years in a top performing fund, the return would be nearly Rs. 1, 80,000. If the same amount is invested for a period of 10 years, the estimated returns would be above Rs. 5, 50, 000.

Direct Equity: This form of investment is recommended only for individuals with excellent knowledge of equities and having enough time to track the markets on a daily basis. In the last 20 years, Sensex has given 9 times return. So a monthly investment of Rs. 2000 for let’s say 10 years in a top performing stock can give you an excellent return. Condition is that you buy stock/s, at favorable amount and sell when it is at a peak. For e.g. if you buy 1000 shares @ Rs. 24 each and sell all of it @Rs. 30 each, then your profit will be nearly Rs. 5998 i.e a profit of 24.99%.

Equity Linked Savings Scheme (ELSS): This variant of mutual fund also carries risks as the money is majorly invested in equities and moreover it has a lock-in period of 3 years. The past performance of ELSS funds has given average return of 15%-25%. So if someone invests Rs. 1000 in a top performing tax saver ELSS fund (Rs. 72, 000), the estimated returns would be greater than 85000, which is nearly a 18% increase.

There are other high risk products which we will not cover in this article as the returns from them are low compared to the above mentioned products in addition to the high risks involved. These products are corporate fixed deposits, ULIPs and gold. Real estate is also one of the high return on investment product after mutual fund/equity. However, investor needs to put in lakhs of rupees as an initial investment in order to get good return and is certainly not possible for a poor income earning individual. Read more on Pradhan Mantri Awas Yojana, a government scheme which offers housing to poor earners.

Next we’ll look into zero risk investment products and calculate returns for invested sum of Rs. 2000 every month for a fixed period as per the products standard tenure.

Sukanya Samriddhi Yojana: This has turned out to be the best investment product which was launched in the year 2015. The product carries absolutely no risk and the returns too are significant. Remember that, investor can invest in SSY only if he/she has a girl child. Read more on detailed features of SSY. This scheme is not applicable for someone having a boy. The interest rates are revised every year and for FY 2016-2017 the interest offered is 8.6% compounded annually. If someone invests Rs. 2000 every month (i.e. 24, 000/Year) for a period of 14 years, then the returns after 21 years which is the maturity period will be Rs. 11.73 Lacs.

Bank Fixed Deposit: This zero risk product offers guaranteed returns and has been a preferred by investors over savings account interest. Every bank offers varying interest rates but the average is between 6%-8%. If someone puts in Rs. 1, 20,000 in FD account for a period of 5 years, then the maturity value would be around Rs. 1.75 Lacs assuming 7.5% interest rate offered.

Public Provident Fund: When you ask your parents, the most recommended product carrying no risk at all, then the answer will be PPF. Investment of Rs. 3, 60,000 (i.e. Rs.2000/month) for a standard lock-in period of 15 years will give a return amount of 7.1 Lakh @8.1% interest rate.

Savings Bank Account: Banks in India offers interest rate of 4%-6% for the money kept in a regular savings account. So Rs. 24, 000 deposited for a period of 1 year will give return of Rs. 24, 960; assuming interest rate of 4%. And when kept for 3 years, the maturity amount will be Rs. 26, 660. So as you can see compared to bank FD, savings account offers very less returns.

National Savings Certificate: This small savings scheme offers deposits in the range of Rs. 100, 500, 5000 and 10000. So you can purchase 4 certificates of Rs. 500 each i.e. Rs. 2000. The maturity amount will be Rs. 3032 @ interest rate of 8.5% for a 5 year tenure.

Recurring Deposit: Another preferred product especially by investors who do not want to take risk. If you want to develop a habit of savings then recurring deposit is worth recommended. A monthly installment made for Rs. 2000 for 12 months will give a return of nearly Rs. 25,000. assuming annual interest rate of 7%. Investors can open RD account in any nationalized/private sector bank such as SBI, Axis, ICICI, HDFC, Bank of India, and others. Depending on the tenure banks offer varying rates but are in the range of 7%-8%.

There are other zero risk products such as money back policies, pension plans and others. But their main objective is to cover life.

Here’s the table showing returns generated after investing Rs. 2000 per month in the above mentioned products. It is assumed that investor does not withdraw money prematurely or miss any periodic payment. Interest rates are assumed depending on the past performance or the standard rates offered for the respective product.

Investment ProductInterest/Growth % AssumedTotal Invested Amount (Rs. 2000 per Month)
Tenure (in Years)Maturity AmountRisk Involved
Mutual Fund
15%
2,40,000
5
5.5 Lakh
Yes
Direct Equity
25% (This is profit %)
24,000
NA30,000
Yes
Equity Linked Savings Scheme (ELSS)18%
72,000
3
85,000
Yes
Sukanya Samriddhi Yojana8.60%
3,36,000
14
11.73 Lakh
No
National Savings Certificate
8.50%
200053032No
Savings Account
4%
24,000
124,960
No
Public Provident Fund
8.10%
3,60,000
15
7.1 Lakh
No
Bank Fixed Deposit
7.50%
1,20,000
5
1.75 Lakh
No
Recurring Deposit
7%
24,000
125,000
No

So as you can see Indian investment market is flooded with range of products. And investing in best product keeping in mind the financial goal should be your prime focus.

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Wealth Creating Insurance Policies: Endowment, MoneyBack & ULIP

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It’s a myth that life insurance policy’s sole purpose is to pay up in an event of the death or when the policy matures. However very few amongst us, know the fact that life insurance policies are flexibile too. i.e. they serve dual purpose – providing life cover and give returns. So investors get combined benefits of protection, saving and investment in order to meet their varying financial requirement and at the same time offering ample opportunity for wealth creation.

Such policies that offer savings and investment options are known as endowment plans and ULIPs. And the most popular variant of the endowment plan is the money back policy. In this policy, investor gets pre-defined set of money at pre-fixed interval.

Let’s get into detail of such policies.

Endowment Policies:

The dictionary meaning of endowment is gift in the form of money. These life insurance plans are designed to pay a lump sum after specified number of years – which could be due to the policy holder’s death or when the policy matures. Typical endowment plans are for long term ranging from 10, 15, and 20 years or may be more than that.

The basic objective of long duration policies offering lump sum amount of money, is to meet the financial goals like child’s marriage or education. But some people also buy them to create own’s retirement corpus. In addition to this, some endowment plans also provide yearly bonus. So at the end of policy term, both the sum assured and bonus are paid out. Endowment plans are best recommended to risk averse investors wanting to generate moderate amount of wealth which is 100% tax free. Read zero risk, high return investment options in India.

Money Back Policies:

This is again a type of endowment plan. And the sole purpose of this policy is to create wealth for the policy holder and distribute it during the tenure of the policy. In addition to this, life is covered during the term of the policy and the maturity benefits are paid at regular intervals i.e. survival benefits are paid out in 5 year interval. So someone buying a policy for 20 years, will get survival benefits in 5th, 10th, & 15th year which is X% percent of the sum assured. And at the end of 20th year, Y% percent of sum assured, which is greater than X% with accrued bonus will be paid.

Unit Linked Insurance Policies:

These policies also have two main purposes: secure life and create wealth. In ULIPs, certain part of premium paid is dedicatedly used for providing life cover to the policy holder and the remaining premium amount is invested in equity, debt or both. This assigning of common pool of money is called as fund. The only risk associated with ULIP is the investment done in equity and debt which are linked to market. So fund performance essentially is the deciding factor for building wealth. But at the same time, investors are given a choice to switch between different funds and maximize wealth creation.

Here are some of the best wealth creating policies out in the market:

Endowment PolicyMoney Back PolicyULIP
Endowment Assurance by LICLIC Money Back PolicySBI Life Wealth Assure
Savings Suraksha by ICICI PrudentialSBI Life Smart Money Back GoldMAX Life Fast Track Growth Fund
Life Samriddhi by Bharti AXABajaj Allianz Cash AssureHDFC Life Click2Invest
MetLife Endowment Savings Plan by PNB MetLifeHDFC Life Super Income PlanICICI Pru Wealth Builder
Premier Endowment Plan by Kotak Life InsuranceReliance Life Super Income PlanICICI Pru Guaranteed Wealth Protector
Reliance Life Endowment Plan by RelianceAegon Life Regular Money Back InsurancePNB MetLife Smart Platinum
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Invest Rs.1000 in Domain Name & Earn Over Lakhs/Crores

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The subject line of this post looks fishy or gimmick. But trust me, its not. Ever imagined any investment less than a Rs. 100 can fetch you over thousands, lakhs or even more?

Years back your grandfather must have purchased house/land for some 100 or thousand rupee whose worth today might be in Crores. But buying same piece of property today at the same price is IMPOSSIBLE. Real estate as an investment product, is now only for riches whether it is buying a property in a metro or tier-II cities.

So how can you still invest small and get excellent returns which are worth in thousands or lakhs. This is possible through domain investing, a very common type of investment in a technical industry. It is an investment type where you can invest money in buying a website domain name (for e.g. hotels.com or diamonds.club).

Now look at below mentioned domain names and the price which they were sold for:

Domain NamePrice Sold At (in Dollars)Equivalent INR
hotels.com11 Million73 Crores
internet.com18 Million120 Crores
privatejet.com30 Million201 Crores
FB.com (Purchased by Facebook)8.5 Million57 Crores
Business.com7.5 Million50 Crores
Toys.com5.1 Million34 Crores
English.club17, 50011.75 Lakhs
Diamonds.club82485.5 Lakhs
S.club37, 98426 Lakhs

Whoever were owner of these domains, must have purchased them at a fraction of cost. And after holding for few months/years, they sold at above mentioned whopping sum. The returns would surely incomparable to any form of investments today.

How much does it cost to buy a domain name?

Two factors play a very important role in domain buying – name of the domain and the cctld (country code top level domain). Higher the demand for the name and cctld, higher would be the price for which it would be sold. But note that it’s very difficult to find such domains because they are unavailable or already purchased by someone else.

According to the domain experts, following TLDs are always high in demand:

  • .com
  • .net
  • .guru
  • .club
  • .live
  • .xyz

And better the name of the domain (i.e. with a high demand) e.g. hotels, london, dollars etc., greater would be its monetary value.

Where to purchase domains from:

There are many online companies’ websites you can purchase and put your domains for auctioning i.e. selling. Prominent and trusted companies across the world are:

  1. GoDaddy (Also provides auctioning service)
  2. Sedo (It’s a domain marketplace i.e. you can only sell/purchase)
  3. Google Domains (You can only buy domain name)
  4. Dreamhost (You can only buy domain name)
  5. Flippa (It’s a domain marketplace i.e. you can only sell/purchase)

If you visit GoDaddy website (https://in.godaddy.com/) and search for insurance.xyz then the selling price is Rs. 44 Lakhs, dollars.xyz is available at Rs. 20 Lakhs and so on.

Are such worthy domains available easily in the domain marketplace?

Answer is No. But there are many untapped domain names which you can search, buy and put for selling.

How many domains should be purchased?

There’s no definite number. What matters is the name and TLD. Quality domains will sell the most and early. It’s like a real estate. Best one would fetch you the most money.

How much time it takes to sell a domain?

Again there is no definite answer to this. If the domain is good, you can even sell it within a week.

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2016 Financial Planning: Buy Life, Health Insurance, Zero Risk Products

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If you have not yet planned your finances for the financial year 2016-2017, then here are the tips on where to put your money for securing your financial future.

Buying insurance policy but first understand your objective: Often people put money in buying insurance (health, life, etc.) without even considering their objective and detailed offerings by the policy and later realize the mistake when their claims are rejected or they do not see any benefit, resulting in discontinuing the policy in between i.e. wastage of money. Most of us trust blindly on insurance agents whose main objective is to sell insurance policy. Listening and suggesting policy as per your need is not their first priority. So before you make a decision to buy any policy, do a thorough research on the coverage. You can also save money by buying policy online. When purchased through agents, you end up paying more as companies have to bear extra cost such as agent’s commission, etc.

Buy health insurance: Despite being one of the top medical tourism destination, cost of medical treatment is continuously rising and for Indians there are no visible signs of the expenses coming down. And for the people with no health insurance, unexpected medical emergency kills their hard earned savings. So make a resolution to buy best health insurance policy which will cover your whole family. Even if you have a group cover, buying a personal health insurance will come to your advantage. Because when you move to another company where group cover is not available or lose your job and medical emergency arises then your personal health insurance will come to the rescue.

Buy Life Insurance: Savings and security is the main reason for having a life insurance. And especially for a single earning member of a family, having a life policy is highly recommended. This is because in case of unfortunate event, your nominee will get pre-defined amount of money. So for securing the financial future of your family, buy a term insurance.

Invest in zero risk/fixed income investment products: There are broadly two categories of investment products viz: Zero Risk (PPF, KVP, NSC etc.) and High Risk (equities, mutual funds etc.). The major difference in both is that, no risk investment products offer guaranteed returns whereas risky products offer higher returns in the long run, but they are not guaranteed. For an individual who does not want to take a risk, investing in no risk products is a ideal solution especially PPF, Sukanya Samriddhi is recommended as the returns are guaranteed, though small compared to high risk products such as mutual funds, equities etc. In addition to this, you will get income tax benefit.

Invest in high risk products: This recommendation is only for investors who are ready to take risk. The benefit is that the returns are higher when invested for long term. Ideally historic performance of products is analyzed and calculated assumptions are made on the future returns. However, it is not always the case as products such as equities, mutual funds and others are dependent on various internal and external market factors and do not offer guaranteed returns. Moreover 2015-2016 was a roller coaster year for the Indian equity market as midcap funds delivered better returns in comparison to fixed income funds. You can also take help of financial advisors. If you are thinking of investing in stock market, go for sector specific stocks such as IT and pharmaceuticals. As per market analysts, these two sectors are expected to give good returns when invested for long term.

Invest for child’s future: For securing your kid’s future and giving them good education and saving money for their marriage, it is essential to start investing as early as possible. You can invest in various kinds of products as mentioned in this article. If you have a girl child then investing in Sukanya Samriddhi Yojana should be in your list. It is considered to be the best investment product for securing the future of the girl child. Moreover it gives assured returns which are best compared to other products such as public provident fund. The money received on maturity can be used for the girl’s education and marriage. Check out more on the features of SSA.

Apart from the above listed recommendations, it is highly important to follow the below listed rules. They look very simple but are very beneficial:

  • Maintain expense list: Writing down your everyday expenses will help in cutting the cost on unnecessary expenses. Every month end revisit these expenses and give a 15 minutes thought on how to save money in the next month. Trust me – this works.
  • Save money: Everyone wants to save money but still we end up buying unnecessary things and later realize the mistake. So aim towards saving money wherever possible – buy cheap medicines, look for low cost health care options, look for online deals/coupons, buy stuffs during offer season, sell your old stuffs online rather than dumping it.
  • Pay bills on time: Never miss on paying any of your bills after the due date especially loans and credit cards. This is because, you’ll end up paying higher interest and most importantly your credit score will take a hit. And any future application for loan or credit card might get rejected, if you are a frequent defaulter.
  • Keep track of all your investments: This is especially for those investors who trust blindly their financial advisors, fund managers, share broker, and others but do not themselves check performance periodically. It’s your money and its your duty to keep a check on it.
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Invest Rs. 5000 per Month, Earn 30 Lakh on Maturity

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When it comes to investment, the most recommended suggestion across the globe is long term. This is because any amount invested for a short period will naturally earn low return, unless you invest in a product which gives unexpected return, which is impossible. And such a product does not exist.

There are two types of investors, one who are ready to invest in high risk products expecting good return, and the ones who want to play safe bet and want to earn guaranteed returns, though less. In the latter category, normally small to medium class individuals fit with limited money to invest.

Let’s consider an example of an individual, who wishes to invest 5000 per month. We’ll consider various investment options for him categorized as high risk and zero risk.

We’ll start with high return on investment products:

  1. Equity market or mutual fund: Sensex has given an annualized return of over 16%-17% between 2006-2015. So a monthly investment of 5000 for 10 years (i.e. a total investment of Rs. 6,00,000), would give a return of nearly 12 lakhs. If the same amount is invested for 20 years, the return amount will be nearly 50 lakh. For this calculation, 12% interest is taken into considering keeping the fact in mind that previous growth rate may or may not be possible. Such a big return is possible because of compounding in which you earn returns over the gains. So either you directly invest in stocks by doing your own research or through equity mutual fund schemes, which is managed by expert fund managers. Although equities are considered to be very risky but considering the returns in the past 10-15 years, you can expect such excellent returns when money is invested in best stocks/managed to top fund house. Fund houses also offer monthly schemes providing regular income and capital growth. Normally the money collected is invested in government bonds, equities and debt instruments. And these are less risky compared to equities or equity mutual funds.
  2. Invest in Gold: You can also invest 5000 per month in gold investment schemes run by various jewelers. Normally such schemes require an individual to invest certain amount for 11 months and for the 12th month, jeweler will put money equal money from his side. So your total accumulated money will be Rs. 60, 000 (55, 000 + 5000). This money can then be used for purchasing gold but only from the same jeweler. Most importantly there is no cashback after maturity and purchasing gold is mandatory. But when gold rates are on peak, you can sell the purchased gold at the same jeweler at book good profit.

Zero risk products:

  1. Public Provident Fund: PPF is the most preferred investment product giving a return of nearly 8.7%. If you invest Rs. 5000 per month, for a period of 10 years (i.e. a total investment of Rs. 6, 00, 000) the maturity value would be Rs. 9,40,979. PPF works on compounding and the interest rate are declared by the Indian government in March every year. In order to invest in PPF, individuals need to contact post office and banks (public and private). Note: For 2016-2017, interest rates have been reduced to 8.1%.
  2. Sukanya Samriddhi Account: This saving scheme was launched with an objective of securing the future of girl child. Natural parent or legal guardian can open account in post office or bank and deposit a minimum of Rs. 1000 every year/month. If you invest Rs. 5000 every month, for 14 years the maturity amount will be a whopping Rs. 30,78,920 assuming the interest rate of 9.2% applicable for the financial year 2015-2016. Even though you have to invest for 14 years, the account matures on completion of 21 years. Check out maturity value for various deposits in SSY.
  3. Recurring Deposit: It is another best option to invest especially when the amount is small. Continuing with our example of investing 5000 per month, the return after 10 years would be Rs. 9,18,110 assuming average interest rate of 8% offered by post office or most of the banks. Your total investment would be Rs. 6,00,000. The power of compounding plays a key here as you earn interest on interest.

So as you can see, how a small investment of Rs. 5000 every month will create good wealth when invested for long term. Compounding is a game changer especially for early investors who do regular deposits in either high risk or zero risk schemes as mentioned above. There are many other investment products in both these categories but the above listed ones have proven to be successful for many.

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Invest Rs. 1000 per Month, Earn 6 Lakh on Maturity

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Investing regularly for long term gives guaranteed returns. This helps in safeguarding financial future of an individual. And for a family this is key for a secured future. However the question arises how much is the return on investment so that income generated beats inflation? And most importantly which investment product should a person invest in because markets are flooded with various investment products.

We will take an example of investing 1000 per month in various products and the expected returns out of each after a certain time period. We’ll divide the investment into two categories:

  1. Low risk, guaranteed returns
  2. High risk, high returns

We will start with low risk and guaranteed return investment products and how much return Rs. 1000 invested will give.

  • PPF: This product is considered to be the best way to invest money for tax saving as well as guaranteed returns although it gives reasonable returns. If you invest Rs. 1000 every month for a period of let’s say 1 year (Note: 15 years is the lock-in period), then after 1 year the closing balance would be Rs. 13, 044. For this calculation, 8.7% interest is assumed. Every year PPF rates are revised by the government. The interest is compounded annually. If you continue investing Rs. 1000 per month until the maturity i.e. 15 years (i.e. a total of Rs. 1, 80,000) then when the scheme matures, you will get Rs. 3, 60,350. So you are actually getting double returns. You can contribute to PPF through post office and select public and private sector banks such as SBI and ICICI.
  • Sukanya Samriddhi Yojana: The scheme launched in 2015 authorized by Ministry of Finance has evoked an excellent response. However this account can be opened only in the name of a girl child. Deposit of Rs. 1000 per month for a period of 14 years which is the investment period (total invested amount will be Rs. 1, 68, 000); would fetch an excellent return of Rs. 6, 15, 784 when the scheme matures on completion of 21 years. For this calculation, 9.2% interest is considered. Every year government revises the interest for this scheme. You can read in detail about the features of SSY here.
  • NSC: National savings certificate fetches a return of 8.5% – 8.8% for term of 5 and 10 years respectively. So a Rs. 1000 invested for 5 years will give a return of Rs. 1, 516. And the same amount after 10 years will give return of Rs. 2, 299. Every year the interest rates are set by the government.
  • Fixed deposits: This is another guaranteed return investment product offered by various banks in India and post office. Interest rate differs for each and is normally in the range of 7.5%-9.0%. A thousand rupee invested every month (total Rs. 12, 000) for a period of 1 year will give a return of Rs. 13, 020.
  • Recurring deposit: Another preferred product especially by salaried lower income individuals. If you plan to save small amount every month then RD is best suited. A monthly installment made for Rs. 1000 will give a return of Rs 12, 530 assuming annual interest rate of 8%. Interested individual can open RD account with various banks such as SBI, ICICI, HDFC, Bank of India, and others. Depending on the tenure, each bank offers different interest rates but is in the range of 7.50%-8.50%.

There are many other secured products where you can invest every month. But the above listed ones are highly recommended. And higher the amount invested, higher would be returns.

Now we’ll discuss about high risk high return products. These are the best preferred by investors who are ready to take risk.

  • Mutual funds: Depending on the fund house such as Axis, HDFC, DSP, ICICI, and category of the asset (e.g. equity, bond, etc), the returns would vary. So if your target is to earn a return of Rs. 50 Lakh and you plan to invest 1000 per month in SIP then you will have to continue investing this amount for 30 years. On the other hand if you invest higher amount let’s say Rs. 8, 000 then you will have to invest for 15 years in order to meet your return target. So as you can see, higher the invested amount consistently every month, faster you would reach your target. For above calculation, 15% annual RoI is considered. However the downside of mutual fund is that the returns are non-guaranteed. This is because they are linked to market conditions (national and international), economy, company earnings, weather and others which are not in control of anyone’s hand, and hence risky. Investments in MF are managed by fund managers of the respective fund houses.
  • Equities: You can also directly invest or trade in stocks. However equity is considered to be most risky and the reasons remain the same as mentioned above for mutual funds. Rather than trading, investing in stock market is always recommended as equity market has outshined other investment products when done for a long term. So if you plan to invest 1000/month for long term e.g. 10 years i.e. a total amount Rs. 1, 20, 000 then you can expect return of Rs. 2,35, 000 – Rs. 2, 75, 000. Assuming equities have given an average growth of 12%-15% in India. However what stocks you invest in, holds a key. So always take help of market experts or brokerage house before investing. Or go through a SIP mode as mentioned in the above point.
  • Gold: Many prominent jewellery house such as Tanishq, TBZ and others offer monthly gold investment schemes with an objective of making gold purchase easy. Investor needs to pay certain amount every month for a year or 11 months and after this, jeweler will put additional installments (1 or 2) and the final accumulated amount can then be used to purchase jewellery. So for e.g. you invest 1000 for 12 month i.e. a total Rs. 12, 000, then jeweler will credit another 1000 or 2000 from his side i.e. your total balance becomes Rs. 14, 000 and you can then buy gold worth this amount. The only cons of the scheme is buying gold is must. There are other conditions too such as you cannot buy another form of jewellery such as diamond, pearl etc. You have to buy only gold and that too from the same jeweler. This condition varies for each jeweler. There are different schemes on the similar line offered by jewelers. This scheme is risky because gold prices are fluctuating and at the time of maturity if the gold price is down then investor will lose. Moreover you cannot take cashback or purchase gold for only a fraction of the balance and also have to pay for making charges. Premature closure results in deduction from the accumulated money.

So best value for money when investment amount is small e.g. Rs. 1000, is to invest in low risk products. This is especially applicable for individual’s who do not want to take risk.

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Best Investments for Child: Zero, High Risk & Guaranteed Returns

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While investing, one of the major objective is the return. Higher the assured return and lesser the risk, higher is the likelihood of investor to choose the product. And when it comes to a child, primary objective for investment is education and marriage. So that by the time you enter into retirement, there is no financial trouble to arrange money for the same. And in order to meet this objective, long term planning plays a very important role. This is the reason why it is recommended to start investing immediately after a child is born this is because the corpus is bigger when you start early. Apart from returns, you should also consider expenses such as healthcare, clothings, food, etc.

Listed below are the investment schemes especially for child categorized as zero risk and decent return and high risk and high returns:

Zero Risk, Guaranteed Returns:

Sukanya Samriddhi Yojana: Made especially for girl child, this investment option is considered to be the best in the industry giving a return of 9.2% compared to PPF. Long term returns are excellent and if you invest Rs. 30,000 per year (i.e. total Rs. 4, 20, 000 for 14 years) then maturity amount will be Rs. 15, 781, 53 which girl will receive after 21 years which can be used either for education or marriage. Moreover investment and returns are fully exempt from tax. Since the returns are fixed depending on the invested amount, it is considered to be the safest investment. Here are the detailed articles on maturity amount calculation for SSY and its various benefits and eligibility criteria.

Child Insurance plans: This is a must to have product in every parent’s portfolio. Its main objective is to provide lump sum amount in an event of death of the policy holder and moreover the policy continues to be active and child keeps getting money at intervals specified according to the terms and conditions of plan. And in case of the death of the policy holder before the policy expires, the burden of paying the future premiums passes on to insurance company and neither the child nor any other person from the family should be worried of making premium payment. And for low to medium income earning parents, there is also an option to pay the premium annually, half yearly or quarterly. Such plans also enforce the parents to save regularly in order to make payment every year. Few such plans are available in the market by most of the companies’ viz. LIC, HDFC Life, Max Life, Shriram Life, Birla Sun Life, and others.

Savings Account: Various banks in India viz. SBI, Kotak, ICICI, Axis Bank, YES Bank and others allows opening of savings account for kids. However each of these bank has minimum age limit and can be operated jointly with parents or guardian. For e.g. ICICI bank young stars account can be opened for children in the age group of 1 day – 18 years. Certain banks offer benefits in the form of free education insurance cover to a certain limit in the event of the death of the parent or guardian. For securing the future, once account reaches certain limit, there is also an option of transferring small amount to a fixed deposit. This is offered by HDFC Kid’s advantage account. But before opening the account; make sure there is no minimum balance required or choose the one with very small balance, there is an auto transfer facility from parent’s account to child’s account, offers insurance cover, provides higher interest.

Fixed Deposits: This fits into the bracket for safe investment product and helps in safeguarding kid’s future. But specialized schemes for kids are offered by various banks in India. Few of these schemes are:

  • PNB Balika Shiksha Scheme – Especially for girl child
  • PMC Bank – Bal Bhavishya Yojana
  • Allahabad Bank – Sishu Mangal Deposit Scheme

Minimum amount required is small in these schemes compared to normal FD account. Through banks such as Canara bank, HDFC bank, and Bank of India, parents can open fixed deposit account for their children ensuring financial protection.

Recurring Deposits: In order to meet the increasing education and marriage cost, RD account is another option requiring small amount to be deposited every month. If you extend the tenure, then banks will offer additional benefits. For e.g. TMB bank gives priority to the RD account customers who make saving for longer duration and request for education loan are done on priority.

High Risk, High Return:

Equities: One of the golden mantra which every financial advisor to gain maximum returns from share market is to invest for a long term. Longer the tenure, bigger would be returns. However, stock market is most risky since it is dependent on various factors which are not in anyone’s control such as climate, economy etc.

Mutual funds for children: There are many MF for child education in the market which has given excellent returns compared to traditional investment products recommended by parents such as provident fund, fixed deposits, savings account and others.

However listed below mutual funds have given returns of more than 16% since their start date:

  • Birla Sun Life Frontline Equity
  • UTI-Opportunities Fund
  • IDFC Premier Equity Fund
  • SBI Emerging Businesses Fund
  • ICICI Prudential Value Discovery Fund
  • HDFC Mid-Cap Opportunities Fund
  • Reliance Small Cap Fund
  • Reliance Banking Fund
  • HDFC Prudence Fund

There are funds especially designed for children:

  • HDFC Children’s Gift Fund-Investment Plan
  • ICICI Prudential Child Care Plan-Gift Plan
  • ICICI Prudential Child Care Plan-Study Plan

The above listed 3 funds have given returns of more than 13% which proves that, they outshine traditional plans. So it is worth recommended to atleast invest in two MF products from each of the above listed categories and secure your child’s future. Although MF carry risks as they are dependent on various factors such as economy, rainfall and many others, in the long run they have proven to be the best. However be noted that a good past performance does not assure similar returns in the future.

So if you still feel confused which investment product to choose for child’s future then take help of financial advisor.

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Investments for Seniors: High Risk & Returns, Zero Risk & Low Returns

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Rising cost of living especially in metro cities along with increasing inflation is making senior citizens or retired person to think about earning money by opting for various types of investments and increasing their bank balance and protect their wealth. Traditional way of earning money through investments made through public provident fund or monthly pension received is not sufficient for living a decent life and manage day to day expenses. Moreover at this age, there is always a risk of medical illnesses which can be taken care of provided health insurance is bought in the early stage of life. If not, then buy a health policy especially made for seniors.

So let’s discuss about the best investment options for senior citizens or retirees. There are two categories of investments viz. high risk high returns and zero risk guaranteed return (i.e. safest). Let’s explore these options in detail:

High Risk, High Return

Mutual Fund: Assuming seniors are looking for returns with short term target to meet their day to day expenses, a very careful approach is required when selecting a fund. Ideally a fund which invests in stocks which has given excellent growth and dividend should be selected. Irrespective of the way you invest in mutual fund, always perform comparison check between different types of funds on your own. Never rely blindly on fund manager. There are funds in the market which have given average return of 18% and have existed for over 20 years. These funds are reliance growth fund, franklin India blue chip fund, HDFC equity and few others.

Indian Equity Market: It is the most seductive investment, a quick money making investment avenue but at the some most risky as it is dependant on various factors which are not in the control of any individual directly. Factors impacting equities are economic condition, weather, international market and many others. However gains from equities have outshined below listed investment options.

Foreign Equity Market: Works on similar concept as Indian equity market but difference is you invest in stocks of companies out of India i.e. foreign countries for e.g. NASDAQ, NYSE, and others. However a strong rupee will only fetch you good return as a weak rupee means lesser returns as exchange rate comes into effect.

Company Fixed Deposits: They are similar to fixed deposits as mentioned below but are risky as the returns depend on the financial health of the company issuing FD. However, if you were to decide on which FD to select, then look for the credit rating assigned such as AAA, AA, C, and others. C rating indicates returns could be riskier and company might default on the returns. Whereas AAA indicates less risky and the company is credit worthy. These ratings are given by CRISIL, FITCH, ICRA, and others. And interest rates offered also varies between 8%-12% per annum.

There are many other high risk high return investment options but above listed have been favorite amongst the investors.

Zero Risk and Guaranteed Returns (Safest):

Senior Citizen Savings Scheme: Specially made for senior citizens, SCSS is for individuals with age 60 years and above with an interest rate of 9.3% per annum. Minimum amount that can be invested is Rs. 1000 and maximum limit is Rs. 15, 00, 000 (15 Lac) and maturity is 5 years. In case of emergency, money can be withdrawn prematurely. If you wish to withdraw money after 1 year then 1.5% of the deposit amount will be deducted whereas if you withdraw after 2 years, 1% of the deposit amount will be deducted. SCSS account can be opened in post office and nationalized banks only. Another benefit of SCSS is, post maturity account can be extended for another 3 years.

Recurring Deposit: For senior people, investing in RD is another safe bet as they get additional benefit in the form of little higher interest 0.25%-0.75% than a normal individual. However this varies from bank to bank. If retired person does not have any regular source of income, then they can make use of their saving and invest a small amount in RD which earns little less than FD and lock-in period ranges from 6 months to 10 years. Also the interest is compounded quarterly. Senior citizens with no regular source of income can opt for RD as they don’t have to pay a big amount in lumpsum and moreover it instills in them a habit to save regularly.

Fixed Deposit: It is similar to recurring deposit with interest compounded annually but offers slightly higher returns compared to RD. This is because in FD you need to invest lump sum amount which earns you interest whereas in case of RD, since the money is deposited every month, interest gets calculated every month on the deposited amount. But again the plus point is that your investments are safe and there is no risk involved. Retired individuals can prefer investing in FD over RD because it gives higher returns. But they are advised to do so when they have sufficient corpus to take care after locking their money.

Post Office Monthly Income Scheme: With a five year lock-in period, this scheme offers 8.4% returns but offers gives assured return. And this is the reason why it is a risk-free investment avenue. Once you open an account, every month interest money is credited into the account which can be withdrawn anytime. However there is a maximum limit which can be invested which is Rs. 4, 50,000 in a year and you can also nominee. So if you have any dependents (wife, husband, children and others), then you can mention their name while opening the account or even after that.

Post retirement, individuals should look for peaceful life and invest money in products which give guaranteed returns. If you are ready to take some risk then plan to divide your portfolio in 75% (zero risk) and 25% in risky options. Avoid the reverse way. In addition, there are many other jobs especially for retired people.

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