Even with small, monthly contributions, you can create a handsome corpus if you start early and continue your investment in a disciplined manner with a long-term horizon.
By Adhil Shetty
Investment is an important exercise for individuals looking to create wealth and achieve their financial goals amid rising inflation. It’s also important to start investing early in life so that compounded growth gives you higher returns later in your life, ensuring a secured financial future.
With various financial products available in the market, you don’t need lots of money to start investing. You can start with small amounts that do not pinch your pocket. Even with small, monthly contributions, you can create a handsome corpus if you start early and continue your investment in a disciplined manner with a long-term horizon.
Let’s have a look at five great investment options for Rs 5000 or less.
Mutual funds as investment instruments are well placed to offer you solutions to all your savings and wealth creation needs. All it takes is time, discipline, and patience. You can start investing in mutual fund schemes with as little as Rs. 500 a month. The best way to harness the power of mutual funds is to start a systematic investment plan (SIP). You just have to contribute a fixed amount every month for a tenure you can fix. If you start early and want to invest for the long term, it’s advisable to go for equity mutual fund schemes. In case your risk taking capacity is low, you can have a conservative approach to wealth creation by investing in debt mutual fund schemes.
Public Provident Fund
PPF is a government-backed investment option with guaranteed returns. The minimum required investment in this instrument is Rs 500 per annum while the maximum you can put is Rs 1.5 lakh. You can also do monthly investments in PPF starting from as low as Rs 500. The Government of India revises the rate of return on PPF, as dictated by macroeconomic scenarios. Currently, the rate of return being offered is 7.6%. The greatest thing about PPF is that it is triple-exempt, meaning you pay zero taxes on this investment and its returns. Further, the investments made in PPF are eligible for tax rebate under Section 80C of the Income Tax Act. The PPF comes with a maturity period of 15 years. You can also do partial withdrawals or premature closure under specific circumstances like daughter’s marriage and medical treatment, among others.
The recurring deposit is one of the most popular investment options among conservative investors. It involves saving a fixed monthly instalment with a horizon of a year to a maximum 10 years. One can start an RD with as little as Rs. 100 a month. Currently, the rate of returns on such deposits ranges between 6% and 7% depending on the bank. These are guaranteed returns but investments thus made are not eligible for tax rebate. Your interest earnings from an RD are added to your income and taxed as per your slab. If interest earned from RDs is more than Rs 10,000 per annum, the bank deducts 10 per cent as TDS (Tax Deducted at Source).
National Saving Certificates
You can opt for NSCs from Department of Posts. Such certificates are sold in post offices in denominations starting from a low of Rs 100 to as high as Rs. 10,000. These investment instruments currently fetch you about 7.6% rate of interest which is compounded annually. However, the total amount with interest is payable at maturity. Typically, an investment of Rs. 100 grows to about Rs. 144 in five years’ time. Deposits made in NSCs qualify for tax exemption under Section 80C of the Income Tax Act for the financial year in which investments are made.
Exchange Traded Funds or ETFs are a type of fund – a portfolio of securities such as stocks – listed on a stock exchange. They are traded like stocks. They can be purchased and sold at any point. They have no lock-ins, have very small exit loads and can be purchased in any quantity you want. Via ETFs, you typically have the option of investing in equity and gold. The returns of an ETF track the performance of the underlying securities which can be stocks or gold. You can consider ETFs as an option to make periodic equity or gold purchases if you have a moderate to high-risk appetite.(The writer is CEO, BankBazaar.com)You can now invest in mutual funds with moneycontrol. Download moneycontrol transact app. A dedicated app to explore, research and buy mutual funds.