Multi Commodity Exchange
Whether it’s retiring early, saving for children’s education, paying off a loan or to live a secured and satisfied life everyone has dreams they can achieve by investing their savings.
However, the question that arises is that, should one leave his money tucked away in the bank or plough it into the stock market where the potential for higher returns is greater but the chances of losing money is higher?
Deciding where to invest depends on one`s attitude towards risk (one`s capacity to take risk and one`s tolerance towards risk) and the investment horizon and non-availability of guaranteed-return investment products.
In such a scenario, investing in equity, which offers returns that are higher than the inflation rate, help to build wealth and to improve the standard of living.
It is fine that stock market fluctuates over time. At present as far as the world economy is concerned it is on a boom. As soon as globalization and liberalization has come into act it has well shaped the economy. India has turned out to be the hot destination for the money investors and this has resulted growth in the sensex .
It was never hoped before that BSE will ever touch the mark of 16000 points. But only due to the new economic opportunities and the confidence of people in India’s economic future it has been successful .
Investing in equity is the way to earn money and to fulfill the dreams. The risk involved with investing in equity can be moderated by careful stock selection and close monitoring.
INVESTMENT AVENUES AND ALTERNATIVES:
Investment alternatives vary from fixed income to variable income which includes RBI bonds, government securities, fixed deposit, equity investments, property and so on.
In recent years the 6.5 percent tax-free RBI Bonds have become a very popular saving instrument -- especially amongst individuals. Till 1996, these bonds gave returns of 10 per cent.
This came down to 9 per cent and then 8 percent and then in 2003 it was reduced to 6.5 per cent (tax free). Nowadays, 8 percent taxable Government of India bonds are also doing well to attract investors who want safe and higher yield.
However, with inflation at nearly 4.5%, the return offered by these instruments were still attractive. However, with the scrapping of the tax-free bonds, safe investment options for individuals have become very limited and people are now choosing to go with either post office saving schemes or equity related instruments.
Take a look at what is happening. Debt funds, which were said to be relatively risk-free, are giving very less returns. Monthly Income Plans offered by mutual funds are also not attractive as their portfolio is made up of 80 percent debt and 20 percent equity. With debt giving very less returns and returns from equity becoming stagnant, the returns from MIPs are also very attractive.
The returns offered by MIPs are totally dependant upon the type of security and debt instruments held by the fund But with recent rally in the stock market, very few people are now going for MIPs and have a very positive sentiment about the market and would like to stay with the market for long. But continuously we still have a single question in mind:
The person in the 30 percent tax bracket, the 8 per cent RBI bonds will give returns of approximately 5.6 per cent. Though this is much lower than the previous 6.5 percent, it is still a better than most other options. If you are a senior citizen, the Senior Citizens Savings scheme offering a 9 Percent yearly interest is a good investment option.
The scheme was announced in the Budget 2006-2007 and was meant for people above the age of 60. However, this scheme has a maximum deposit limit of Rs. 15 lacs while RBI Bonds do not have any limit. In this case, the term for deposit is five years with a facility for premature withdrawal. The 9 percent returns are subject to tax, so if you are in the 30 percent tax bracket, you will effectively get returns of 6.3 per cent.
Another option can be Floating Rate Bond Fund offered by mutual funds. Basically, these funds invest in floating rate instruments and therefore have a direct correlation to interest rates. If interest rates go up the returns from these funds rise and returns fall with a fall in interest rates. This is unlike debt funds, where there is a reverse relationship between interest rates and returns.
A rise in interest rates results in a fall in returns. In the current scenario, these funds are likely to give returns of 5 percent to 5.5 percent. The dividends are tax-free in the hands of the investor and most importantly, there is complete liquidity.
Again, there is no limit on the amount that can be deposited. Also, there is hardly any volatility making it a safe option. If you are willing to take a bit of risk, you can divide your portfolio in such a way that 60 percent is invested in floating rate bond funds and the remaining 40 percent in equity.
That's like having an MIP except that instead of 80 percent in debt and 20 percent in equity, here the 60 percent is in floating rate bond funds. Such a portfolio can give you returns of aprox. 8.5 % to 9.5 %.
The NSCs and the Kisan Vikas Patras give returns of 8 percent so for those in the 30 percent tax bracket, it works out to 5.6 percent. Here too there is no limit on the amount of deposit. However, here the interest is posted only at the time of maturity.
So it is not a good option if you want regular returns. On the other hand, RBI Bonds give returns every six months or half yearly. So, depending upon their risk profile and need for liquidity, one will have to decide on their portfolio.
For anyone below 35 years, it is recommend that one should invest some part of there portfolio in RBI Bonds and in NSCs, KVPs as a long term investments and the remaining in combination of floating rate bond funds and equity But for those above 35, it is advocate that one should look at nearly 40 percent in RBI Bonds, 30 percent in NSCs, KVPs, hence giving safe and regular income. And the remaining 30 per cent in floating rate bond funds and equity.
For those above the age of 60, 40 percent must be put in the Senior Citizens Scheme (of course, this is up to a maximum limit of Rs 15 lakh), another 40 percent in RBI Bonds and the remaining 20 percent in floating rate bond funds, so that one has some liquidity.As an investor one has a wide array of investment avenues available to one
Whether it’s retiring early, saving for children’s education, paying off a loan or to live a secured and satisfied life everyone has dreams they can achieve by investing their savings.
However, the question that arises is that, should one leave his money tucked away in the bank or plough it into the stock market where the potential for higher returns is greater but the chances of losing money is higher?
Deciding where to invest depends on one`s attitude towards risk (one`s capacity to take risk and one`s tolerance towards risk) and the investment horizon and non-availability of guaranteed-return investment products.
In such a scenario, investing in equity, which offers returns that are higher than the inflation rate, help to build wealth and to improve the standard of living.
It is fine that stock market fluctuates over time. At present as far as the world economy is concerned it is on a boom. As soon as globalization and liberalization has come into act it has well shaped the economy. India has turned out to be the hot destination for the money investors and this has resulted growth in the sensex .
It was never hoped before that BSE will ever touch the mark of 16000 points. But only due to the new economic opportunities and the confidence of people in India’s economic future it has been successful .
Investing in equity is the way to earn money and to fulfill the dreams. The risk involved with investing in equity can be moderated by careful stock selection and close monitoring.
INVESTMENT AVENUES AND ALTERNATIVES:
Investment alternatives vary from fixed income to variable income which includes RBI bonds, government securities, fixed deposit, equity investments, property and so on.
In recent years the 6.5 percent tax-free RBI Bonds have become a very popular saving instrument -- especially amongst individuals. Till 1996, these bonds gave returns of 10 per cent.
This came down to 9 per cent and then 8 percent and then in 2003 it was reduced to 6.5 per cent (tax free). Nowadays, 8 percent taxable Government of India bonds are also doing well to attract investors who want safe and higher yield.
However, with inflation at nearly 4.5%, the return offered by these instruments were still attractive. However, with the scrapping of the tax-free bonds, safe investment options for individuals have become very limited and people are now choosing to go with either post office saving schemes or equity related instruments.
Take a look at what is happening. Debt funds, which were said to be relatively risk-free, are giving very less returns. Monthly Income Plans offered by mutual funds are also not attractive as their portfolio is made up of 80 percent debt and 20 percent equity. With debt giving very less returns and returns from equity becoming stagnant, the returns from MIPs are also very attractive.
The returns offered by MIPs are totally dependant upon the type of security and debt instruments held by the fund But with recent rally in the stock market, very few people are now going for MIPs and have a very positive sentiment about the market and would like to stay with the market for long. But continuously we still have a single question in mind:
The person in the 30 percent tax bracket, the 8 per cent RBI bonds will give returns of approximately 5.6 per cent. Though this is much lower than the previous 6.5 percent, it is still a better than most other options. If you are a senior citizen, the Senior Citizens Savings scheme offering a 9 Percent yearly interest is a good investment option.
The scheme was announced in the Budget 2006-2007 and was meant for people above the age of 60. However, this scheme has a maximum deposit limit of Rs. 15 lacs while RBI Bonds do not have any limit. In this case, the term for deposit is five years with a facility for premature withdrawal. The 9 percent returns are subject to tax, so if you are in the 30 percent tax bracket, you will effectively get returns of 6.3 per cent.
Another option can be Floating Rate Bond Fund offered by mutual funds. Basically, these funds invest in floating rate instruments and therefore have a direct correlation to interest rates. If interest rates go up the returns from these funds rise and returns fall with a fall in interest rates. This is unlike debt funds, where there is a reverse relationship between interest rates and returns.
A rise in interest rates results in a fall in returns. In the current scenario, these funds are likely to give returns of 5 percent to 5.5 percent. The dividends are tax-free in the hands of the investor and most importantly, there is complete liquidity.
Again, there is no limit on the amount that can be deposited. Also, there is hardly any volatility making it a safe option. If you are willing to take a bit of risk, you can divide your portfolio in such a way that 60 percent is invested in floating rate bond funds and the remaining 40 percent in equity.
That's like having an MIP except that instead of 80 percent in debt and 20 percent in equity, here the 60 percent is in floating rate bond funds. Such a portfolio can give you returns of aprox. 8.5 % to 9.5 %.
The NSCs and the Kisan Vikas Patras give returns of 8 percent so for those in the 30 percent tax bracket, it works out to 5.6 percent. Here too there is no limit on the amount of deposit. However, here the interest is posted only at the time of maturity.
So it is not a good option if you want regular returns. On the other hand, RBI Bonds give returns every six months or half yearly. So, depending upon their risk profile and need for liquidity, one will have to decide on their portfolio.
For anyone below 35 years, it is recommend that one should invest some part of there portfolio in RBI Bonds and in NSCs, KVPs as a long term investments and the remaining in combination of floating rate bond funds and equity But for those above 35, it is advocate that one should look at nearly 40 percent in RBI Bonds, 30 percent in NSCs, KVPs, hence giving safe and regular income. And the remaining 30 per cent in floating rate bond funds and equity.
For those above the age of 60, 40 percent must be put in the Senior Citizens Scheme (of course, this is up to a maximum limit of Rs 15 lakh), another 40 percent in RBI Bonds and the remaining 20 percent in floating rate bond funds, so that one has some liquidity.As an investor one has a wide array of investment avenues available to one