Maximizing Salary Investments: India's Best Options

Investing your salary in India can be a daunting task, especially if you are a first-time earner. It is important to start by setting aside a portion of your income, with most sources recommending 20% as a good starting point. This can be used to build an emergency fund that covers at least 3-6 months' worth of expenses. Once this is achieved, you can turn your attention to investing. A balanced portfolio should include a mix of equity and debt instruments, with mutual funds being a popular option for their flexibility and potential for high returns. The Public Provident Fund (PPF) is also a good option for its tax benefits and higher interest rates compared to bank deposits. Other options include company fixed deposits, gold jeweller schemes, and post office time deposits. It is always recommended to seek expert advice and carefully consider your risk tolerance before investing.

Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a long-term investment scheme that was first introduced in India in 1968. It is a safe investment option that offers guaranteed returns while also helping to reduce yearly taxes. PPF accounts are backed by the Indian government, which means they offer risk-free returns and complete capital protection.

• Tenure: PPF accounts have a minimum tenure of 15 years, which can be extended in blocks of 5 years.
• Investment limits: The minimum investment amount for a PPF account is Rs. 500, while the maximum is Rs. 1.5 lakh per financial year. Investments can be made in a lump sum or in up to 12 instalments.
• Opening balance: A PPF account can be opened with just Rs. 100 per month. Annual investments above Rs. 1.5 lakh will not earn interest and will not be eligible for tax savings.
• Deposit frequency: Deposits must be made at least once a year for 15 years.
• Mode of deposit: Deposits can be made in cash, cheque, demand draft (DD), or through an online fund transfer.
• Nomination: A nominee for the account can be designated at the time of opening or later.
• Joint accounts: PPF accounts cannot be held jointly.
• Risk factor: PPF accounts offer guaranteed, risk-free returns as they are backed by the government.
• Tax benefit: The interest and maturity amount on PPF accounts are tax-free under Section 80C of the Income Tax Act, 1961.
• Partial withdrawal: Partial withdrawals are permitted from the 5th financial year onwards, up to a maximum of 50% of the amount in the account at the end of the 4th year.

The interest rate for PPF accounts for 2024 is 7.1% p.a., compounded annually. To receive interest for a particular month, deposits must be made by the 5th of that month. The interest is calculated based on the lowest balance between the close of the 5th day and the end of the month.

PPF accounts can be opened with either a post office or a nationalised bank, such as the State Bank of India or Punjab National Bank. Certain private banks, including ICICI, HDFC, and Axis Bank, are also authorised to provide this facility. To open a PPF account, individuals need to submit the following documents:

• Duly filled account opening application form
• KYC documents such as Aadhaar, Voter ID, or driving license
• Residential address proof
• Nominee declaration form
• Passport-size photograph

Systematic Investment Plans (SIPs)

SIPs are about investing a small amount over time, rather than a large lump sum, which results in a higher return. This is because of the principle of rupee cost averaging, or dollar-cost averaging. When the market is low, you buy more units, and when the market is up, you buy fewer units, but the amount you invest stays the same. This means you can take advantage of market volatility, buying more units when the market is low and fewer when it's high, thus lowering the average cost per unit.

SIPs are also a good way to impose financial discipline, as they require a fixed amount at regular intervals. They are flexible, allowing investors to increase or decrease the amount they invest according to their financial situation. They are also convenient, as they can be automated through a bank mandate.

SIPs are a good option for those with limited funds, as they allow investors to start with a small amount. However, it's important to note that SIPs often require a long-term commitment, and there may be penalties for early withdrawal.

Company fixed deposits

However, it is important to note that company fixed deposits are not covered by the DICGC (deposit insurance of up to ₹5,00,000 which is only available for bank FDs). This means that if the company defaults, you cannot sell the documents to recover your capital, making them a risky investment option. To mitigate this risk, it is advisable to check the company's fundamentals and ensure it has a good credit rating. Investing in a high-rated corporate deposit with AAA or an equivalent rating signifies the highest safety regarding the payment of interest and the principal.

When choosing a company fixed deposit, consider the following:

• The company's background and track record: Look for a credible company with a history of profitability and timely repayment of fixed deposits and regular interest payments.
• Credit rating: Popular credit rating agencies such as ICRA and CRISIL have a 14-point rating system to determine the assumed risk levels of a company's fixed deposit. A higher rating indicates a safer investment.
• Interest rates: Compare the interest rates offered by different companies to get the best return on your investment.
• Financial history and standing: Assess the financial health and stability of the company offering the deposit.

The eligibility criteria for company fixed deposits include individuals (residents and non-resident Indians), members of Hindu Undivided Families (HUF), educational institutions, and partnership companies. To open a corporate FD, individuals typically need to provide a valid employee ID, government-validated address proof, and two colour passport-sized photographs.

The interest earned on corporate deposits is taxable according to the income tax bracket of the investor. If the interest earned in a financial year exceeds ₹5,000, TDS will be deducted. This can be avoided by submitting Form 15G (or Form 15H for senior citizens) to the bank or financial institution.

Gold jeweller schemes

India is one of the largest consumers of gold in the world. Gold is a good investment to protect against inflation, market volatility, and political turmoil. However, due to its high price, buying large amounts of gold at once can be difficult. This is where gold jeweller savings schemes come in.

Gold savings schemes are financial instruments that operate as systematic investment plans or SIPs, where the investor deposits a small sum monthly, typically between INR 500 to INR 10,000. Instead of earning profits, investors get discounts from the jeweller and interest from banks. Typically, jewellers offer a 75% to 90% discount on the final instalment amount.

Some of the top gold jeweller investment schemes in India are:

• Jos Alukkas' Easy Buy Gold Purchase Plan: This is an online gold scheme where individuals pay instalments of between INR 1,000 to INR 1 lakh for 12 months. After paying all 12 instalments, subscribers are eligible for a 90% discount on one month's instalment, which is added to their aggregate deposits. The scheme lasts for 360 days, and subscribers can purchase 22k pure gold jewellery using their matured amount.
• Tanishq Golden Harvest Scheme: Individuals can invest as low as INR 2,000 per month and in multiples of INR 1,000. After 10 months, the scheme will start maturing, and Tanishq will add a discount equivalent to 75% of one month's instalment. If a subscriber withdraws their deposits after 300 days but before 365 days, they will be eligible for a discount ranging from 55% to 75%.
• Malabar Gold and Diamonds Smart Buy Plan: This scheme allows individuals to purchase "in stock" and "out of stock" jewellery pieces at discounted rates. The scheme offers free maintenance of gold for life, a year's free insurance, and a gold buyback guarantee. Individuals can only get BIS Hallmarked 916 Gold under this scheme.
• PNG Jewellers Gold Scheme
• Kalyan Jewellers Gold Scheme
• Bhima Jewellery Gold Scheme
• Prince Jewellery Gold Scheme

When choosing a gold savings scheme, consider factors such as the minimum monthly contribution, tenure, interest rate/discount, the credibility of the jeweller/bank, and the penalty for premature withdrawal.

Chit funds

• Understanding the Basics: Familiarize yourself with the concept, benefits, and risks of chit funds before investing.
• Setting Clear Goals: Define your financial goals and assess how chit funds can help you achieve them. Whether it's wealth creation or specific milestones, clarity will guide your investment strategy.
• Choosing a Trusted Company: Select a reputable chit fund company with a proven track record, credibility, and transparency. Look for companies with a long history and a large customer base, such as Margadarsi Chit Fund or Shriram Chits.
• Conducting Thorough Research: Delve into the terms and conditions of chit funds, and compare interest rates, fees, and repayment options across different companies. A meticulous analysis will empower you to make informed choices.
• Joining a Chit Group: Once you've selected a reputable company, join a suitable chit group and understand the contribution dynamics and auction process.

• Margadarsi Chit Fund: Founded in 1962, this is one of the largest chit fund companies with branches in Tamil Nadu, Karnataka, and Andhra Pradesh. It offers various schemes, including the popular STE and STF options.
• Government of Kerala Linked Chitty: Backed by the Government of Kerala, this chit fund offers enhanced credibility and security. It is available only to individuals in Kerala.
• Mysore Sales International: Launched by the Government of Karnataka, this company emphasizes the benefits of small initial investments, making it inclusive for individuals with modest resources.
• Shriram Chits: Operating since 1974, Shriram Chits is the largest chit fund entity in India, serving over 2.5 million subscribers. It is known for its timely disbursement of funds and excellent customer service.
• Guru Nanak Chit Fund: This company focuses on customer satisfaction and financial prudence, providing a secure platform for disciplined savings and credit.
• Kapil Chit Funds: With 265+ branches and a large choice of chit funds, Kapil Chit Funds offers diverse financial solutions.
• Louis Chit Funds Private Limited: Operating since 1901, Louis Chit Funds is a leading chit fund company in Ernakulam, offering a platform for savings and credit.

In conclusion, chit funds can be a great investment option for individuals seeking a community-based financial tool that promotes savings and borrowing. They are highly regulated, offer interest-free borrowing, and provide financial inclusivity. However, it is essential to conduct thorough research and choose reputable companies to minimize investment risks.

Frequently asked questions