Maximizing Investments: Doubling Your Money In India

There are many ways to double your investment in India, but it requires strategic planning, a deep understanding of investment options, and a willingness to take calculated risks. Some options for doubling your money include mutual funds, National Savings Certificates (NSCs), Public Provident Fund (PPF), fixed deposits, corporate deposits, and investing in the stock market. Each of these options has its own risks and potential returns, so it's important to do your research and consult an advisor before making any investment decisions.

Mutual funds

There are several types of mutual funds to choose from, including ELSS (Equity Linked Savings Scheme), debt-oriented funds, equity-oriented funds, liquid funds, and balanced mutual funds.

When investing in mutual funds, it's important to remember that there is a market risk involved. It is recommended that you consult a financial advisor before making any investment decisions, and that you consider your risk appetite, affordability, and time frame for your investment.

The Rule of 72 is a simple calculation that can help you estimate how long it will take for your mutual fund investment to double. By dividing 72 by the yearly interest rate, you can get an approximate idea of how many years it will take for your investment to double. For example, if you invest INR 1 lakh in a mutual fund with a 12% interest rate, it will take approximately 6 years for your investment to double.

It's important to note that the Rule of 72 provides an estimate and may not give you an exact number of years. The formula works better for lower interest rates, and in most investment options, the rate of return can vary significantly from year to year.

National Savings Certificates (NSC)

National Savings Certificates (NSCs) are a government-backed savings scheme in India, offering fixed interest rates and a secure investment option. The scheme is promoted by the Indian Government and is available at all NSC post offices across the country. The NSC is a fixed-income investment scheme that can be opened with any post office branch. It is a safe, low-risk investment option that provides reliable returns and significant tax benefits under Section 80C of the Income Tax Act, making it a popular choice for risk-averse investors.

The NSC scheme has a fixed maturity period of five years and offers a guaranteed return of 7.7% p.a. for investors. The interest is compounded annually but is payable only at maturity. The scheme also offers tax savings of up to Rs. 1.5 lakh under Section 80C. The interest earned on the investment is treated as a fresh investment for tax purposes, providing further tax benefits. The interest earned in the final year is taxable as per the investor's applicable slab rate.

The NSC is open to all Indian citizens above the age of 10 years. The minimum investment amount is Rs. 1,000, with no maximum limit on the purchase of NSCs. Investments can be made in multiples of Rs. 100. The scheme is not open to Hindu Undivided Families (HUFs), trusts, non-resident Indians (NRIs), or companies.

The NSC certificates can be purchased by visiting the nearest post office and submitting the required KYC documents. The certificates can also be transferred easily from one post office to another. The investor can nominate a family member, including a minor, to inherit the investment in case of their demise.

The NSC is a secure and reliable investment option, offering guaranteed returns and tax benefits. It is a good choice for individuals looking for a safe avenue to earn steady interest while saving on taxes. However, it may not be suitable for those seeking inflation-beating returns, as the returns may be lower than those offered by tax-saving mutual funds and the National Pension System.

Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a long-term investment scheme that is ideal for individuals with a low-risk appetite. Introduced in India in 1968, it is a government-mandated savings scheme that offers guaranteed returns and stable, tax-free interest. The interest rate for 2024 is 7.1% per annum, compounded annually.

Key Features of PPF

• Tenure: PPF has a minimum tenure of 15 years, which can be extended in blocks of 5 years.
• Investment Limits: The minimum investment amount is Rs. 500, while the maximum is Rs. 1.5 lakh per financial year. Investments can be made in a lump sum or in instalments – up to 12 instalments.
• Opening Balance: The account can be opened with just Rs. 100 per month, but to keep the account active, a minimum deposit of Rs. 500 per financial year is required.
• Deposit Frequency: Deposits must be made at least once every year for 15 years.
• Mode of Deposit: Deposits can be made in cash, cheque, demand draft, or through an online fund transfer.
• Nomination: A nominee can be designated at the time of opening the account or subsequently.
• Joint Accounts: PPF accounts cannot be held jointly.
• Risk Factor: PPF offers guaranteed, risk-free returns and complete capital protection as it is backed by the Indian government.
• Tax Benefit: The interest and maturity amount are tax-free under Section 80C of the Income Tax Act, 1961.
• Partial Withdrawal: Partial withdrawals are permitted from the 5th financial year onwards, with certain restrictions on the amount.

How to Open a PPF Account

PPF accounts can be opened with either a Post Office or authorised banks such as the State Bank of India, Punjab National Bank, ICICI, HDFC, and Axis Bank. The following documents are required:

• Duly filled account opening application form
• KYC documents (Aadhaar, Voter ID, Driving license, etc.)
• Residential address proof
• Nominee declaration form
• Passport-size photograph

PPF accounts earn interest on the lowest balance in the account between the close of the 5th day and the end of each month. Therefore, to receive interest for a particular month, the deposit must be made by the 5th of that month. The interest is credited to the account at the end of each financial year.

Eligibility for PPF

Any Indian citizen can invest in PPF. One citizen can have only one PPF account, unless the second account is in the name of a minor. Non-Resident Indians (NRIs) and HUFs are not eligible to open new PPF accounts, but they can continue contributing to existing accounts.

Fixed Deposits (FD)

Fixed Deposits (FDs) are a safe and secure way to invest your money and earn interest on it in India. They are offered by banks and financial institutions. A Fixed Deposit Double Scheme allows investors to deposit a particular sum of money for a fixed period, with the goal of doubling their investment over time. This is achieved through a fixed interest rate, which is compounded annually or at predetermined intervals such as quarterly, resulting in higher returns.

The key benefit of an FD Double Scheme is that it provides a higher interest rate compared to a normal FD, helping investors to double their deposits. For example, the interest rate for the Bank of India Double Benefit Term Deposit ranges from 4.75% p.a. to 5.30% p.a. The FD Double Scheme also offers tax benefits under Section 80C of the Income Tax Act, 1961, allowing investors to claim deductions of up to Rs. 1.5 lakhs on their investments.

FD Double Schemes are easy to set up, with simple account-opening procedures offered by banks. Investors can choose the deposit amount according to their financial flexibility, and most banks accept deposits ranging from a few thousand to lakhs. These schemes also offer the flexibility to choose the tenure of the investment, ranging from a few months to 10 years. Additionally, investors can avail of loans against their FD Double Schemes, providing financial flexibility in emergencies.

It is important to note that the FD Double Scheme has a predefined tenure, and investors cannot modify this period. The interest rate also remains fixed throughout the investment period. The money doubles due to the interest earned, with the interest component accounting for half of the total amount.

Tax-free bonds

• Stable and guaranteed income: Tax-free bonds provide investors with a regular, fixed income. The yearly interest payment is tax-free, and the government backing ensures a low risk of default.
• Capital preservation: With government-backed entities issuing these bonds, tax-free bonds are considered safe investments.
• Higher profits for higher tax brackets: Tax-free bonds are ideal for high-net-worth individuals as they can generate greater profits for those in higher tax brackets. There is no maximum investment amount, allowing for higher returns and more tax advantages.
• Low liquidity: Tax-free bonds have lower liquidity compared to other assets. However, they can be purchased and traded on stock exchanges like the NSE and BSE.
• Ideal for senior citizens: The government backing, capital security, and stable income make tax-free bonds a suitable investment option for senior citizens.

When investing in tax-free bonds, it is important to note that they have not been issued since 2016. Therefore, investors need to consider the prevailing terms and interest rates offered by PSU-backed companies. Additionally, any capital appreciation earned through these bonds is not tax-free, and they are susceptible to inflation and reinvestment risk.

To apply for tax-free bonds, individuals can follow these steps:

• Choose a reputable financial organisation, such as a bank, stockbroker, or mutual fund.
• Research the market for available tax-free bonds and their benefits, considering factors like the issuer, interest rate, tenor, and credit rating.
• Check eligibility and age restrictions to ensure you meet the requirements.
• Open a Demat account with your preferred financial institution, as it is necessary for purchasing tax-free bonds.
• Apply for the bond online or by visiting the office of the chosen financial organisation.
• Transfer the required amount to your Demat account and wait for allotment, which may take a few days.
• Keep track of the bond by regularly checking your Demat account or signing up for alerts from the financial institution.
• Monitor your Demat account for interest credits, as tax-free bonds typically pay out interest annually or semi-annually.

Frequently asked questions