Smart Investing: 7 Lakh Rupees In India

There are many ways to invest 7 lakh rupees in India, and the best option depends on your financial needs and objectives. Some options include investing in liquid funds, bank fixed deposits, equity-linked savings schemes (ELSS), high-growth funds, gold, public provident funds (PPF), health insurance, term insurance, and retirement plans. It is important to consider the risks and returns associated with each investment option and to choose a plan that aligns with your monetary goals. Consulting a professional financial advisor can also help guide your investment decisions.

Liquid funds

When considering liquid funds as an investment option, it is important to evaluate the associated risks and returns. While liquid funds have lower volatility than other funds, they may not keep up with the market's inflation due to their typically lower returns. There is also a chance of sudden drops in the net asset value of the fund due to abrupt changes in the credit rating of the underlying funds and bonds.

Some popular liquid funds in India include the Aditya Birla Sun Life Liquid Fund, Mahindra Manulife Liquid Fund, Edelweiss Liquid Fund, PGIM India Liquid Fund, and Bank of India Liquid Fund. These funds have consistently delivered positive returns, outperforming savings bank accounts in many cases.

Bank fixed deposits

Some of the advantages of bank fixed deposits include:

• They offer lucrative interest rates to customers.
• You can easily open accounts at your nearest bank.
• You can get more interest amount with a reinvestment deposit.
• You can comfortably transfer funds between accounts.
• They go with the tax laws.
• You may get multifarious scheme options and minimum investment options.

The minimum deposit amount required to book an FD varies across banks and NBFCs, with the lowest amount being Rs 100. The tenure of FD schemes usually varies from 7 days to as long as 10 years, but NBFCs offer fixed deposit investments for a period ranging from 12 months to 60 months, and HFCs offer fixed deposit tenures of 12 months to 120 months.

When choosing a fixed deposit scheme, it is important to factor in your liquidity, investment objective, investment horizon, current FD interest rates, and interest payout options. Additionally, check for special interest schemes and additional facilities such as secured credit cards, loan against FD, sweep-in and sweep-out facilities, etc.

Equity-linked savings schemes

Features of ELSS

ELSS funds have a few key features that make them attractive investment options:

• Tax benefits: ELSS funds offer tax deductions of up to Rs. 1,50,000 per year under Section 80C of the Income Tax Act. This can help investors save up to Rs. 46,800 per year in taxes.
• Lock-in period: ELSS funds have a mandatory lock-in period of three years, with no provisions for premature exit. This is the shortest lock-in period among all tax-saving funds.
• Investment amount flexibility: There is no upper limit on the amount that can be invested in ELSS funds, and investors can choose to invest through Systematic Investment Plans (SIPs) or lump sum payments. The minimum investment amount varies across fund houses, with some allowing investments as low as Rs. 100 or Rs. 500 per month.
• Equity exposure: ELSS funds invest a significant portion of their corpus in equities and equity-related instruments, including listed shares and fixed-income securities. Typically, 65% of the portfolio is allocated to these investments, as per SEBI regulations.
• Diversified portfolio: ELSS funds invest in diverse equities from various sectors and market capitalizations, reducing concentration risks.
• Reinvestment option: Investors are allowed to reinvest in an ELSS fund after the initial three-year maturity period, which can provide additional tax benefits without requiring a fresh investment.

Benefits of ELSS

ELSS funds offer a range of benefits that make them a popular choice for investors:

• Tax-efficient returns: In addition to tax deductions, ELSS funds provide the potential for high returns, with some funds generating an average of 15% returns in the long term.
• Flexibility: ELSS funds offer flexibility in terms of investment amount and mode (SIP or lump sum), making them convenient for all types of investors.
• Wealth accumulation: ELSS funds offer the dual benefit of tax savings and wealth creation, with the potential to offer inflation-beating returns.
• Professional management: Highly experienced professionals manage ELSS funds based on market research and individual preferences, working in the best interest of the investors.

Considerations for Investing in ELSS

When considering investing in ELSS funds, there are a few key factors to keep in mind:

• Investment horizon: ELSS funds are suitable for investors with a long-term investment horizon, typically more than five years. This helps mitigate the market volatility associated with equity investments.
• Returns: ELSS funds do not provide guaranteed returns, as they are dependent on the performance of the underlying securities. However, a longer investment horizon can increase the potential for higher returns.
• Risk appetite: ELSS funds are suitable for investors with an aggressive or moderate risk profile due to the high risks associated with equity investments.
• Fund performance: It is important to analyse the performance of different ELSS funds and their fund managers before making an investment decision. Compare the fund's performance with its competitors and the benchmark, and consider the fund house's historical performance.

Suitability of ELSS

ELSS funds are particularly suitable for salaried individuals who wish to balance risk and return on their investment portfolios. They offer higher returns than traditional fixed-income products like Employees' Provident Fund (EPF) and provide tax benefits under Section 80C. Additionally, ELSS funds have a shorter lock-in period than other investment options like ULIPs and NPS, making them more attractive for investors seeking liquidity.

High-growth funds

When considering how to invest 7 lakh rupees in India, one option is to put your money in high-growth funds. These funds are suitable for aggressive investors with an investment horizon of 7 years or more and the ability to withstand high volatility in investment value over the short to medium term.

Large-Cap Mutual Funds

Large-cap mutual funds invest in the stocks of large companies with strong financial positions and are suitable for investors with a low appetite for risk. Examples include:

• UTI Nifty 50 Index Fund
• HDFC Index Fund- Nifty 50 Plan
• ICICI Prudential Nifty 50 Index Fund
• SBI Nifty Index Fund

Small-Cap Mutual Funds

Small-cap funds invest in small companies that have the potential to become top businesses in the future, offering higher returns. Examples include:

• Nippon India Small Cap Fund
• Kotak Small Cap Fund
• ICICI Prudential Smallcap Fund

Mid-Cap Mutual Funds

Mid-cap funds offer a middle ground between large-cap and small-cap funds, investing in medium-sized companies. Examples include:

• Edelweiss Mid Cap Fund
• Invesco India Mid Cap Fund
• Mirae Asset Midcap Fund

Sectoral-Infrastructure Mutual Funds

These funds invest in the infrastructure sector, which can offer high returns but also carries higher risks. Examples include:

• ICICI Prudential Infrastructure Fund
• Nippon India Power & Infra Fund
• Franklin Build India Fund

It is important to remember that investing in high-growth funds carries a higher level of risk and that past performance does not guarantee future results. It is always recommended to consult with a financial professional before making any investment decisions to ensure that you are making the best choices for your personal financial goals and risk tolerance.

Public provident fund

Features and Benefits of PPF:

• Tax benefits: PPF falls under the Exempt-Exempt-Exempt (EEE) category for tax purposes. This means that deposits made into a PPF account are tax-deductible under Section 80C of the Income Tax Act. Additionally, the interest accrued and the amount withdrawn upon maturity are also exempt from taxation.
• Interest rate: The interest rate for PPF accounts is currently 7.1% per annum, compounded annually. This rate is determined by the Central Government of India and is subject to quarterly updates.
• Investment limits: The minimum investment amount for PPF is Rs. 500, while the maximum is Rs. 1.5 lakh per financial year. Deposits can be made either as a lump sum or in up to 12 instalments.
• Tenure: PPF accounts have a minimum tenure of 15 years, with a lock-in period of the same duration. After maturity, investors can choose to extend the tenure in blocks of 5 years.
• Risk factor: PPF is backed by the Indian government, making it a risk-free investment option with guaranteed returns.
• Loan and withdrawal facilities: Investors can avail of a loan against their PPF balance between the third and sixth years of the account. Partial withdrawals are also permitted after the completion of 5 years, with certain conditions and limits in place.
• Eligibility: Only resident Indian citizens are eligible to open a PPF account. The account can be opened in the name of an eligible minor, operated by their parents. Non-resident Indians (NRIs) cannot open new PPF accounts, but any existing accounts will remain active until completion of the tenure.
• Nomination: A PPF account holder can nominate one or more individuals to be beneficiaries. This can be done at the time of opening the account or at any point during its tenure.
• Mode of deposit: Deposits into a PPF account can be made via cheque, cash, demand draft, or online fund transfer.

How to Open a PPF Account:

PPF accounts can be opened at a bank or post office, either offline or online. The process typically involves filling out an application form, submitting the necessary Know Your Customer (KYC) documents, and providing a passport-sized photograph. Some banks may have additional requirements for existing customers, such as ICICI Bank, which allows instant online PPF account opening for its customers.

Important Considerations:

• Inactive accounts: If contributions are not made for a year, the PPF account becomes inactive. Reactivation requires a penalty fee of Rs. 50, along with the minimum deposit amount for each inactive year.
• Premature withdrawal: While PPF accounts have a lock-in period of 15 years, premature withdrawal of up to 50% of the account balance is permitted after completing 5 years. This is allowed for specific purposes, such as medical emergencies or higher education, and requires relevant documentation.
• Account extension: Upon maturity, investors can choose to extend their PPF account with or without further contributions. This extension is done in blocks of 5 years, and the decision must be made within one year of maturity.
• Limitations: PPF accounts do not offer high-interest rates compared to some other investment schemes. Additionally, they do not allow joint accounts, and the investment limit is Rs. 1.5 lakh per year.

In conclusion, PPF is a safe and stable long-term investment option for individuals looking to earn high but risk-free returns. It offers tax benefits, a guaranteed interest rate, and flexibility in terms of withdrawals and loans. However, it's important to consider the limitations, such as the lock-in period and investment cap, when deciding if PPF is the right choice for investing your 7 lakh rupees in India.

Frequently asked questions