Fixed deposits: Should you pick a large or small bank?

Fixed deposits: Should you pick a large or small bank?

Look beyond the rate of return while picking an FD.

A fixed deposit is an investment that appeals to a wide demographic. It’s ideal for a beginner, those with a low risk appetite as well as someone who is looking to balance a high-risk portfolio. Besides, the fact that your money is safe in turbulent times is a great reason you may be drawn to this investment vehicle.

However, when it comes to making a choice of bank to choose for your fixed deposit, it’s easy to be attracted to recently launched small finance banks as they offer a higher rate of interest. They yield 8.5% interest for a 1–2 year FD and 8% for a 12–15 month FD respectively, while HDFC offers 7.3% interest for a 1-year FD and SBI yields 6.8% for the same duration.

But is it the best idea to pick a financial institution that’s a small, recent entrant? Find out here.



Why are newer, smaller banks offering a high rate of return on fixed deposits?



To get started, it’s important to understand how these banks are able to offer such a high rate of return on fixed deposits, when the largest bank in the country, SBI, is unable to. Firstly, these banks are fresh off the boat and hence don’t have a sizeable customer base that other established players do. So, offering a high rate of interest is one way in which they can attract customers to bank with them and gain their trust. In addition, most new-age small banks are aware of the fact that customers today are more open to the idea of switching from one bank to another if they find better value for their investment. By offering a markedly high interest rate they are able to capitalise on this sentiment.



Should you take the bait?

All said and done, you may wonder if it is a good idea to choose small banks that offer a high rate of return or stick to larger, established financial institutions that offer a lower rate of return. Get started by reviewing how secure the bank is. Check their records, if they’ve been in the news recently and reviews from other customers on online portals. If you find their record to be squeaky clean you can go ahead and invest.

However, to err on the side of caution is always a good approach to adopt when your money is involved. So, it is best that if you have decided to invest Rs.1 lakh in a fixed deposit, for example, you park only 25% in a new bank’s high-interest FD. This way you will be able to limit your risk exposure.



Credit Ratings



In addition, another approach you can take is familiarising yourself with the CRISIL rating. Apart from company FDs, this agency awards ratings to bank fixed deposits to indicate how safe they are. FAAA or FAA is the best rating for a fixed deposit whose tenor is greater than a year, whereas for deposits that have a tenor of less than 12 months, the rating you should look for is CRISIL A1+.



DICGC’S Role



If you proceed, you should also familiarise yourself with the protection that the Deposit Insurance and Credit Guarantee Corporation (DICGC) offers. It is a subsidiary of the RBI and insures all deposits—savings accounts, recurring deposits and fixed deposits—up to Rs.1 lakh. You can visit the website to understand the banks that fall under their purview, how deposit insurance works and much more.

If you’re satisfied with the security, the only factor left to consider is the ease of access that you seek. For instance, if you prefer popping into a branch for information or to carry out banking, you may find that new banks have branches that are far and few. For this reason alone choosing a newer entity may not be the right choice for you. However, if you’re comfortable with banking online there’s no reason for you to hesitate.

It’s easy to see that once you do your due diligence there’s no reason to worry. However, if you want to be prudent it’s best that you start small when choosing a new bank.

Happy Investing

Source:Bankbaazar.com

Avoid these 6 key mistakes while planning your retirement

Avoid these 6 key mistakes while planning your retirement

People tend to procrastinate saving for their retirement since an early retirement is considered a luxury.

 

Can you survive without your income for a year? How about 6 months or even 3?

If your answer is a big ‘NO’, then imagine this, a standard retirement period is usually 15-20 years. That's how long you will have to survive without a steady source of income. The definition of retirement has changed from relaxing and sitting idle to people finally chasing their dreams and fulfilling their passions in life, without having to worry about their savings.


Either way, you will need a nest egg to maintain your lifestyle. Which is why an effective retirement plan is mandatory. If you don’t plan your retirement well, the sudden lifestyle changes will affect you adversely. Today’s gig-economy has completely changed the idea of retirement. It is a free market system in which temporary positions are common and organisations hire freelance workers for short-term work. Even though it comes with its own perks, like flexible work hours, short-term assignments, part-time contracts, etc., it can impact your retirement because there is no steady income flow.

 

Despite knowing all these facts, we still tend to make mistakes that hamper a happy retirement.


Here are a few mistakes that need to be avoided to enjoy an uncompromising retirement.


1. Not planning early enough


People are so busy with their lives that they only tend to concentrate on things that affect them in the present. People tend to procrastinate saving for their retirement, since an early retirement is considered a luxury. Most people only start to think about it in their late 30s or 40s, by when it becomes too late, with a lot of other financial responsibilities such as a home loan or children’s marriage piling on.

Planning an early retirement is a safe and secure option in the long run. Planning and saving for your retirement at an early age will offer peace of mind and the opportunity to chase your passion that you couldn’t all through the years due to your busy career.

2. Ignoring the inflation rate

People tend to neglect the effect of inflation on their retirement savings. However, it is one of the biggest financial risks to your retirement goal. If you don’t fall under the ‘higher income retiree’ category, then there is a big chance that it is going to affect even the most basic essentials in your life, such as food, medication, etc.

A wise decision to make here is to choose investments and plans that keep pace with inflation. Take the necessary steps by planning to offset the impact of inflation and you can experience a worry-free retirement.

3. Living life too large

It is important to inculcate the habit of saving from a young age. During the initial years of employment, you have the advantage of time – enough to plan and save. Though it might seem difficult to work towards this, it still is a necessity for a comfortable retirement. Spending a large share of your income without saving for future can lead to a serious money-crunch down the line. Remember, you will have to stop working someday!

4. Constant updating of your retirement plan

It is crucial to keep a track of your retirement plan. Just like the weather, the world we live in is also very unpredictable. Days might seem sunny now, but there is always a chance that a rainy day might come by. It will help you will need to have a backup umbrella to protect yourselves from any crisis.

Keeping a check on your retirement plan and keeping it updated will help you in coping up with any crisis that comes your way.

5. Not choosing the right government and private schemes

Apart from only focusing on primary matters, it is equally important to save an adequate amount for old age. After all everyone wants to tick off their bucket list or re-plan the missed holidays during their retirement period. Prices of day to day items are only increasing and money that we think has a high value denomination today is only becoming a mediocre sum by tomorrow.

Hence, it is vital to figure out an effective pension plan by investing in right government and private schemes like National Pension Scheme India (NPS), Atal Pension Yojana, National Social Assistance Program (NSAP), Provident Public Fund (PPF) and a host of other asset classes such as mutual funds, real estate, fixed income securities, etc.

6. Health is wealth

Health has a direct impact on our retirement plan, although we are all aware of that, a lot of us fail to realise just how important it really is. Today’s fast paced lifestyle has only brought more harm to our health conditions. New diseases and ailments are sprouting up every day and to top it all healthcare facilities are only getting more and more expensive.

Investing on good health schemes and plans are crucial and it will help in not burning up your retirement savings.

You have worked hard, and you deserve a worry-free retirement. So, avoid these mistakes and have an amazing retirement.

Happy investing

Are you aware of these lesser-known investment avenues for tax saving? Check out

Are you aware of these lesser-known investment avenues for tax saving? Check out

 

Tax saving is a continuous process. However, not everyone plans it well through the year. It often ends up being a last-minute rush. The last quarter of this financial year is here and if you have already reached out to the more popular investment options, let's look at some of the lesser-known investment options that can give you a tax break.

Withdraw and reinvest old tax-saving investments

Sometimes, there s no need for you to invest more money. You can liquidate old tax saving investments which have completed the lock-in period and re-invest them further for tax benefits. Schemes such as PPF allow partial withdrawals upon finishing seven years from the time of investment. Tax-saving ELSS, on the other hand, comes with a three-year lock-in period, which can then be withdrawn entirely or partially to reinvest.

Pre-school fee deduction u/s 80*C

This is not as known as the deduction on school fees. Tuition fees for pre-school, i.e. pre-nursery and nursery, are eligible for deduction under Section 80 (C). However, the benefits are restricted to two children. So each parent can claim for deduction on the fees for two children.

Saving tax with the help of parents"Saving tax with the help of parents"

If your parents are senior citizens, you can transfer funds to their fixed deposit (FD) accounts and earn tax-free interest up to Rs 50,000 in a financial year from each of their accounts. Your parents can also invest the transferred fund in other tax-saving schemes eligible for deduction under Section 80 (C) such as SCSS to earn attractive ROI.

If you are buying a house on loan and you finance part/entire of the cost by borrowing from the parents, you can claim tax deduction benefits under Section 24B for the interest payment to your parents. However, take proper interest certificate from your parents as proof of interest payment.

If you live in a house owned by your parents, you can pay rent to them and claim HRA deduction to lower your tax liability. However, you do need to have a proper rent agreement and rent slips from your parents to avoid trouble in the event of any scrutiny from the IT department.

Premium payment for senior citizen parents Medical expenses are only going up with time and you must have a medical insurance in place to take care of these expenses, especially when it comes to senior citizens. And if you are paying premium for their health insurance, you can claim a deduction of Rs 50,000 under Section 80 (D). If a senior citizen pays for the premium of his very senior parents, he/she can claim for an additional deduction of Rs 50,000.

This apart, if you are paying for the expenses on medicine for your senior citizen parents, you can avail deduction up to Rs 50,000 under Section 80 (D). However, the tax benefits in this case can only be availed if the expense is not covered under health insurance. Keep a record of all the bills and prescription safely for submitting proof.

 

 

Best investment options for salaried class: What they are and how you can benefit from them

 

Best investment option for salaried, mutual funds, fixed deposits, investment tips, Bank fixed deposits, Gold investment, company fixed deposits, PPF, Public Provident Fund, Stock Market Investment, real estate, NPS, National Pension Scheme,More

From equity mutual funds to fixed deposits (FDs), gold, real estate, PPF, and NPS, there are multiple options for investment today. Hence it may seem a little confusing to decide which one to pick. While some of the schemes like NPS and PPF are risk-free, other avenues like the stock markets and mutual funds are subject to market risk and require knowledge or expert help. Generally, the choice of investment instruments is dependent on the individual s risk profile, age, and various other factors. However, for a salaried individual, some of the investment platforms play a better role than the others.

If you are looking to invest, consider these investment avenues:"If you are looking to invest, consider these investment avenues:

Public Provident Fund:

 Because of its safe and secure nature for long-term investments along with guaranteed returns that are fully exempted from tax, PPF is one of the popular investment schemes. PPF comes with a lock-in period of 15 years which enables you to earn higher interest on your investments. You can additionally extend your investment time-frame, with 5 years block after the maturity of fifteen years. The minimum period of investment, however, is 6 years after which you can withdraw your investments. The minimum amount you’ll be able to invest during a fiscal year is Rs.500 and the maximum is Rs1,50,000. You can additionally take a loan on the balance of your PPF account, in case of any monetary emergencies. The current interest rate on PPF is 8 per cent per annum compounded annually.

Mutual Funds

It is commonly known that mutual fund investments generate higher income over a period of time. This money is invested in equities, bonds, and other market instruments. The best approach is to invest in MFs through systematic investment plans (SIP) or in a lump sum. Mutual fund schemes, aside from close-ended and ELSS schemes, don’t have a minimum investment period. The risk profile, however, depends on the funds you invest in. While the debt funds invite less risk and are appropriate for risk-averse investors, the risk is comparatively higher in equity funds and are suggested for investors who can take the risk.

National Pension Scheme

For those with a very low-risk profile, this government-sponsored scheme is one of the best modes of investment. As it is backed by the government, the risks of your investment are cut off. Investing in the NPS gives you additional tax benefits under Section 80CCD.

Gold investment

It is one of the most popular and sought-out investment options in India. For investing in gold, you can either buy through a gold deposit scheme, gold ETF (exchange-traded fund), gold MFs or gold bars. Gold mutual funds and ETFs are a highly liquid investment as they allow investors to hold the gold in a paperless form and sell them in stock exchanges.

Bank fixed deposits

If you are looking to invest for a short or medium duration, you can opt for a bank fixed deposit. Ideally, for one year, these give the highest rate of interest. FDs have attracted the maximum investment, because of their fixed returns. Though you can make a premature FD withdrawal with an interest deduction, you cannot break a tax-saving FD that is locked in for a period of five years.

Real Estate

It is an ideal investment avenue especially for long-term investment for those with the money for it. Since the last few years, the industry has become well regulated because of the Real Estate Regulation and Development Act (RERA) which came into practice in 2016.

Stock Market Investment

Though this offers the best returns, this also comes with high risks. Experts suggest those with the proper knowledge of the market should opt for this instrument or should take the help of experts. The Budget 2018 made the long-term capital gains taxable. However, it still appears to be tax-friendly to investors. In the stock markets, you can choose from various small, mid and large cap stocks. You can also invest in all of them to create a balanced portfolio.

Happy investing

How compounding works in favour of first-time jobbers

How compounding works in favour of first-time jobbers

The adage ‘well begun is half done’ works well in case of first-time jobbers, who realise the importance of financial planning from the early stages and begin saving from their first pay cheque itself.


The healthy habit of saving in early stages of life pays off in the long term. People who save at least 10% of their salaries every month do accumulate enough funds that can save them from rainy days.


But this is not enough. In a bid to achieve your goals such as buying a new car, house, supporting your parents or going on an exquisite holiday, you have to make your savings work, which can happen only by investing.


Turning savings into investments from first salary can create long-term wealth that can help you attaining things that money can buy.

When you start investing early, your wealth gets compounded and after 10-15 years, what you have will be a huge corpus of amount.

This is known as the magic of compounding, or power of compounding, as the interest generated on the principal is added back to the principal. This takes time value of money in account. So, if you invest in equity and equity-related mutual funds, you can create a good amount that can beat inflation.

You can choose schemes that compound interest and grow your money over a period of time. For instance, if you invest Rs 1 lakh in FD for five years with an interest of 10%, you will generate Rs 1, 61, 051. Here, you can further invest profits earned from this investment.

Several investment tools such as PPF, mutual funds with growth option, etc., can generate wealth for you.

Albert Einstein once said ‘compound interest is the eighth wonder of the world’. If you start early, from the first pay salary, you will be able to make investment decisions wisely.

Happy Investing

Steps to register with NPS

Steps to register with NPS

 

"The National Pension Scheme (NPS) is a government initiative to provide you with an opportunity of rebuilding your retirement corpus."

 

Steps for opening account

Collect the necessary documents

Your PAN card linked to your bank account

Your Aadhar card with the updated address and mobile number

Payment avenues; Net banking, debit or credit card

Your passport-sized photo

A scanned specimen of your signature

 

Visit the eNPS website  "https://enps.nsdl.com/eNPS/NationalPensionSystem.html"

Click on the ‘registration tab. This will direct you to a new web page

Select the new registration tab, enter your virtual ID number and click on generate One time Password (OTP)."

Enter the OTP you receive on your registered mobile number. Click continue. It will generate an acknowledgement number after you click continue. Now select OK"

Enter your personal and family details. Enter, save and proceed. You will also have to enter your bank details. After you have accurately entered all your details, you can click save and continue."

 You will be asked to choose the portfolio allocation among the four available funds. These are equity funds, alternative investment funds, government security funds and corporate bond funds. You can put a maximum of 50% of your money in an equity fund. On the other hand, in an alternative investment fund, you can put up to a value of 5% of your money."

You will be asked to choose the portfolio allocation among the four available funds. These are equity funds, alternative investment funds, government security funds and corporate bond funds. You can put a maximum of 50% of your money in an equity fund. On the other hand, in an alternative investment fund, you can put up to a value of 5% of your money

Once you decide allocation details, update the nominee details in the next step

 Upload the image of a cancelled cheque, a photograph and a specimen of your signature."

To complete the process, initiate your first contribution, the minimum amount of Rs. 500, towards NPS.

Once your payment is done successfully, your Permanent Retirement Account Number (PRAN) will be generated along with the payment receipt.

For the last step, click on the download registration form/e-sign. If you choose to e-sign with Aadhar, you will receive an OTP on your registered mobile number. Once the OTP and Aadhar is authenticated, your registration will be considered signed.

It could take a couple of days to process your application and the units to be credited against your PRAN number. You can access your account online and make further investment in the NPS through the IPIN generated for your PRAN.

Opening and accessing an online NPS account can now be done through eNPS. To initiate this online facility you can use the steps mentioned above.

 

Lo Voila now you have an active NPS account

Happy Investing

What’s The Real Rate Of Return On Your Investment?

What’s The Real Rate Of Return On Your Investment?

 

 

’Interest rates on fixed deposit and small savings instruments are showing an upward trend. When investment instruments such as stocks and equity mutual fund schemes are volatile, fixed income instruments become attractive due to low risk and assured returns. While investing their hard-earned money, the common man normally looks at risk, return and liquidity factor, but inflation also plays an equally important role in determining whether the invested corpus would be sufficient to accomplish the goal for which the investment is being made. The returns on equity-oriented schemes, gold and realty investments will fluctuate from day to day, and this therefore gives you a chance to beat the inflation. However, a fixed returns investment provides fixed returns, which reduces your ability to beat the rate of inflation, especially in a period of volatility. Let’s understand how inflation impacts your investment.

Inflation Impact On Investment"Inflation Impact On Investment

’Inflation diminishes the purchasing power of money. So higher inflation means greater erosion of your money’s value. For example, you can buy a product at Rs. 100 today. But due to inflation, you may need Rs. 300 or Rs. 500 (assumed) to purchase the same product after 15-20 years. If you do not consider inflation while investing, in the long term you may find it difficult to achieve your key financial goals. For example, while investing for retirement, it is essential to determine how much money you would need after adjusting for inflation. This would help you build an adequate corpus to meet your future expenses. Today, for example, you may need Rs. 5 lakh a year to meet your expenses. But after 20 years, at the prevalent rate of inflation, you may need Rs. 20 lakh a year for the same expenses. So, while investing for a long-term, you must consider real rate of return over the nominal return.

Nominal Return Vs. Real Return"Nominal Return Vs. Real Return

’A nominal return is return that an investment offers without adjusting for inflation. On the other hand, real rate of return reflects inflation-adjusted return. Let’s understand this with the help of an example.

Suppose the inflation rate is 4% PA, and one-year FD rate is 7% PA. You invested in the FD for a one-year tenure. In this case, your nominal return would be 7%, but the real rate of return would be only 3% PA (7% minus 4%). It may so happen that the interest rate may increase, but adjusted against inflation, your real returns may increase or decrease. For example, suppose the inflation increases to 6% per annum while the interest rate on the FD increased to 8%, your real return would only be 2% PA.

How To Ensure A High Real Rate of Return"How To Ensure A High Real Rate of Return

Inflation impacts fixed return instruments more in comparison to equity or real estate. So while you invest in an FD or a small savings scheme, review your portfolio at regular intervals. Sometimes, you may invest in an FD at a particular rate, but sometime later, the bank will increase the rate. In such case, you must evaluate the option of liquidating the existing FD and switching to a higher rate. To mitigate the inflation impact, you can also invest using the FD laddering strategy, i.e. dividing your investment corpus into multiple FDs of different maturities. For example, if you are looking to invest Rs. 5 lakh, then you can invest Rs. 1 lakh each for one year, two years, up to a five-year tenure, i.e., at a gap of one year from each FD. The laddering will ensure liquidity at a regular interval and a steady real rate of return in the long-term. You can also use the laddering strategy to invest in the other fixed return instrument.

Also, depending on your risk appetite and financial goal, you may diversify the investment into other asset classes such as equity and real estate. In the long-term, due to inflation your expenses may rise, but at the same time your income may also increase simultaneously. It is crucial that you step up your investments periodically—preferably annually, as your income increases—and this will help you invest higher and achieve bigger financial goals over the long-term.

Happy Investing

Source: Moneycontrol.com