This Independence Day Take Oath to Become Financially Independent

Financially Independent
by Mrinmai Shinde 13/08/2021

Becoming financially independent is usually in our priority list, but sometimes while taking the life as it comes, we tend to make some financial mistakes that deviate us away from this ultimate goal of ours. We might have several other financial goals, but while chasing them we need to ensure that we do not compromise on this one as it is the one that might help us during our downtime. Financial Independence is not just paying your billing, buying a home and settling down in life, it means creating a stream of income that works for you when you are in your downtime. It’s about making your money work when you can’t to have a reliable cushioning that would allow you to retire early, in case you need that or support you during your downtime. 

On this Independence Day, we thought of coming with a blog that can be used as a checklist for you to identify how close you are to becoming financially independent and what steps you need to take to ensure you achieve this goal.

Here, are some of the popular investment options in India:
 

Investment

Interest/ Returns

Lock-in Period

Risk

Direct Equity

NA

NA

High

Mutual Funds

Market Linked

ELSS lock-in period 3 years, Close-ended mutual funds are always with a lock-in period

Low-High

National Pension Scheme

Market Linked

60 years

Low- High

Gold ETF

Market Linked

NA

Low-Medium

Public Provident Fund

currently 7.1% p.a.

15 Years

Low

Bank Fixed Deposit

4-6% p.a.

Depends on Bank

Low

Real Estate/Property

historical 8%-12% per year

NA

Moderate

Unit Linked Investment Plan

Depending on the investors profile

5 years

High

National Savings

Certificate

currently 6.8%  p.a.

5 years

Low

Senior Citizen Savings Scheme

7.4% p.a. (Q1 FY21-22)

5 years

Low

 

Stocks or Direct Equity Investment:

Direct equity is one of the popular investment instruments in India. Although, it is considered as the most riskier investment option but rewards are also generally high than any other investment option in the long run. When investing in direct equities or stocks, it is wise to consider certain aspects like selecting the right stock for investment, entry and exit timing in the market. Additionally, one should also study the fundamentals of the company. It is essential to have a Demat account to invest in direct equities.

Mutual Funds:

Mutual funds are the most preferred investment option. Mutual funds investment invest money in several financial instruments like debt, equity, money market funds, etc. The returns depend on the market performance of the funds. The two major categories of investment options offered by mutual funds are equity mutual funds and debt mutual funds.

Equity mutual funds invest in shares of companies with different market capitalization. Generally, a fund investing 65% of their money in equity or equity-related securities is categorized as an equity mutual fund. Equity mutual funds are the riskiest class of mutual funds, and hence, they can generate higher returns than debt funds.

Whereas, debt fund invests in fixed return instruments like corporate bonds, government securities, treasury bills etc. Debt funds generally offer safe and steady returns.

National Pension Scheme (NPS):

Under NPS, individual savings are pooled into a pension fund which is invested by PFRDA regulated professional fund managers as per the approved investment guidelines in the diversified portfolios comprising of Corporate Debentures, Shares, Government Bonds and Bills.

Auto and Active are the two investment options offered by the NPS. In auto option funds are automatically invested in different assets. Whereas, the active option allows the investor to invest in assets of their choice. It enjoys tax benefits under Section 80C and Section 80CCD.

 

Gold ETF:

Gold ETFs are open-ended mutual fund schemes that will invest the money in standard gold bullion (gold with 99.5% purity). An investor holds units of an ETF whose value depends on the price of the physical gold in the market. Buying/ selling of gold ETF is easier than physical gold as it is traded on the stock exchanges.  An investor requires a Demat account

Also Read: How to buy Digital Gold

 

Public Provident Fund (PPF):

PPF is more like a fixed deposit scheme where an investor invests at regular intervals for a long period to fund his retirement years. PPF scheme is backed by the Government. PPF has a lock-in period of 15 years. This scheme enjoys tax benefit under section 80C of the income tax act 1961 with a maximum tax benefit of Rs 1.5 lakhs p.a.

Also Read: 5 changes in the new PPF scheme you should know 

 

Bank Fixed Deposit:

Fixed deposits are one of the safest and well-known investment options in India. Bank fixed deposit offers interest rate higher than the bank savings account. Bank FDs are considered safe as it generally offers fixed return for a fixed tenure and there are negligible chances of fraud.

 

Real Estate Investment/Property:

Real Estate is one of the fastest-growing investment options. The risk is low as real estate prices are generally not highly volatile. It works as an asset and can be treated as one of the best investment options for the long term.

 

Unit Linked Investment Plan (ULIP):

ULIP offers twin benefits of insurance and investment. It also offers tax benefits. It has a lock-in period of 5years. Under ULIP, a part of the premium is used for insurance coverage while the remaining premium is invested in market-linked instruments such as shares, bonds etc. This scheme enjoys tax benefit under section 80C of the income tax act with a maximum tax benefit of Rs 1.5 lakhs p.a.

 

National Savings Certificate and Senior Citizen Savings Scheme: 

The National Savings Certificate (NSC) is a fixed income investment scheme that the investor can open with any post office branch. The scheme is a Government of India initiative. NSC has a fixed maturity period of five years. There is no maximum limit on the purchase of NSCs, but only enjoys tax benefit of up to Rs.1.5 lakh under Section 80C of the Income Tax Act.
Senior Citizens’ Savings Scheme (SCSS) is a government-backed retirement savings programme. The maximum amount allowed under the SCSS account is up to Rs.15 lakh. Tax deduction of up to Rs.1.5 lakh under Section 80C of the income tax act.

Also Read: Best Investment Options for Fixed Returns

While working on these investment options, do not miss on taking any misfortunes into consideration as things like health emergencies and medical bills might drain a huge chunk of your finances. Always make sure you have a health insurance and a term insurance in place so that you secure both yourself and your family. 

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