Other investments can be broken into 3 major categories
Long Term Investments
PPF is a saving & tax-saving scheme in India. Under this scheme upto 1,50,000 can be invested every year to get tax exemption of the same amount.
PPF is one of the most popular investment schemes specially for the working class of India as it promises relatively higher return in the safe class of investments.
A PPF account is a long term investment that has an initial term of 15 years, extendable in sets of 5 years thereafter. The annual minimum investment is INR 500 and the maximum investment is INR 1,50,000.
The PPF account offers loans in certain forms during its tenure of 15 years but if planned wisely with investment spread across investment baskets, there shall be no need to access such loans or any loans for that matter.
What also makes PPF and other investments listed under long term investments listed here is their eligibility for 'EEE' which is Exempt! Exempt! Exempt!.
The first Exempt! tells you that the investment is free from taxes. An investment upto INR 1,50,000 is tax free every year under section 80C.
The second Exempt! means that the interest earned on this investment is also tax free.
The this and final Exempt! is to signify that the income generated at withdrawal is also tax free.
We all know some government employee who got retired and got handsome lumpsum amount at retirement followed by a lifetime of pension, can that happen for people not in government jobs? The answer is yes. Government of India made provision for this through the National Pension Scheme.
NPS is a voluntary investment scheme that works towards creating a pension for all citizens of India who choose to invest in it. NPS is administered and regulated by Pension Fund Regulatory & Development Authority (PFRDA)
In NPS once can invest upto INR 1,50,000 tax free under section 80C and an additional INR 50,000 under section 80CCD making a sum of INR 2,00,000 tax free every year.
NPS let's you decide how your funds are invested to a certain extent and takes care that as you age these funds are invested in relatively safer instruments.
Like PPF NPS also falls under the EEE scheme and in 2018 the government also made the annuity tax free, so your investments are tax free, the interest earned on it is tax free, withdrawal at the age of 60 is tax free and the annuity thereafter also is tax free.
One can select any of the following fund managers for their NPS investments:
- SBI Pension Funds
- LIC Pension Fund
- UTI Retirement Solutions
- HDFC Pension Fund
- ICICI Prudential Pension Fund
- Kotak Pension Fund
- Birla Sun Life Pension Management Ltd
Atal Pension Yojana is lite NPS, i.e., it offers fixed income for smaller investments. Built on principles of NPS, APY also ensures income in the form of Annuity.
There are 5 variants of APY wherein you can get a fixed annuity between INR 1,000-5,000 per month after the age of 60. Indian citizens between the age of 18-40 are eligible to invest in APY, the sooner you start, the cheaper it gets. But the question is why would I want to invest in something that gives me just 5,000 a month after so many years. What value would 5,000 have at that time?
The answer to this is that every penny counts. While the return in absolute amount sounds small, the investment for that is even smaller. For someone who starts at the age of 18, the contribution starts at INR 210 a month. In 42 years the person would have paid INR 1,05,840 for a minimum guaranteed pension of INR 5,000.
APY is focussed at the unorganised sector in India and like other long term investments on this page, APY is also covered under EEE.
Sukanya Samriddhi Yojana is focussed at providing for the future of a girl child.
Parents of a girl child can open this account in the name of upto 2 girls (3 only in case the second is duplet girls) and can invest upto INR 1,50,000 per annum per child under this scheme. The investment in SSY is tax free under section 80C.
Minimum investment of INR 250 is needed for SSY annually. Investment in SSY is made for 14 years after which there is a no investment period of 7 years. After 21 years the account matures and can be closed. Age of the girl child should be less than 10 years at the time of opening the account.
Premature withdrawals are only allowed for further studies or marriage of the girl child but like we mentioned before this is a long term investment and hence should be treated as such for maximising benefits. If planned wisely there shall not be a need to make premature withdrawals.
Medium Term Investments
G-Sec's are debt instruments (bonds) issued by the sovereign government. These bonds are similar to corporate bonds with the difference being that these bonds are backed by sovereign guarantee.
G-Secs are trade-able instruments and their nomenclature gives away a lot about the bond. For instance, a 696GS2025 would mean a bond that pays 6.96% on the face value of the bond, GS tells that it is a government bond and 2025 is the maturity year.
A reference copy of the G-Sec can be found at the RBI website
Capital Gain Bonds are issued under section 54EC to provide relief on long term capital gain arising out of selling an asset (land or building or both).
An investor can invest minimum INR 10,000 and upto a maximum of INR 50,00,000 in a financial year to get tax benefit.
Capital Gain bonds are issued by REC & NHAI and have a lock-in of 5years. These bonds yield at 5.25% per year. Please note while there is no TDS deduction in CGB's and the capital gain also becomes tax free at maturity, the interest on these bonds is taxable in the hands of the investor.
The above percentages & time frames are subject to change based on government policies.
Like G-Sec SGB's also come with sovereign guarantee but not on the capital deployed but the quantity of gold. In sovereign bonds we invest with money equivalent to the value of gold. If the value of gold rises the investment increases if the value of gold goes down so does the invested capital but the amount of gold stay covered. In addition to this SGB's earn an interest rate of 2.5% annually disbursed semi-annually on the amount of initial investment.
The nominal value of the bond is based on the price published by the India Bullion and Jewellers Association Ltd (IBJA) for 999 purity gold.
The minimum investment in a gold bond starts with 1gm of gold and can be as high as 4kg a year.
Please click here for the FAQ's on SGB given by RBI.
ELSS are investment funds offered by Mutual Funds. These funds have a lock-in of 3 years and offer exemption on investment upto 1,50,000 under 80C.
ELSS funds as the name suggests are heavy on investments in equity diversified across different themes, sector & market caps.
Income generated from ELSS is taxed under the prevailing LTCG tax norms.
Short Term Investments
T-Bills are short term debt instruments issued by the government for tenors of 91, 182 & 364 days. T-bills are zero coupon securities, i.e. they do not pay any interest. Instead they are available at discount when issued and redeemed at par on maturity.
There are debt instruments for less than 91 days as well, these are called Cash Management Bills (CMB's)
Bank FD's are term deposits with a pre-defined interest over a pre-defined period.
Bank FD's are one of the most popular investment avenues with relatively low yield but safer comparing to equities for example.
Bank RD's are special kind of term deposits that allow the investor to add investments every month. It is like creating a series of FD's every month with the tenure reduced by a month each time.
e.g. if you make an FD of 10,000 for 12 months followed by another 10,000 for 11 months, another 10,000 for 10 month and so on. This process is simplified by investing through an RD
Corporate FD's are like bank FD's issued by non-banking financial companies. These offer better rates as compared to Bank FD's but require better study of the coporate to understand the risk involved