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Monthly Savings

 

By setting aside small sums regularly in post office MIPs, mutual fund SIPs and Other options like gold savings plans, SIPs in gold exchange traded funds (ETFs)

MONTHLY savings schemes are the easiest way of making investment for most of the employed class, as they receive income on a monthly basis. Planning the amount to be saved and setting it aside on a monthly basis is suitable for a large number of investors who cannot invest in lump sum.

Post office savings schemes, bank recurring deposits (RDs) and systematic investment plans (SIPs) in mutual funds are the more frequently utilised options as far as monthly savings are concerned. However, there are options like gold savings plans, SIPs in gold exchange traded funds (ETFs) and chit funds, which also allows making monthly investments.

Post office monthly investment schemes (POMIS) are recurring deposits preferred by investors who are risk averse and prefer safer investment options, especially in the semi-urban and rural areas.

Most schemes have tenure of six years and there is a cap on the total amount one can invest. For single accounts, one can invest a maximum of Rs 4.5 lakh and for joint accounts one can invest Rs 9 lakh. There is a 2 per cent penalty for withdrawal after three years and 1 per cent before three years.

The interest rate on post office RD is around 8 per cent; so they are not a good bet to beat inflation.

The interest income from the investment is taxable as per the tax bracket of the investor. So in effect, the posttax returns can come down to around 6 per cent, which is lower than the current inflation of around 7 per cent.

Further, dealing with post offices is difficult because of the slackness inherent with any government department. So, we usually dissuade investors from post office schemes and ask risk averse investors to go for the RD schemes offered by banks.

Almost all banks offer RD schemes. They generally offer 8 per cent to 9 per cent interest on RDs, which is also not much help during the current inflationary situation.

Investors should generally have an RD in the same bank where they have their accounts. This makes opening of an RD and transferring money easier and hassle-free. The interest income from the bank RDs too is taxable. Investors who are comfortable with a certain level of risk can opt for systematic investments in mutual funds. These investments do not offer assured returns, but the returns can also be higher if the markets are favourable. SIPs help investors who do not have lump sum to invest in equities or debt funds.

Making SIPs into equity funds is best done when the markets are in their low levels. This helps the investors accumulate larger number of units.

Apart from the 15 per cent short-term capital gain, for the first year, equity funds are largely not subject to taxation.

Volatility is lesser in case of debt funds compared to equity funds. Debt funds invest heavily in debt instruments, like debentures, corporate bonds and government securities. Almost 75 to 80 per cent of the money is invested in debt and the remaining in equity and cash.

Debt funds are subject to long-term capital gain and the profit is taxed at 10 percent without indexation or 20 per cent with indexation, whichever is lower. At present, debt funds are providing around 8 per cent returns, but the yield will go up when the interest rates come down. There were times when debt instruments gave 12 to 13 per cent yield. With the indexation, the returns from debt funds are better than POMIS and bank RDs in beating inflation.

It is also possible to make monthly investments in balanced funds, which have 65 to 70 per cent exposure in equities and the rest in debt.

Similar to equity funds, balanced funds with 65 per cent exposure to equities are subject to short-term capital gains.

There are several hybrid funds available in the market that invests in equities, debt and gold in different proportions. Balanced funds and hybrid funds are efficient in providing effective portfolio diversification. Many hybrid funds readjust their allocation in different assets according to the market conditions so that the investor makes most of the situation.

Systematic investment into gold ETFs is also getting popular among investors who have a long-term perspective on the metal. The investor can make use the of the price movement in the metal and accumulate units on a monthly basis. The units can be redeemed at the end of the tenure. Gold is often considered a good bet in the long term.

Several financial institutions and jewellers are also offering monthly investment plans in gold. Redemption in these gold accumulation schemes is often made in gold at the end of the tenure. The accumulation of gold depends upon the price movement during the tenure.

Chit funds are a popular means of credit in the semiurban and rural areas. In Kerala, the government itself runs chit funds through Kerala State Financial Enterprise. A fixed number of subscribers make monthly contribution to the fund. Each month a subscriber gets the sum assured. More than the returns, chit funds provide the subscribers easy access to capital but they are less transparent than other investment avenues and carry a bit more risk.

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

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3. DSP BlackRock Tax Saver Fund Invest Online
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5. Birla Sun Life Tax Relief '96 Invest Online
6. IDFC Tax Advantage (ELSS) Fund Invest Online
7. SBI Magnum Tax Gain Scheme 1993 Invest Online
8. Sundaram Tax Saver Invest Online
9. Edelweiss ELSS Invest Online