Maximize Your Profits: What Should the Return on Investment.? Financial Management -7

 

Generally, the investment we make should be able to provide returns that exceed inflation. The average inflation rate in India has been around 6%-7% per year in the past. Inflation may be a little higher for some types of expenses. Especially medical and lifestyle expenses are increasing at the rate of 8%-10% per year.

There is no tax exemption on the income earned from savings accounts. If a person's annual income is more than Rs. 12,00,000 and he earns 3% income from his savings account, then 0.9% of it will go towards income tax. He will get only 2.1% as net income. If the annual inflation rate is 7%, he will lose minus 4.9% of his income. Due to this, we recommend not keeping too much money in savings accounts.

Investment plans..!

Investment plans are plans that provide higher returns than savings. Investment plans are generally of two types. In the first type, there is no risk to capital.

For example, bank deposit schemes, debt securities of leading companies, post office savings schemes, RBI issued securities, etc. are safe investment schemes. These have the potential to earn a maximum interest income of 8.5%.

Although there is a possibility of getting additional income in the second type of investment schemes, there is also a possibility of loss of capital. In these high-risk schemes, the maximum amount of income can be earned.

Mutual fund investments, stock investment, stock trading, derivative trading, crypto currency trading, etc. fall into this category.

For example, when a person engages in derivative trading, there is a possibility of losing the entire capital in a few hours. On the contrary, there is a possibility of getting 1 to 10 times profit in a few hours. However, there is a possibility of getting additional income when trading in these schemes correctly.

Now let's first look at safe investment schemes in detail.

Fixed Deposit Schemes:

Bank Fixed Deposits are always at the top of the list of safe schemes preferred by everyone. These schemes offer returns of up to 8% per annum depending on the maturity period. Some small finance banks offer interest rates of up to 8-8.5%.

Senior and super senior citizens get an additional interest rate of up to 0.5%. Employees working in banks also get an additional interest rate of up to 0.5%. These schemes also have a deposit insurance of up to ₹5,00,000 like savings accounts. Although money can be withdrawn from fixed deposit schemes immediately before maturity, the declared interest may not be available.

For example, Sarangapani invests Rs. 2,00,000 in a fixed deposit scheme with a maturity period of two years at an interest rate of 8.5%. If he withdraws the money in six months, he will get only the interest that he would get on a six-month fixed deposit plan in the bank.

In the above example, instead of 8.5% interest, he may get only 6%. In addition, banks charge 1% interest as a penalty. Due to this, if the money is withdrawn midway in fixed deposit plans, the income will be only 5%. Generally, there is no income tax benefit for fixed deposit plans (there is a tax benefit of up to Rs. 1.5 lakh in a financial year under the old tax regime under section 80C for a 5-year bank FD). There are fixed deposit plans ranging from six months to 10 years.

Depending on factors such as the maturity period, the interest rate offered, etc., one can invest money in the right fixed deposit plans. Foreign investors, the super rich, etc. may avoid investing in fixed deposit plans. This is because the income after tax and inflation is negative.

Recurring Deposit Schemes:

You can also join a recurring deposit scheme where you invest a certain amount every month. This scheme can also earn interest of 6 to 6.7%. There is no tax benefit for recurring deposit scheme. Post Office RD scheme is for five years. The interest rate may change every three months.

Guild Funds:

The government issues bonds in collaboration with the Reserve Bank of India for financial needs such as infrastructure development of the country. These bonds are called guild bonds. These schemes have the potential to earn interest income of 6% to 9% based on interest rate fluctuations. Guild funds are likely to perform well during periods of falling interest rates. Since they are under the control of the government, they are considered a very safe scheme. Money can also be withdrawn immediately in guild fund schemes. Since income is earned through interest rate fluctuations, sometimes there is a possibility of getting less income.

Corporate Debentures:

Large corporate companies also issue debentures for their capital. Companies raise capital in many types such as company creditworthiness, secured/unsecured debentures, convertible/non-convertible debentures.

The credit rating of these bonds is published by leading institutions. These bonds have the potential to earn interest income of 8% - 11%. There is no insurance like bank deposits. However, the property pledged in mortgage bonds provides security to our capital. Bonds do not have income tax benefits. There is a greater chance of getting more income from this type of investment than bank deposits.

Post Office Time Deposit:

There is no part of the country where there are no post offices. You can easily open an account in post offices. You can invest in post offices through recurring deposits.

You can also invest in time deposits in post offices. Time deposits are like fixed deposits in banks. Time deposits are deposits where you deposit money for a specific period of time. You can get a maximum return of up to 7.5%. Post office schemes are very safe investments like banks. You have to pay tax on the income earned by investing in this scheme according to your income bracket. If you want to withdraw money immediately before maturity, like bank deposits, you may face compensation such as low interest and penalties.

Investment in gold:

When investing in gold jewelry, you may face compensation such as commission, damage, and GST. You can buy the gold required for your needs and desires as jewelry and buy the extra amount as digital gold. By doing so, you can avoid compensation such as commission, damage, and damages.

It is not possible to say for sure how much income you will get from gold. There are times when gold has given negative returns. In the long run, it is possible to get more money from gold than the income you get from bank deposits. You can get money immediately by mortgaging or selling gold jewelry. You can get money from digital gold (Mutual Fund - Gold ETF, Mutual Fund - Gold Fund of Fund) in 2 working days. The income you get from investing in gold is considered capital gain. In the short term, you will have to pay 12.5%, even if you are taxed at the tax rate of 20%.

In this section, we have looked at some safe investment schemes for financial freedom. In the next section, we will look at some other investment schemes.