Introduction Irrespective of your income level, savings is a must. Even very small amounts saved can make a huge difference in the future. It is hence prudent to think of the long term and always keep pumping in small amounts. In particular, a systematic plan for the long term will and should be centered around a) Investment in fixed and recurring deposits b) Investment in no tax instruments c) Investment in gold d) Investment in plots and e) Investment in mutual funds.
Investment in fixed and recurring deposits Interest rates keep on changing. It is always wise to cut down expenditure on all wants. Any attempt to show off or to impress even relatives should be avoided. Remember, after all, it is your life. If you have money, everyone will come towards you. If you don't have money, none will come to your rescue. None will ever come calling. However, it is essential that "other things being equal" ( that is, your good health, children studying very well and so on), you have a good corpus at the time of your retirement, when you would no more be active. One of the best ways is to keep investing in small amounts. In the post offices, you can invest in fixed deposits with even Rs. 100. Hence, when you have some Rs.500 keep invested in a long term cumulative fixed deposit. Normally, such fixed deposits are accepted for five years. You can renew the same. These are "will not touch" deposits. For example, if you had invested Rs.500 ten years ago at 8.5% interest, even that would be around Rs.1200 today. Or more. Many co-operative banks (mostly over one hundred years old) also accept fixed deposits for small amounts. The recurring deposits can be opened for even Rs.25 with Andhra Bank, through net banking, Once you have a minimum balance of Rs. 1000, you can easily open such RD accounts. At current rates of interest, you will get Rs. 5000 after ten years. This amount will come in very handy when you need it most. Similarly, there could be other public and private sector banks that will encourage the opening of such deposits. Go to the field and check. Money for such recurring deposits? Cut down on non-vegetarian food. Cut down on cinema expenditure. You can watch them on television at no extra cost. Cut down on perfumes and costly shampoos. Natural herbal alternatives are available for a fraction of the price. Cut down on costly tours. Cut down on beauty parlor expenses. Well, the scope is so huge, if you think and make a list of all your expenditure. Remember, ten years will fly in a flash. You need money to beat inflation. The best and safe investments will always help you.
Investment in no-tax instruments The Public Provident Fund is the best. Till today, the Government has not taxed it. It is a fifteen years investment vehicle, and one can easily get an average of eight percent on the yearly balance. It is a cumulative amount that comes to you in bulk. The minimum investment per annum is only Rs.1000. Open a recurring deposit, where you can invest varying amounts. In the Indian Bank, this starts at just Rs.25/- You can invest any amount in multiples of this amount. Stay invested for five years. Withdraw the money and pump it into PPF immediately. In this fashion, you can and will never feel the pinch. For instance, if your bonus is Rs. 16,000 set aside Rs.4000 for this purpose. Similarly, since Life Insurance is a must, go in for a term plan. Yes, the money will not come back to you. Only in SBI Life insurance, you can get back the money invested, without any interest. Ask them for details. If you are gone, the family will not suffer. Life insurance has the income tax benefit. Remember, Life Insurance is not an investment. It is only for protection for the family.
Investment in gold If you have some Rs.10,000 that you could spend, buy gold, however small that may be. Keep the gold in a locker. For your information, the co-operative banks charge very less when compared to the big banks. Ask for details and open at least two lockers. This is a must. Never allow the thief to come calling and take away all your gold. The locker expense is an investment. It is not an expenditure. Remember, you must keep investing in gold, whenever you have some huge money.
Investment in plots On the outskirts of cities, even as far as seventy kilometers from the city center, you will find some village, slowly developing into a small town. Today, you will find some guy inviting you to invest in plots, through the easy installment scheme. Grab it. Check if the plot is DTCP or Government approved by the respective Development Authority. Get a legal opinion. Grab the opportunity. If you do not have the money, request your wife to chip in with some skilled self-employment. Catering businesses can be started with just Rs.5000/- as an investment. Right from your home. Or a stitching course can enable her to earn a regular income. When you have the will, you will find a way. Remember, all those regular installment plots are part of posh localities in most cities. The fine example of Guduvancheri, a suburb of Chennai, is a big case study in this respect. It is almost fifty kilometers from the city center. Yet, it is the heart of the city today!!
Investment in mutual funds Superb mutual funds like the UTI Mutual Fund have excellent schemes for investment. You can even start with just Rs.100 investment, on a monthly basis, with Mastershare scheme. However, it is wise to consult a good investment advisor. Remember, any amount that is over one lakh rupees in terms of returns by way of capital appreciation is alone taxed. Otherwise, if you stay invested for more than twelve months, the amount is not taxed at all. This is a very good investment and you should try it. However, it is wise to set apart Rs.500/ in a good systematic investment plan. You also enjoy tax-free benefits, as the entire corpus can be taken out at your will after say five years. Stay invested in SIPs and this will help you a great deal. Never invest in the stock market. This is a risky game and the investment experts at Mutual Funds will do it for you. Hence, Mutual Funds are the safest vehicles for investment. HDFC Mutual Fund schemes are very good.
ConclusionIf you wink, the time is gone. It could have been spent usefully on some good investment. Hence, staying invested in the really long term is a must. Remember, when your child is twenty years old, he or she needs higher education and this will be a very costly Act wisely today. You will find that the smallest of investments help you meet vital expenses at all times.
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A very good article that will enable most of us to change from just saving for a rainy day to people who save smartly and make their savings money grow too.
One basic fact that is important is to save as early as possible (younger the age, better the returns, longer the savings period and better the final sum), save what little you can. This coupled with regular assessment of the individual targets and actual savings will go a long way.
I am glad that the author has mentioned fixed and recurring deposits. These traditional instruments are shunned in favour of mutual funds, shares and a plethora of investment options recommended by biased financial planners. Whatever the returns are, the investor needs to keep some part of his/her long term savings protected, i.e, without risk of falling returns related to market volatility.
While we save for the long term, one formula does not apply to all. It is crucial to know what each individual needs at what point of time. By this, I mean, funds for children's education, a new home, children's marriage and retirement fund. Based on this a person can decide to increase or decrease the percentage of investment in each assets class.
When it comes to long term savings, many people think of putting the money literally in the hands of the financial advisor or manager and not analysing what is really happening. We need to be proactive, periodically check the health of our own savings, revise plans and if need be switch the asset class of our savings based on the market factors and our needs.
Savings is a provision for difficult times. Any prudent person will try to save whatever is possible. It may not be possible to save after fulfilling all our needs and demands. So we sacrifice some of our present need or demand and defer it and by that save some money.
Before the advent of finance education savings was a routine habit to our mothers or the ladyfolk in our homes. That was traditional wisdom conveyed from generation to generation and from person to person and by learning from one's own experience. I had seen my mother taking a handful of rice from the measured quantity of rice taken for that day's cooking and keeping it in a small container which she always kept hidden from public view. She used to take rice from this separate container rarely especially in rainy days when rains were continuous and our grains stock depleted. That was my first lesson on saving.
I started saving money when I was about ten years old. I started it by buying 'savings stamps' from the post office and affixing it on the special card for that. Saving stamps were available for small amounts like 25 paise, 50 paise etc. Then when it all totalled to five Rupees, a post office savings account was opened in my name. Thus I started my savings. It is my savings habit that has helped me to lead a normal life consistently. Prudent savings help us to have a cushion from the sudden shocks of financial emergencies. A Malayalam saying says that "If you sow seeds in your prosperity, you can harvest its fruits in your adversity".
There was always a great encouragement for small savings and household savings in our country. Of late due to the influence of Western nations' economic theory, we are also trending to be a spending people and less of a saving people. That is not good and can invite repercussions especially when sudden economic recession occurs.
The article though titled about savings deals more with various ways of parking the saved money. But, the investment can happen only after making a saving from the income and expenses. Hence everyone should start developing the saving habit. It starts as a trickle but ends as an avalanche- of benefits.