From now onwards we shall present very useful information on topics like investments, tax, pension planning etc at regular intervals of time. We are starting this segment on request from many regular readers of the blog who wanted to get information on various other investment ways and finance topics. To start with we shall see some of the other investment avenues other the risky stock markets. Read on to discover more. Feel free to drop your comments and get them clarified here.

If we look back at the year 2007, the growth of Stock Market’s and in turn the returns, attracted many of the investors to the share market. The slide in the stock markets from the year 2008 saw investors looking for investments that are stable and the natural choice was fixed deposits with banks but the interest rates were very low. But the good thing is there are other options too in form of government investment schemes which will add to the stability in the investments held by you. The following are few of the schemes that can be considered as an option of investment:

• National Savings Certificate (NSC)

The most popular scheme launched by the government of India for small savings is the NSC. You can invest as less as Rs.500 or any amount you want to, provided you are comfortable with the lock in period of 6 years. The advantage of investing in NSC is that it has a respectable interest rate which is 8% and it is compounded every half year, which means if you invest Rs.1000 you will get Rs.1601 at the end of six years.

Hence, the effective rate per annum amounts to 8.16%. NSC is a tax saving scheme with a government guarantee. NSC is the only small saving scheme wherein not only the initial deposit, but also the interest for the first five years, out of its term of six years, is eligible for a deduction under section 80C.

NSC interest is actually taxable. However, since it is a cumulative scheme (where the interest is not paid to the investor but instead accumulates in the scheme), each year’s interest (for the first five years) is deemed to be reinvested in the NSC. Since it is deemed reinvested, it qualifies for a fresh deduction under Sec 80C, thereby making it tax-free.

• Public Provident Fund (PPF)

Another important investment option is the Public Provident Fund. You can contribute to the employee provident fund at your office along with your contribution to the employee provident fund. The minimum investment is Rs.500 and the maximum investment is Rs70000. The accumulated amount is repayable after 15 years and the entire balance can be withdrawn on maturity. The amount you invest is eligible for deduction under Section 80C and on maturity you pay absolutely no tax.

If you are in need of money, you can take loan on the PPF after 5 years (up to which no withdrawals are possible) by paying an interest which is higher by 1% subject to limitation on amount withdrawn. Another high point is any court order cannot attach or take this instrument against any of your debts or liability.

• Post Office Monthly Income Scheme (MIS)

Post Office Monthly Income Scheme provides a monthly income at 8% per annum.  On completion of 6 years there is a maturity bonus of 5% for those who will hold this at least up to 5 years. This is very convenient and different kind of investment option where in the interest is paid as a regular monthly income.

Exit from the scheme after 1 year will entail a loss of 2 per cent of the amount invested. As a result, while the investor would not suffer any loss in interest earnings, the loss of principal can be high. Higher the investment, higher the loss on the principal.  If exit is after 3 years, the loss on the invested amount is 1%. It has to be noted here that the maximum amount that can be invested under this scheme is Rs.4.50 lakhs as an individual and Rs. 9 lakhs if invested jointly. A major disadvantage of this instrument is that there is no tax savings under Section 80C and the interest earned is also taxable.

• Kisan Vikas Patra (KVP)

Kisan Vikas Patra (KVP) doubles your money in 8 years and 7 months with the advantage of premature withdrawal and taking loan against the same. The rate of return is 8%, and is compounded annually. The minimum investment can be as less as Rs.500 and there is no limit to the maximum investment. But this is not meant for regular income. The disadvantage of this instrument is that there is no tax savings under Section 80C and the interest earned is also taxable.

The high safety levels coupled with the attractive returns and no TDS payment, make small savings schemes a ‘must-have’ option for most investors. Small savings schemes are designed to provide safe and attractive investment options with tax returns to people who want to stay away from the uncertainties of the stock market. Choosing between them depends on the interest expected as well as your purpose. For example if interest is the purpose then PPF is the best followed by NSC, KVP and MIS. If your purpose is flexibility, then MIS is the best followed by NSC, KVP and PPF.

While you have the option of choosing more than one scheme at the same time, it can also be linked to your career. A person who has just started working can choose NSC as their tax slab is not high and if your purpose is to get high returns it can be invested in KVP. Investment in PPF is generally considered while planning for retirement and where monthly income is expected, you can invest in MIS.

So these are some of the other investment ideas for more risk averse investors who want to see their initial investment safe in all conditions. They provide regular interest over a period of time and are much more secure than the very risky stock markets.

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