The first salary that we earn is a moment of joy for all of us. It brings a lot of mixed feelings. Feelings of freedom, responsibility, happiness and what not.
The moment we get out our first salary in our hands, there is a sense of pride. At this moment one thinks to spend all and enjoy. But one should develop a habit of saving from the start.
One must always plan in advance to be financially secured later. A person who has just started earning may not take investment seriously. Time passes by and later on, we realize that we have already wasted a lot of time. So it is better to start saving early and invest in few plans from the first salary itself.
Here are a few investment plans which are a good option for investment. It creates additional wealth and inculcates a habit of savings.
- Public Provident Fund (PPF)
This scheme launched by the Central government basically target those who work in the unorganized sector and are outside realms of financial security. It is especially meant for the people who belong to the salaried class or are self-employed. It is a must for such people in order to secure their future post-retirement.
A PPF can be easily opened by an individual in a bank or a post office. Deposits made into this account starts from Rs 500 and goes up to Rs 1,50,000 for a financial year.
The lock-in period of the PPF account is for 15 years. The returns on the deposits are quite beneficial in the long-run. The interest rate is also high for the small saving scheme. Current rate offered is 8.7% per annum.
Deposits under PPF account gets the advantage of tax exemption under section 80C. So the amount you invest and the interest you earn on it is totally tax-free. It is a great investment option for those who have just started earning as in long-run they get amazing benefits.
- Systematic Investment Plan (SIP)- Mutual Funds
If one is looking for an opportunity to invest in a diverse portfolio, then Mutual Funds is the right option for them. Some funds in Mutual Funds offer returns after a year while some may fetch returns after a decade. It depends from plan to plan.
So Mutual Funds are a one-stop solution for all type of financial planning. Today, SIP has become preferred investment option by many individuals. It lets you invest in any amount for the chosen Mutual fund plan on monthly basis rather than in one go.
An individual with as little as Rs 500 can invest in Mutual Funds. So it does not create any pressure, especially on those who have just started earning.
As mutual funds involve payments on a monthly basis, it creates a sense of discipline among the investor. Benefits are earned from the rupee-cost averaging factor. This means, one buys more stocks of the same cost when price come down and vice versa.
A newly employed person does not have significant amounts to invest. So this small-size investment plan can benefit such investors in the long run. However, one should remember that mutual funds depend on the performance of the market. It can be slightly risky too. Only a person with an aptitude for risks should invest in them.
- Unit Linked Insurance Plan (ULIP)
ULIP scheme is a good combination of the benefits of both- life insurance as well as Mutual Funds. The premium paid for this scheme give dual benefits- insurance coverage as well as returns through stock, debts, bonds etc. One should understand that ULIP is a good option for those investors who have the strength to take the risks.
A major advantage of such type of investment is that it gives the investor flexibility to take minor risks and maximize the investments. The premiums paid are divided to provide insurance coverage as well as various equity and debt schemes. Units are bought as per the NAV (Net Asset Value) policy.
NAV is basically per unit value of different schemes and varies on a daily basis. It also depends on the performance of the fund as well as the market conditions.
Investors get a choice to invest in either debt or equity funds or a mix of both. It depends on the person’s capability to take the risk.
There are basically two types of ULIPS. In the first type, the higher portion of the sum assured is given as death benefit to the mentioned nominee. In the second type of ULIPS, it provides both, the assured sum and the fund value as death benefit. However, premiums paid on such policy is high.
There is also a provision for the tax rebate on the premiums paid under section 80C of Income Tax Act and exemption on the payouts under section 10D. It is a great investment option for those who are newly employed as it gives dual benefits.
- National Pension System (NPS)
While it is true that one does not think of the retirement when they have just started earning, it is still better to think ahead of time. NPS is the most sought after plan retirement plan.
It lets the investor invest in both equity and debt. There is freedom to choose the amount that one wants to invest in debt or in equity. If the investor doesn’t have a knowledge about it, then age is the criteria to choose. Until the investor attains 35 years of age, the division of amount is 50-50. After 35 years of age, the percentage of investing in equity reduces by 10% after every five years.
It gives the investor the option to choose an investment avenue under the new NPS scheme. The amount that one is willing to contribute and the frequency at which they want to do so can be easily chosen as per own needs. There is provision for tax deduction up to the amount of Rs 2 lakh under section 80CCD.
The minimum amount that one has to invest is Rs 500. If the investor wants to exit the plan before attaining the age of 60, 4/5th of the amount accumulated needs to be used to buy a life annuity plan from the insurance provider. It needs by IRDAI regulated. Only 1/5th of the lump sum amount can be withdrawn.
The sum received on maturity from the annuity is taxable while the lump sum is exempted from tax.
Tier 1 of the NPS basically focuses on the post-retirement savings plan. Anybody who is between 18 to 60 years can easily open an NPS account. The charges incurred for operating this account is quite low which makes it a good choice for the newly employed.
- Recurring Deposit
If one is not interested in long-term planning and wants to get returns on a short-term basis, then RD is a smart choice for them. It is a better option to invest in RD rather than FD. A depositor is entitled to deposit a certain amount every month until the end of the term.
These accounts are easy to maintain and basic KYC norms are needed to be obeyed by the depositor as per the RBI rules.
The interest rate on RD is determined by various factors such as the tenure of the RD, the amount deposited, and the RD scheme that one has chosen. The interest rate is highest if an individual decides to deposit the amount for a period of 15 months and 24 months.
In case you are a woman or a senior citizen, then there is an added benefit to it. The interest rates are quite competitive and high for such customers.
RD only require small monthly deposits and creates a discipline of saving. Recurring Deposit is a good option for short-term investment as they guarantee returns without any risk involved.
According to the amendments brought in the Financial Act of 2015, TDS is applicable on recurring deposits. This TDS of 10% is deducted on the interests earned on RD. In case the interests earned are up to Rs 10,000 then no TDS is deducted. However, one important thing that depositors should remember is that PAN card is mandatory in case you want to save on the taxes.
Which plan to choose?
One has to be very specific with their needs and should also get a good hold of different investment plans. It also depends on the person’s ability to take the risks. ‘Better get low returns than lose the entire sum’ is a motto used by many safe investors.
On the other hand, some investment options may give high returns but are not eligible for tax deductions. It depends on personal choices whether they are interested in saving taxes or getting high returns. If earning extra income is the main agenda then one should choose one of the plans of ULIPS but they should not forget the risk involved in it. While if one is more interested in securing the future, then they should consider taking up an insurance plan or other related products.