Protect Capital increase returns

Whenever we invest, we want to play safe. We would like to have big returns but would not like to lose the capital. But as it is said, low risk low return. So what should you do if you want good returns with low risks or no risks?

Some investment options are Bank Fixed Deposits, Company Deposits, Fixed Maturity plans, Mutual fund based Monthly Income plans, post office Monthly Income scheme, etc.

Do all of them guarantee return of capital or just try to protect capital. Most of them just try to protect capital other than Bank Fixed Deposits and Post Office Monthly Income Scheme which guarantee return of capital.

Let’s assume that you invest in a mutual fund which promises protection of capital. What does the mutual fund do? It invests your capital in such a way that your will be intact on maturity date. How is it done? If you invest Rs.1000/- in a 5 year mutual fund which promises to protect your money, the mutual fund will invest your capital in such a way that they will get Rs.1000/- at the end of 5 years.

How? If a government bond is giving a return of 7.5% compounded yearly for 5 years, the mutual fund will invest Rs.700/- in the government bond and the balance in Equity, which will help increase the return.

So can you also replicate what the Mutual Funds do? Yes. As we had stated earlier, high risk high return. So we will first protect our capital. We will invest the whole amount in Post Office monthly income scheme. So every month we will get some return. This return we will use to deposit in a good equity fund through SIP (Systematic Investment Plan). 

Why SIP? By SIP you are investing regularly over a period of time taking advantage of the up’s and downs of the market price (NAV – Net Asset Value, since mutual funds are purchased at NAV). Basically averaging the cost of purchase, so you get the best price over a period of time, also you are compounding your investment.

By following this process you do not have to regularly keep track of your investment and you would be your own boss. Since you decide the fund in which you would like to invest. Another option would be to take yearly SIP in different funds i.e. this year in one fund next year another depending on how the mutual fund is doing. This way we take decisions based on the current market situation as well as diversify our risks and last but not the least, our capital is intact. 

Money Saved is money earned

The budget is out and as usual every individual looks at how it impacts his bottom line. In this budget, with the change in tax slabs, the outgo in terms of tax deduction would decrease. That means more money in hand. If your income is above eight lakhs, it is substantial i.e. Rs. 50,000/- plus, but it would be less depending on the tax slab you were in. 

The amount is not small. If we assume that our income was the same, the additional saving would come to around Rs.4,200/- per month. Let us look at what we can do with a sum of around Rs. 4,000/- per month.

All of us have a dream, a short term dream or a long term dream. This amount could be kept aside on a monthly basis to meet this dream.

Till date we have seen that once the income tax slabs and rates are announced they have always been honored.  So our first assumption would be that the finance minister would keep his word and in that case we should start planning we have around 2 months to do it.

There are many of us who are not able to save because of some commitments. Therefore we are not even able to do our investment of Rs. 1 lakh. If you are in this bracket, then start investing in tax saving schemes, using the tax saved per month for investment. With this the tax saving would increase giving you more money in your hands.

Now if you have been taking care of the Rs. 1 lakh in Sec. 80C, then you should go for some investment which would help you create a good corpus. Go in for SIP’s in some good Equity mutual fund.  Other options would be to go for a pension plan. No harm in planning for your retirement, right?

If your dream is a short term dream, go for a recurring deposit.

Another way of increasing the money in your hand would be to pay off some old debts or credit card dues. You will save on interest and financial charges. Increasing your EMI amount could also help you get debt free sooner.

In this budget the finance minister has also announced an addition deduction of Rs.20,000/- in long term infrastructure bonds. Details are not clear, but then it would still be a saving for the long term with an additional saving on tax.