Don’t Just Save money instead invest money to save yourself

Why would you want to invest money when you can happily save and earn a decent return on investment with your savings account which is in the range of 4 to 6 percent? However, unless you have a huge money say for example, you have 100 crores in the bank for which you get four percent interest which is around four crores, saving money is not going to help you.

Most of us do not have that luxury and if you have so much money I am sure we would not just save it in the bank and eat on the interest alone. We would surely invest. But in case you do not have so much amount of money; the problem is not with investing but the way the money is invested. You have to factor in the risk associated with it and then choose the investments wisely.

For example, even if you invested the money in fixed deposit, say you invested rupees 100 in 2006 and got around 8.5 percent on the deposit you would have got only 200 rupees in nine years. On the other hand from the last decade the inflation has been at 9.3 percent. For example if a broiler costs around 60 rupees in 2006, it is around 120 rupees today. So for 100 rupees chicken in 2006 we are paying 200 in 2014. This clearly shows that merely saving money or putting in FDs is not going to help. To survive we have to earn, save or invest in such a way that we always get more than the rate of inflation.

Now the question is not to invest or to invest but where to invest. If you look at throughout history and over a longer period of time the best asset has always been equities. Yes, the share market has always given the highest returns but also higher risks.

So when you invest in shares make sure you know everything about them or the broker whom you trust to invest is explaining you everything and the risk associated with it. Once you reach the investment profit or the target you set make sure you withdraw the amount or you use it for some other purpose. As earlier said share markets are risky as well, so also be ready to remove the amount if it is not performing well. In short keep a loss target, say if you are business is selling phones, then you offer discount if the sales are not going well. Similarly, see the minimum amount you can afford to sell the shares.

You can also try mutual funds which invest in variety of shares but offer lesser risks and also you can start with lesser amount.

Off course, then you have the real estate, gold, silver, foreign currency and commodities etc. So like these there are many opportunities. Just see which one matches your skills, interest areas and in which you are willing to take risk. As always make sure you have minimum loss and maximum profit target. If the investment did well and achieved your profit expectations, sell it or save the profit or diversify your investment in a new area.

If the investment did below your expectations, do not wait for the losses to pile up and put you under debts, make sure you have a plan B and remove the investment and go for the new thing.

Lastly, sometimes in spite of going according to plan, things might fail in terms of a death, natural calamities or a mishap etc. To save your investments or business from such events, make sure you have a life insurance or general insurance accordingly.

Most importantly, make sure you are reviewing your investment plans from time to time and adjust accordingly in case of any new changes.

Top-5 Short Term Investment Plans in India

In today’s India of smart investors and strategic money management, the options to invest your hard earned money are many. Broadly classified, these plans fall into the categories of long term plans and short term plans. While the former focuses on tying up your money for a longer tenure while indulging in systematic and periodic investments or premiums that is aimed at generating a surplus corpus of funds for a later date, the latter is tuned to invest your money for shorter durations with the promise of considerable returns. Short term investment plans solve immediate financial obligations, can be initiated with a smaller investment, allows high liquidity of funds, involves minimal risk owing to the shorter time durations and the outputs are comparatively high. Not surprisingly, these investment plans are finding great favor with the modern Indian investor.

In India, the following five short term investment options have always been highly preferred- but now, they are enjoying a revival of sorts through the financial year that has been, 2014-15.

Savings Bank Account (SB) – The humble SB accounts have been our classical and obvious choice when it comes to an organized way of saving money, or getting initiated to the world of banking. This option is risk free, easily available and offers high and immediate liquidity. The returns might not be substantial, but the security offered alongside simple add-on features like the ATM card and cheque books, make SB accounts a universal favorite when it comes to short term investment.

Fixed Deposits (FD) – Fixed deposits are one of the most preferred instruments in a bank’s arsenal- proving to be a short term as well as a long term investment option. With a minimum tenure of 30 days, to a maximum duration of 10 years, the FD can be utilized as a secure lock for your money that can be broken in times of acute financial crisis. While this assures liquidity, for best results, let the FD run to full maturity before you withdraw the funds alongside the applicable interest.

Mutual Funds- Especially ‘Debt Instruments’ and ‘Large Cap Mutual Funds’. The former is a low risk option that produces good results without the fear of market instability and other financial factors. At nearly 10.5%, the returns will appeal to any short term investor. Meanwhile, Large Cap Mutual Funds are a bit high risk, wherein mutual fund companies invest your money in the stocks of large businesses that could potentially help the business perform better, ergo solid returns through a 1-3 years tenure for you.

Gold and Silver- Down the ages, no other commodity has experienced more application in bartering, business, economy and politics than gold and silver. Today, the rapidly incrementing prices of these precious metals make them an ideal source of investment that can purchased, stocked for long durations and then sold in line with the prevailing market conditions. The returns are generally very favorable, that includes minimal risk of investing directly in the unsteady market.

Stock Market- Products such as shares, commodities and derivatives are finding great favor with the young Indians of today. This form of investment demands good market knowledge and an affinity for high financial risk. However, with the right mix of luck and patience- a substantial sum of money stands to be made.

Short Term Investments are the ideal outlet for a first-time investor, or an investor who may have many unforeseen financial obligations, or is skeptical about investing loads of money for the far future without enjoying it sufficiently today. Whatever the reasons may be, the growing interest in these investment options is bound to grow many folds, while inspiring banks and other financial institutions to create more products that follow this philosophy. Happy short term saving everyone!!

Banks Likely to Reduce Fixed Deposit Rates Soon

In what can be termed as bad news for the common man, banks are likely to reduce fixed deposit interest rates in the near future. Financial experts feel that shifting or large corporate funds from fixed maturity plans to fixed deposits due to the announcement of mutual funds retrospective as announced in the annual budget has a significant role in reduction of bank fixed deposit interest rates. Most banks facing a lowering net interest margin are looking to offset their losses by increasing overall profitability for selected fixed deposits.

Lowering Net Interest Margins:

Banks are facing a financial crunch of all sorts, as the constant decline of yield on advances is on a steady decline. Business houses are reluctant to borrow heavy sums of money from the banks owing to various economic and factors. The change in definition of willful defaulter in case of corporate loan defaults has also made corporate reduce their loan dependence on banks to avoid negative fallout in case of a default.

Banks meanwhile have been paying out higher fixed deposit rates to its clients including corporate deposits and retail deposits. As a result the banks have witnessed a drop in their net interest margin. According to a recent RBI report, the loan demand has not improved even with the beginning of the festive season forcing banks with no choice but to decrease fixed deposit interest rates to safeguard their dropping net interest margins.

State Bank Leading the Rate Cut:

State Bank of India, the country’s largest public sector bank has been the first bank to announce a rate cut in fixed deposit rates. SBI recently reduced short term deposit rates for all term deposits under Rs. 1 Crore by 1 percentage point. As a result the interest rates for short term fixed deposits between one week to 45 days has effectively dropped from 7 to 6%.This reduction comes less than a month after the bank had reduced interest on its medium term deposits ranging between 180 to 210 day tenure periods by 25 basis points.

Other Banks Likely to Follow Suit:

Analysts and financial analysts are of the opinion that banks have left with no option but to reduce their fixed deposit interest rates in the coming weeks. Both public sector and private ones are likely to follow State Bank of India and decrease their interest rates for selected fixed deposit schemes. While there is no decrease in interest rates for long term deposits keeping it synchronized with the RBI repo rate policy, unless the net interest margins get better the lowering interest rates are likely to affect the long term deposits as well in the near future.

Drastic Changes Unlikely:

While interest rates on fixed deposits are likely to lower in the coming weeks, the drop is not going be a substantial one. The rate cut is likely to be small and divided amid various fixed deposits to ensure there is no despair in the fixed deposits market for the retail investors. Since bank deposits today compete with many other financial instruments, banks are likely to walk a tight rope by reducing their interest rates for fixed deposits but still maintaining good returns for the customers.

4 Banks that does not charge penalty on premature withdrawal of Fixed Deposits

            

Penalty on fixed deposits

Have you ever thought, what would bank do from your fixed deposit funds? How the bank would be profitable by providing you fixed deposit interest rates? And, why do bank cut penalties on pre mature withdrawal of FD’s?

Probably not, But, the solution for this question is that the bank would always require liquid funds and CASA amount for providing loans to its customers and this liquid cash comes from our deposits and investments in a bank. The bank will make a provision of mobilizing the FD funds for the fixed maturity asked by the customer. If the customer breaks his/her FD in between, the bank has to arrange the funds immediately which the bank has already employed in providing finance to others. Therefore, it charges penalty of 1.00% in majority of cases.

But, this penalty seems to be like harsh act from the side of banks. But, not all banks charges penalty on premature withdrawal. We have a list of 4 banks that does not charge any penalty on breaking up of fixed deposits before maturity. Let’s discuss about these banks.

1. Industrial Development Bank of India (IDBI): IDBI was a bank incorporated in the year 1964 to provide financial assistance to Industrial sector of the country with the main emphasis on SME’s and cottage industries. But, later on it has developed into a bank that provides all the banking facilities and products meant for general public also.
   The fixed deposit interest rates are on a pretty much higher side i.e. 9.30% with no charge of penalty of any kind in case of premature withdrawal of fixed deposits.

2. Yes Bank: Yes bank which was incorporated in 2004 as a private sector bank in India has emerged as a modern age bank with all the modern facilities at its counter. The fixed deposit interest rates offered by Yes Bank is pretty high i.e. 9.10% and with a great advantage of nil prepayment charges.
3. ING Vyasa Bank: ING Vyasa bank is having a history of 80 years in our country in delivering world class facilities and products in banking to its customers. It has spread over 547 branches in India, thus covering most of the corners of the nation. In fixed deposits, ING Vyasa bank has a product called “ING Vyasa FD plus”, for which the interest rates are really good i.e. up to 9.25% with a commendable feature of nil penalty on premature withdrawal.
4. Axis Bank: Axis Bank is running as a top 3 private sector banks in India. Incorporated its operational activities in 1994, it has delivered an edge in modern banking facilities. It offers nil premature withdrawal penalty only on Fixed Deposit NRE accounts. The Fixed deposit interest rates offered by Axis bank is up to 9.20%.