Investment Options For People Who Start Earning At An Young Age

So, you’ve got a new job straight out of the college and thinking of spending money on partying, buying expensive clothing’s and accessories. And why not spend after all it’s your hard earned money. But you should also give a thought on investing for your safe future so that you beat the inflation when you retire. Now the question arises, where to invest when you’re young and in the 20’s. Market in India is flooded with ample of investment options for benefiting you. But on the other hand, they’ll confuse you because of the complicated procedures involved. So here is the list of four investment options which will simplify the investment procedure.

Fixed Deposit:

Recommended for everyone (high/low income earners, senior members wanting to have steady flow of income) but best suitable for the individuals whose income falls in lower tax bracket. Average return offered by most of the banks (mainly nationalized/private/co-operative) is 9.25 % per annum. Currently the top 5 banks which offer highest return on fixed deposits (per annum) are:

Note: Rates mentioned below are as on 10th April, 2012 and applicable only for deposits less than INR 15 Lakh.

• Karur Vysya Bank: 10.00 %
• South Indian Bank: 9.75%
• ING Vysya Bank: 9.50 – 9.75%
• Oriental Bank of Commerce (OBC): 9.75%
• Following banks offer 9.50% per annum on fixed deposits:
• Corporation Bank
• Allahabad Bank
• IDBI
• Indian Bank,
• Indian Overseas Bank
• UCO Bank
• Federal Bank
• Dena Bank

Although there is no significant tax relief on the interest earned, but when invested for a period of 5 years, FD’s are eligible for deductions under section 80C of Indian income tax act. So the returns on FD’s depend on tax bracket. But for people falling in lower tax brackets are guaranteed with highest return. So it becomes very important to plan your financials properly to meet your goal.

Buy Health Insurance Policy:

This is must for investor of any age, as it takes care of your hospital bills. Few health insurance providers also gives reimbursement on the expenses incurred before and after hospitalization, so you need to check and opt for it before buying. Amongst the many benefits of buying this policy, is the premium paid upto INR 15,000 as it qualifies for income tax deduction under the section 80D of Indian income tax act. Start with buying an individual policy. In case, you have dependant family members, opt for floater plan so that all the family members get covered. Note that, when claims are made for any person, there is a reduction in final sum assured for the remaining family member in that year. So, selection should be made on policies offering complete coverage. In case of co-payment clause, port your policy from one insurance company to another which offers complete coverage.

Public Provident Fund (PPF):

This should be a part of every young earners portfolio as it is risk free and on the other hand tax-free as well. Most importantly, it beats the inflation and returns are upbeat.

Note: Last year, i.e. in 2011, returns on PPF were linked to government security rates, so starting 2012, ROI will differ. For e.g. in 2011, interest rate was 8.6% while in the current financial year 8.8% is the rate.
Also, it is recommended to invest in PPF at the start of the financial year rather than investing later in any part of the year. Because, if you start in April 2012, the interest earned would be for the whole financial year April 2012 – March 2013. Whereas if you invest in, for e.g. October 2012, then interest received would be for the period October 2012 – March 2013 i.e. only for 6 months. So get ready and invest in PPF as early as possible. Most importantly invest from 1st of any month to the 5th of that month otherwise interest earned won’t be applicable during that period.

Employees Provident Fund (EPF):

This is one of the finest investment products and recommended for everyone. From basic salary (and/or allowances) is eligible for monthly deduction under provident rule. Here, the company also contributes equal amount towards provident fund along with matching contribution by the employee. Sometimes the employee can willingly contribute more than the regular amount, so person receives substantial amount after the retirement/if he leaves the job.

Both PPF and EPF have Exempt, Exempt, Exempt (EEE) tax status which means whatever you contribute and accommodate and whenever you withdraw your money, everything is exempted from tax.

Young investors normally have higher risk appetite (provided they don’t have any financial responsibilities) so they can also opt for investing in systematic investment plans, buy gold, mutual funds.