There is a very inspiring quote by Aristotle which goes as- ‘It is well to be up before daybreak, for such habits contribute to health, wealth, and wisdom.’ It seems very fitting to say that when you attain the age of 25, it is the daybreak of your twenties which is the most carefree time in your adulthood. It is the time when you have money and minimal responsibilities. It is compelling to enjoy this time to the fullest but it is also wise to start investing in your future so that you can enjoy such carefree time all throughout your life. There are obvious advantages of starting early. The longer you stay invested, the greater is the power of compounding and hence the returns.
Investment options when you turn 25
Public Provident Fund-PPF
It is a savings as well as tax saving investment option (under section 80C of IT Act). A minimum yearly deposit of ₹ 500 is required to open and maintain a PPF account, and a maximum deposit of ₹ 1.5 lacs can be made in a PPF account in any given financial year. Any amount deposited above ₹ 1.5 lacs will neither earn any interest nor tax free. The amount can be deposited in lump sum or in a maximum of 12 installments per year. The Government of India announces the rate of interest every year in April and it may change with every financial year. Current rate of interest offered is 8.1% p.a. as per April 2016. Interest is compounded annually. It has a lock-in period of 15 years and after that it can be extended for one or more blocks of 5 years each. The entire balance can be withdrawn only on maturity. Interest received is tax free.
National Savings Certificates-NSC
It is part of the postal savings system of Indian Postal Service. It is used for personal savings and avails the tax benefit under section 80C of IT Act. The minimum investment required is of ₹ 100 and there is no limit of maximum investment amount, investment up to ₹ 1 lacs is eligible for tax rebate. The maturity date for these certificates is set to 5 or 10 years from the date of purchase but the interest is calculated on a yearly basis. Current rate of interest for 5 years is 8.5% and 8.8% for 10 years. The section 80TTA removed the tax benefits of interest from NSC. So what you can do is invest the interest earned on current year’s investment in the next year and avail tax benefits under section 80C. You can take loans keeping NSCs as collateral.
Tax saver Mutual Funds- ELSS plans (Equity Linked Saving Schemes)
It belongs to mutual funds class and you get the added benefit of tax saving under section 80C. It comes with a lock-in period of 3 years. Also, no tax is levied on the long term capital gains from these funds. Minimum investment to be made amounts for ₹ 500 and there is no tab on maximum investment, however, there is no tax exemption above ₹ 1.5 lacs. The dividends and capital gains are subject to market risks, since these are essentially diversified mutual funds; there is no guarantee on returns. If you have a big amount to invest, split it into small or medium sized investment rather than making a lump sum investment. This will curtail the risk significantly by averaging out your cost of purchase.
National Pension System- NPS
The subscriber should be aged between 18-60 years as on the date of submission of the application. NPS qualifies for tax benefits under three different sections of Indian tax laws, up to ₹ 1.5 lacs under section 80C, up to ₹ 50,000 under section 80CCD(1) and up to 10% of basic salary contributed by the employer under Section 80CCD(2).All these tax breaks are independent of each other and can be availed simultaneously. Minimum investment amount is ₹ 500 per month and fund management charge is very low at 0.01%.
Bank Fixed Deposits-FDs
It is the safest option for you if you have zero risk tolerance. It is a one-time fixed investment that holds true for tenure of as low as 7 days and up to 10 years. There is no cap on the maximum amount that you can make a fixed deposit of but some banks do have a minimum deposit amount. The interest is compounded quarterly. Rate of interest depends upon the amount and tenure of the deposit made and currently the interest rate varies from 7.75% to 8.75%. The interest earned on fixed deposits is taxed as per one’s income tax slab on maturity. If the interest amount exceeds ₹ 10,000, the bank would deduct tax at source (TDS) at the rate of 10% p.a. Customers can avail loans against FDs up to 80 to 90% of the value of deposits.
Other investment options include Sukanya Samriddhi Yojana- for the secure and happy future of your daughter, Atal Pension Yojana, Diversified Mutual Funds investments, Stock investments, Real Estate investments, Gold ETFs- Gold ETFs are units representing physical gold, which may be in paper or dematerialized form. These units are traded on the exchange like a single stock of any company and low cost ULIPs etc.