With the lessons from the ongoing pandemic, individuals have realized that investing is an absolute need of the hour. Individuals need to make savings a step further. Investing is best leveraged when one follows a disciplined and systematic manner.

What to Consider

While planning your investing discipline, you should consider the following aspects:

  • Analyze Your Finances
    It is crucial to understand where you financially stand at present and what you want to create in the future. Consider your financial obligations and map out the distance between current finances and the futuristic value you want. Subtract your financial obligations from your regular income – this amount you can consider to invest.
  • Consider Timelines for Your Financial Aims
    You are familiar with the finances at hand and your financial goals. Stay realistic and make sure you determine the duration to meet your financial aims. If you want to invest for your retirement, it is necessary to consider the amount that needs to be devoted to achieve this goal.
  • Determine Your Risk Appetite
    An investor should know his/her limitations and scope for investments based on the risk appetite. It helps investors find aligned investment opportunities at the desired level of risk. An investor’s risk profile varies by factors like regular income, financial obligations, dependents, age, etc. Your risk-taking capacity may reduce with increased financial obligations or on being closer to retirement.
  • Ensure Liquidity due to Ongoing Pandemic
    Most investors prefer an investment with easy liquidity due to the pandemic. Though it is wise to have an emergency reserve aside, your investment portfolio must have enough liquidity. Make sure you pay the least penalty for early redemption of your investment.
  • Diversification to Even Out Risks
    The saying – do not put all your eggs in one basket – goes with every investment portfolio. It helps minimize risks. Also, it does not limit your capital growth to a single instrument. You can assure the safety of capital and guaranteed returns with a fixed deposit, but to minimize the impacts of inflation, you may need to include stocks in your portfolio. Similarly, your stock investment may bring losses for you due to a sudden slump in economic growth, but fixed deposits in your portfolio can manage risk.
  • Tax-efficiency
    As the new year is around the corner, most investors look at financial planning with tax savings. Like others, you can consider various Small Saving Schemes like Sukanya Samriddhi Yojana, NSC, PPF, NPS, and fixed deposits.

Investments to Ensure Safety

1. Fixed Deposits

Fixed deposits (FDs) are debt instruments. Most risk-averse investors highly prefer FDs as they are not market-driven investments. Reserve Bank of India (RBI) has remained the repo rate unchanged at 4% and reverse repo at 3.35% to support economic growth.

  • It is a secure investment with various benefits – low deposit amount, flexible tenor, stable and regular returns, tax benefits under Section 80C, Income Tax Act, and easy redemption.
  • You can invest in FDs for seven days to ten years, depending on the financial institution you choose. To increase flexibility, you can create an FD ladder with different maturities.
  • You can save income tax with 5-years tax-saving fixed deposits. You should know that investors need to put the initial investment amount for the entire tenure of 5 years. There is no pre-maturity withdrawal facility.
  • For higher interest rates than banks, you can consider corporate fixed deposits with renowned NBFCs. You can find a few leading NBFCs that have increased the FD interest rates in 2022 and offer up to 7.05%. With banks, it is 5.25-5.5%.

2. Public Provident Funds

At present, the Public Provident Fund (PPF) offers an interest rate of 7.1%. The Government reviews the interest rate quarterly. In the past, PPF depositors have earned higher interest up to 12%.

– It is considered a safe investment as it is a sovereign investment – fully guaranteed by the Central Government.
– You need to invest for 15 years. However, it allows you to withdraw prematurely after completing five years.
– You can deposit in your PPF account up to Rs 1.5 lakh in a financial year.
– It is a savings-cum-tax-saving investment in India. It will provide you with tax-free interest.

3. National Pension System (NPS)

NPS is a market-linked voluntary retirement savings scheme with the Central Government of India under the purview of the Pension Fund Regulatory and Development Authority (PFRDA). The NPS is one of the safe schemes for individuals with a low-risk profile.

– The age limit to subscribe to NPS is 18 to 65 years.
– You can withdraw prematurely after completing ten years in NPS.
– A subscriber is eligible for tax deduction under Section 80C and under Section 80 CCD 1(B).
– Returns on the NPS eventually depend on asset performance in the market. It invests in Government Bonds, Equities, Corporate Funds, Real Estate Investments Trust (REIT), Commercial Mortgage-Backed Securities, and Alternative Investment Funds (AIFs).

4. Dividend-Paying Stocks

Companies that are regular to pay dividends can be a safe investment. The IMF (International Monetary Fund) has projected the growth prospects of the Indian Economy at 8.5%. These are well-established companies with a track record of steady growth and regular dividends.

– Dividend investing is an appealing strategy for investors with a lower risk profile. It comes with two sources of potential income – regular dividend and capital appreciation with an increase in stock price.
– It can be risky if you can not make the right decision on what to avoid. Every company can not maintain a regular payout in every economic environment, like the present pandemic and its new variants. A diversified portfolio of dividend stocks can be a solution to make it safe and a steady income source.
– For a diligent pick of dividend-paying stocks:
– A company should have recorded a dividend yield of 3% or more.
– The proportion of earnings that the stock pays to its shareholders should be over 40%.
– The dividend-paying scrip with a drawn dividend policy

Few companies that have paid a high regular dividend to their shareholders are Clariant Chemicals (dividend yield of 11.2%)
Coal India (dividend yield of 9.9%), and Bharat Petroleum Corporation (dividend yield of 9%).

5. Government Bonds

RBI manages the issue of government bonds under the category of government securities (G-secs). It is considered a safe investment with the Government back. It is a contract between an investor and the Government to provide interest at a predetermined interest rate for a specified period.

– Most of the time, it is issued with a fixed coupon rate, but it can be a floating rate bond also.
– Investors need to invest funds for the long-term, i.e., 5-40 years. However, you can trade them on the stock exchange.
– Returns on these bonds are exempted from taxes under Section 10, Income Tax Act, 1961.

For an easy reach of the Government securities to individual investors in 2022, the apex bank in India has launched the RBI-Retail Direct Scheme. Retail Direct Gilt (RDG) Account allows individuals to apply for G-secs in the primary auctions and secondary market through a simplified investment process.


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