The law of compounding works wonderfully for salaried people who invest regularly across savings instruments. Safety, return, liquidity and tax benefits are the major points a salaried investor is always on the lookout for. There are only few investment instruments that can offer these three together.
Here are top five instruments the salaried can invest for decent returns.
Kerala Transport Development Finance Corporation Ltd (KTDFC) is a government of Kerala owned non-banking Company, which is registered under RBI. For 1 year the interest rate on a KTDFC deposit is 8.25 percent for one year, while it offers 8.50 percent for senior citizen deposits. As of now no banks excluding co-operative banks in the country offer these interest rates along with safety.
Public Provident Fund offers customers an interest rate of 7.8 percent currently. The interest earned under this instrument is tax-free and the amount invested qualifies for tax rebate under sec 80C of the Income Tax Act. In PPF the amount invested has a tenure of 15 years. Partial withdrawals can be made after 7 years.
3. Company FD
There is some AAA-rated Company fixed deposits which beat bank FD interest rates. For example, Bajaj Finance offers an interest rate up to 7.85 percent per annum. Mahindra Finance FDs offer an interest rate of 7.75 percent to 7.80 percent depending on the tenure of investment. Senior citizens are entitled to an extra 0.25 percent.
4. Systematic Investment Plan
SIP (Systematic Investment Plan) is based on the idea of averaging your investment cost over time. Under SIP the investor invests a constant amount every month and keep doing it for a long time. ICICI Prudential Value Discovery Fund, SBI Blue Chip Fund, and Aditya Birla Sun Life Frontline Equity Fund are popular SIPs.
5. Bank FDs
Tax-saving FDs are offered by many leading banks including SBI, HDFC, Axis, ICICI Bank, they may not offer the best rates on these fixed deposits. Most of the tax-saving FDs have a compulsory lock-in period of 5 years and maturity period from 5-10 years. Government banks are at best offering 7.5 percent interest on normal deposits.