Saturday, August 30, 2014

Why Should You Invest Some Money on Equities, Stock or MutualFund

Many people ask me whether they should invest money in stocks or mutual fund or not? I say, you should invest at-least some part of your money into equities, because it is the only investment which can beat inflation in long term. It's not that investing in equities will guarantee superb returns, because there are periods and even extending upto 5, 10, 15, 20 and even 25 years where equities has delivered negative, no returns or very poor returns. For examples in Japan, Equities has not really been the best performing asset class in last twenty years. Nikki, index of Tokyo stock exchange was around 39K on December 1989 and where it is now, around 15K, after touching lows like 7K and 8K during 2001 and 2009. What this mean, if you have invested in Index you would have one third of your money by now, forget about getting any interest. This may look you really contrasting from the title of this article, but it's true that there is no guarantee on stock market and even with mutual fund. You need to accept that fact to better organize your investment. The most important thing is that stock market is actually a proxy of the countries economy and so is inflation. Inflation will only rise if there is money to spend, and people will only earn money if there is job to do. More jobs means more production and consumption, which means growing economy. This is the key, if you feel an economy is in the start or mid of growing cycle, then investing in Equities is the best idea. 

Saturday, August 16, 2014

10 Points on Public Provident Fund (PPF) Accounts in India

If you are an Indian, I am sure you must have heard about Public Provident Fund or PPF, one of the most popular long term saving scheme backed by government of India. If not about PPF, then definitely about EPF, Employee Provident Fund, it's big brother. Since EPF is sort of mandatory and your employer deduct some portion of your salary apart form his contribution, it's not something you worry about. By the way, if you want to check your EPF account balance, you can see it here. PPF investment is similar product for any citizen of India, though NRI can not open PPF account in India, it's only for residents of India. PPF allows you to save some money, reduce your taxable income and grow your investment with safety guarantee from government on India. It also gives you decent interest rate of 8.7% per annum, compounded annually. Though interest rate is subject to change and decided every year in month of April, you can be sure that you will get a decent rate from next 15 years given grown potential India has. Ironically, many people in India doesn't know much about public provident fund or PPF, they know little bit about it but never bother to go beyond that and open a PPF account, forget about investing money regularly. Only salaried employee make that effort to save money and plan for future. By the way time is changing, and we are living in high inflation era where cost of living, education are gone up multiple times in last 10 years. This huge cost increase forces people to plan about big ticket items like children's eduction, daughter's marriage, and their own retirement plan. PPF is a investment product which can be used to full fill any of above goal. After last article about choosing between PPF and Fixed deposit, I got lot of emails asking question like I am self employed can I invest in PPF, Can I open a PPF account in my daughter's name, how can I invest more than 1 lakh in public provident fund account etc. This prompted me to list down some important details of PPF account in India. In this article, you will know some details of this excellent long term investment option available only to resident Indian.

Wednesday, July 9, 2014

Difference between Public Provident Fund (PPF) and Fixed Deposit (FD) for Long term

In this article, we will understand difference between two of the best investment option of conservative investors, PPF or Public Provident Fund and Fixed Deposit, known as FD. Both PPF and FD provides capital guarantee and considered safest investment. PPF is even backed by government while FD is backed by banks and RBI, but which one is better for long term investment. Where should one put his hard earned money for long term growth with guarantee, we will find it in this post.  Other day, one of my friend was asking me for an investment option, where he can put money for his daughter's education. His daughter is currently 4 years old, and he wants to save money for higher eduction. It means she will need money when she would be 17 to 19 years old, which gives us  time horizon of 13 to 15 years. My first suggestion to him was put this money on Equities because we are talking about long term, and I believe given India's growth prospect for next 15 years, equities is the best investment option. Unfortunately my friend is very conservative about money, he is OK with earning less interest but not comfortable with losing his hard earned money. So I suggested him about PPF or Public Provident Fund and long term Fixed Deposit with any public sector or private sector bank. To my surprise he was completely unaware of PPF and didn't have PPF account either. He was quite familiar with FD and convenience, guarantee and current interest rate it offered, but again he wasn't aware of taxation on fixed deposit and returns after tax. That encouraged me to write this blog post, not just for him but for other people who knows about PPF and FD but doesn't know crucial details which matters. By the way, if you are an NRI investor then you got one more better option, NRE fixed deposit, which is completely tax free.

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