One Sunday evening, I was with my friends in Orion Mall, Bengaluru. It was just a get-together meeting but turned into a discussion about the job, marketing, website, blog, niche, money, etc. When we were talking about money, a friend in the group asked a question what makes bank fixed deposit and public provident fund (PPF) still popular in India? What are the key features that attract most of the people in India?
There were different views among friends.
I also delivered my opinion, which I have converted here as an article.
The idea of personal finance struck in my mind when I first got the commission from selling books in Chennai as a door to door marketer. I used to sell books of different genre as finance, literature, and various type of dictionary. I did not care about the commission, but the opportunity of reading that I had been getting from it gave me a good reading habit as well as knowledge of personal finance and its importance.
I went on reading books like “One Up On Wall Street” by Peter Lynch, “Learn to Earn” by Peter Lynch, and “The Intelligent Investor” by Benjamin Graham, and a few other saving and investment books from the Indian writer. After reading those books I came to know that it is not at all require to pursue any higher degree of education or MBA in finance. Just knowing the basic of personal finance is the first step into the world of finance.
There is fear in everybody’s mind towards personal finance in India. People hesitate to talk about money with friends, relatives, or even with their own parents. As this happens only when you are unaware of the subject. People believe that it is a kind of taboo to talk about money.
I felt the same when I wanted to save something out of my commission from selling books. Initially, I did not know anything about saving money or investing and growing from it. Then I realize, personal finance is the most important channel to learn and manage your and your family’s money.
It is said that the 2008 financial crisis is one of the reasons behind lacking rational financial decision in the human being.
There should not be any hindrance in discussion towards money in society.
In this article here, I have mentioned the two most classic and traditional method of investing especially in India. One is Bank Fixed Deposit and the other one is PPF (Public Provident Fund).
I am not going to differentiate between these two schemes as both have their unique characteristics in its own field.
First, I will discuss some points about Bank Fixed Deposit and then PPF of their various features.
Bank Fixed Deposit:
- One of the most popular and easy to access investment channel in India. It is also called Term Deposit.
- All the public and private bank in India, as well as NBFC (Non-banking Financial Company), offer this facility.
- You can deposit/park your lump sum amount for a fixed period of time and will get a fixed interest rate.
- You can earn a higher interest rate than your regular bank savings account.
- The senior citizen enjoys more benefit from this deposit in terms of the interest rate as well as tax exemption.
- The interest rate starts from 4 percent to 7 percent in different banks in India (check with the bank).
- Fixed Deposit earns a guaranteed interest rate, so attracts more people.
- The variance of the maturity period starts from 7 days and goes up to 10 years.
- Withdrawal is possible before maturity with the penalty.
- Amount up to 1 lakh in the bank is totally protected by the Deposit Insurance and Credit Guarantee Scheme of India.
- The deposit is not inflation protected. You will not enjoy any real return if the inflation rate goes above the interest rate of your deposit.
- 10% of tax is deducted at source by the bank if earning goes above 10,000.
- If your tenure is more than 5 years, will get the facility of tax exemption up to 1.5 lakh under section 80C.
- Loan facility against FD up to 90% of the value of deposit available.
- This is the best option for a person who follows a conservative method of investing with a lump sum amount.
- Non Resident of India also avails this facility (check bank website for NRI).
Public Provident Fund (popularly PPF): My favorite.
- Small saving and investment scheme started in 1968 by the Central Government.
- Long-term investment scheme with 15 years lock-in period.
- Premature closure is permitted if you need money for any medical emergency or higher education.
- PPF scheme has an attractive interest rate (currently 7.6%, may vary every quarter, check with the bank) and is strongly backed by Central Government.
- The scheme is incredibly tax-free as it is called EEE (Exempt-Exempt-Exempt) that means a deposit, interest earned, and maturity amount, all are tax-free. (I say solid income).
- One more important of this scheme is compounded interest. The interest you earned in every financial year will be accumulated, interest upon interest works like piling up factor.
- Tax deduction facility under section 80C available.
- You can avail loan starting from the 3rd financial year up to 5th financial years.
- Have an opportunity to invest as low as Rs. 500 up to Rs. 1,50,000 in one financial year.
- A best alternative scheme for those who do not want to invest in an equity-related mutual fund or the stock market.
- Mostly benefited scheme for a long-term investor to accumulate a good amount of corpus at the end of the maturity.
- Non Resident of India is not allowed to open a new account in PPF as per the Indian Ministry of Finance.
The above-given schemes have a good record in India since long back. The popularity of this investment is still intact and comes as a top investment plans to manage your money.
Money management idea comes when you are good at saving. Save as much money as possible. Starts from small. Once you start earning interest from your saving or investment, the compounding factor works like magic.
Famous scientist, Albert Einstein said, “Compound Interest Is The 8th Wonder Of the World.”
Apart from this, there are some interesting investment plans and schemes which I will discuss in the next article.
From the above-given schemes, which plan do you like to park your money? Is there any additional feature that I missed to mention? Please feel free to write in the comment section below.
Disclaimer: I am not a financial adviser or expert. The above-given views are not intended for any kind of advice. It is solely the purpose of individual opinion about the subject that I am interested in.