Life Guide-Money Matters

An Exclusive Document on Money Investment Avenues in India

Mende Suresh (Selected for Canara Bank PO), Assistant Engineer-TSGENCO

(Reviewed by Anjaiah Mande (NITW-Alumni)-Worked @Standard Chartered Bank & BOI)

You Have Two Hands

One To Help Yourself
The Second To Help Others
 Note Before Reading

1. I wrote this document under the fundamental right to freedom of speech and expression
mentioned in the Art.19(a) of the Indian Constitution and shared in the public interest.
2. The objective of this document is merely and merely to sensitize you to act properly upon
the money related matters and to give an idea to you about how best the money you earned
can be invested for your happy and secure life. Besides, it has no other intention.
3. The information written herein is meant to give a general understanding and for any in-depth
knowledge, you may explore in internet or read financial magazines.
4. The information in this document has been written to the best of my knowledge and
understanding. However, none, including me does held any responsibility for any type of
errors (interpreting/typing), accuracy, completeness or facts contained herein.
5. This document, in no way, provides any legal advice. It to be considered neither as standard
information nor as accurate. None, including me, give any written or oral warranty,
expressed or implied, about the information herein.

Any type of compliments/feedback/suggestions are always welcome

Wishing You All The Best

 Hello buddy!! How are you doing? Oh! You are doing well! That's great! How is your
planning for money investment? What? You have no investment plan!! Dude! It is really important
to have an investment plan. Because, the investment you make now, becomes the lender of last
resort after your retirement from the job. Since the inflation (A sustained increase in the general
price levels of goods & services resulting in the decreased value of the money) keeps on rising, you
will need more money after 30 years to get the same life that you have now! To protect your money
from being eaten away by the inflation, you must invest it somewhere! Besides, the investment you
make acts as an emergency fund, fulfills your short term & long term goals, reduces taxable
income, and as a bonus, also gives you returns. Believe me, it doesn't need much efforts to invest
your money. You and me, knowingly or unknowingly, are investing the money somewhere but
proper planning and selection of suitable methods make it better.

Well, now, I am sure you want to invest your money somewhere but you've got less idea
about the investment avenues available. In such a confusion, the days will pass by. So, let me help
you! Come along with me to the following pages of this document and I will explain you about the
following investment methods one by one in a nutshell.

1. Recurring Deposit (RD)

2. Fixed/Term Deposit (FD/TD)
3. Public Provident Fund (PPF)
4. Insurance
5. National Pension Scheme (NPS)
6. Senior Citizens Savings Scheme (SCSS)
7. Sukanya Samriddhi Account (SSA)
8. Mutual Funds (MF)
9. Initial Public Offering (IPO) & Trading/Stock Market
10. Sovereign Gold Bonds, Real Estate & Chit Funds

Good habits give health-Good investments give wealth

1. Recurring Deposit (RD)
It is offered by Banks/Post offices to deposit a fixed amount of money (Rs. 100/ to Rs. 15
lakh/-) every month into your Recurring Deposit account for a stipulated time period (6
months to 10 years) with a flexibility to vary the monthly deposit amount (called Flexi RD)
Advantages; High Liquidity (ability of the money to be converted into cash at any time),
Highly Safe Investment, Quarterly Compounding Interest, Direct Debit from your Savings
Account, Enabled Operation Through Internet Banking, Loan Facility Against RD, Stable
Returns (irrespective of the market fluctuations), Automatic Credit/Renewal after Maturity
Disadvantages; No Tax Exemption (u/s 80C), Tax (TDS) on Interest (if interest exceeds Rs.
10,000/-), Penal Charges if Premature Withdrawal, No Partial Withdrawal, Average Returns

2. Fixed/Term Deposit (FD/TD)

This is offered by Banks/Post Offices to deposit lump-sum amount at a time for a specific
period of time (7 days to 10 years) with an option of periodical payment of interest. Tax
Saving FD is available but with 5 years lock-in period (National Savings Certificate (NSC)
is the Tax Saving FD offered by Post Offices). Savings+/Flexi FD is to accumulate money
into an FD (whenever there is excess money in your Savings Account) or for meeting the
shortfall in your Savings Account (if there is deficit money in your Savings Account)
Except the aforementioned, all other things are similar to that of a Recurring Deposit
**For both RD & FD, Banks/Post Offices offer maximum interest rate for 1 year period
**Some Banks provided opening & operating both RD & FD through internet banking
**For both RD & FD, deposits up to Rs.1 lakh/- are guaranteed by the DICGC (Sub.of RBI)

3. Public Provident Fund (PPF)

PPF account can be opened with a Bank/Post Office, fully guaranteed by the Central
Government to which you can deposit Rs. 500/- to Rs. 1.5 lakh/- every year either at a time
or in a maximum of 12 installments for a fixed 15 years lock-in period (after maturity,
period can be extended any number of times for a block of 5 years each )
Advantages; EEE (not BTech branch okay!! Tax Exemption on Investment as well as
Withdrawals), Highly Safe Investment, Anytime Deposit-Any Amount Deposit, Loan
Facility Against PPF (from 3rd to 6th year), Partial Withdrawal is Allowed (from 7th year)
Disadvantages; Low Liquidity, Unstable Interest Rate (interest rate varies according to the
market fluctuations), Premature Closure is Not Allowed, Moderate Returns (8-9%)

Money is not life but life needs money

4. Insurance
The concept of insurance emerged out of Common but shared risk where an insurance
company or the state collects premium from all its insured to provide a guaranteed
compensation for a specified loss, damage, illness or death
Advantages; Best Option for Compensation in case of Loss of Life (Term Policy) &
Properties (General Insurance)
Disadvantages; Less Liquidity, Long Lock-in Periods, Pressure of Continuous Premium
Payment, Less/Moderate Returns

5. National Pension Scheme (NPS)

Any person between the age of 18-60 years, can open NPS account(s) (Tier I/Tier II) by
visiting a Point of Presence/Bank or eNPS website into which an yearly investment can be
made (not below Rs. 6000/- for Tier I, Rs. 2000/- for Tier II) and the total amount accrued,
along with its returns, be paid back after 60 years of age
Advantages; Own Pension Plan, Safe Investment, Premature Withdrawal/Closure is
Allowed, Tax Benefits, Enabled Online Operation
Disadvantages; No GoI Contribution, Long Lock-in Period, Market Dependent Returns

6. Senior Citizens Savings Scheme (SCSS)

Senior citizens whose age is 60 years or above and people with 55 years of age or above (in
case of VRS) can open an SCSS account in a Bank/Post Office to invest Rs. 1000/- to Rs. 15
lakh/- at a time for which a fixed interest is paid quarterly and such investment will mature
after 5 years of opening the account (can be extended till 3 more years)
Advantages; Excellent Investment Scheme for Elderly, Tax Exemption (u/s 80C), Regular
Income Scheme, Highly Safe Investment, High Interest Rate, Premature Closure is Allowed
Disadvantages; Not for General Public, Tax (TDS) on Interest (if it exceeds Rs. 10,000/-),
No Online Facility of Opening/Closing the Account

7. Sukanya Samriddhi Account (SSA)

An SSA can be opened in a Bank/Post Office in the name of a girl child of age 10 years or
below to which a deposit of Rs. 1000/- to Rs. 1.5 lakh/- per year to be made for 14 years and
such deposit will mature after 21 years from the date of its opening
Advantages; Safe Investment, EEE (not Btech branch okay!!) Tax Regime
Disadvantages; Long Lock-in Period, Difficulty in Premature Withdrawal

Too much of spending or saving is not good-Attain the balance

8. Mutual Funds (MF)
In a layman terms, Mutual Funds (MF) are run by an Asset Management Company (also
called Fund Houses/Fund Managers) that collects money from the individual investors and
then invests on their behalf on several financial instruments (equity & debt instruments) and
distribute the earned profit (dividend) among the investors in proportion to their investment.
For all this service, an agreed commission (Entry/Exit Load) is levied on the investor
The Tax Saving Mutual Fund is called ELSS (Equity Linked Saving Scheme) and it comes
with a fixed 3-year lock-in period
The MF which requires you to invest the total amount of money (that you want to invest) at
a time is known as Lump-sum Mutual Fund. On the other hand, the MF in which you can
make investment at regular intervals of time (monthly/quarterly etc., just like an RD) is
known as SIP (Systematic Investment Plan)
As an investor, your task is simple;
1. Visit the respective MF website/approach an authorized branch
2. Register yourself online/offline by submitting the relevant details & documents
3. Select an available MF scheme according to your requirements and then purchase
4. That is all! Sit & Relax!! All other things are taken care by the Fund Managers
5. The MF, along with its returns, however, can be redeemed (withdrawn) as per the terms
and conditions of the scheme agreed at the time of purchase
General Mutual Funds/Schemes;
Direct Plan Schemes-Allows investment into an MF scheme directly without a Broker
Regular Plan Schemes-Investment into an MF scheme is made through an Advisor/Broker
Growth Funds-Allows the investment to grow until it is redeemed
Dividend Funds-Allows to pay back the grown value (dividend) of the fund
Dividend Reinvestment Plan-The dividend to be paid is invested on extra units of the MF
Debt Funds-Major portion of the money is invested on debt instruments for fixed returns
Equity Funds-Major portion of the money is invested on equities for high returns
Balanced Funds-Money is invested on multiple financial instruments
Open Ended Funds-Units of the MF can be bought/sold at any time (no fixed maturity date)
Closed Ended Funds-Units can be bought at initial time only and have specific maturity date
Advantages; Possibility of High Returns, Professional Management of Investment,
Diversification, Affordability
Disadvantages; High Risk, Returns Depends on Market Conditions, Taxes (except ELSS),
Entry/Exit Load, Low Liquidity

Money can't buy happiness but it can buy things which can give happiness
9. Initial Public Offering (IPO) & Trading/Stock Market
Initial Public Offering (also called Going Public) is a process by which a brand new or an
already existing company, in order to raise the capital for either its business to grow &
expand or to pay off its debts, puts its shares/ownership rights for sale for the first time to
the general public (anybody in the country). IPOs market is called Primary Market. An
earlier unlisted or privately held (only few owners) company, after IPO, becomes listed (on
the stock exchanges like BSE, NSE etc.) and it will be publicly traded from then onwards
Trading, on the other hand, is the process of selling/buying the shares (that are earlier
allotted through an IPO) among the investors. This market is called Secondary Market
As an investor, you can either buy an IPO or buy shares in Trading. Your task is simple;
1. Online or offline, open a Demat Account for IPOs & Trading Account for trading of
the shares (few banks and some service providers/brokers like Sharekhan, Funds India,
Zerodha, Angel Broking etc., are offering both these facilities and many times in combo)
2. Log in to your Demat/Trading Account & load adequate money for buying an IPO/shares
3. Whenever there are IPOs, you can buy any of the IPOs through Demat Account
4. The shares of the IPO which you bought, if allotted, will be credited to your Demat
Account or money will be refunded if the shares are not allotted
5. Now, through Trading Account, these shares can be sold at any time whenever there is
rise in the price of the shares or the shares can be kept as it is and the company, if decided
to pay, will pay the dividend (if the company makes profit then how much dividend,
bonus etc., and when to pay it to the shareholders will be decided by the company board
in its meetings) or even some extra shares can be bought from another investor
**Shares/Stocks/Equities are the same & Trading/Share Market/Stock Market are the same
**SEBI regulates Stock Market & the shares data is held by Depositories (NSDL & CDSL)
which offer services to the investors via Depository Participants like Banks/Brokers etc.,
**Sensex is index of 30 companies' performance listed in the BSE & Nifty is the index of 50
companies' performance listed in the NSE and both in turn represent Indian Economy
**All the shares bought through IPOs/Trading, will be visible on your Demat Account
**For buying an IPO, Demat Account is alone enough. But Trading Account is a must for
all other transactions like buying/selling shares acquired through IPO/Trading etc.,
**Some brokers offer Demat Account & Trading Account in combo as two in one account
Advantages; Highest Returns Possible, Liquidity, Diversification, Affordability,
Professional Management of Investment, Money Management by Own
Disadvantages; High Risk, Volatility, Knowledge & Time-Consuming, Taxes

First, invest some money from your earnings, then spend the money from the remaining
10. Sovereign Gold Bonds, Real Estate & Chit Funds
Sovereign Gold Bonds (SGBs), either in paper form or in demat, in denominations of 1
gram to 500 grams, are issued by the RBI (on behalf of the GoI) through Banks/Post
Offices. These bonds act as equivalent to gold and will mature after 8 years period from the
date of purchase (premature sale is allowed after 5th, 6th and 7th year). The investor receives
interest every 6 months and can sell the bond after its maturity at the price of gold at that
time. These bonds can be used as collateral for loans, and for an early exit, they are also
allowed to be traded on exchanges at the price of gold. Capital gain is tax exempted
Investment in Real Estate can be made by buying properties, land, buildings etc., and they
are sold after a rise in the prices hence earning the capital gain
In Chit Funds (Chitty/Kitty/Kuree), the Foreman/Agent/Chit Funds Company collects fixed
amount of money periodically (usually every month) from a specified number of investors
and gives a decided amount of money (every month) to one of the investors through the
process of either lucky draw or auction (the lowest bidder gets the money and the difference
between collected amount and bidding amount will be given back to the investors reducing
their installment). The Agent has to be paid a commission for organizing all this process. In
India, many of the existing Chit Funds are unorganized/un-registered while few are
conducted by some organized financial institutions
Advantages; Scope for Growth, High Returns Expected
Disadvantages; High Risk, Volatility, Possibility of Scams/Frauds, Market Dependent
Returns, Lot of Illegality Involved

Important Sources To Explore More About Investment Avenues

1. Hindu Business Line, Business Standard & Economic Times News Papers
2. Bankbazaar, Moneycontrol & Wikipedia Websites

**By the way, don't forget to pay my commission (Though I'm Just Joking!! He He..)