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Top Saving Options For Your Financial Growth
posted on 10th Jan 2011

Saving Options As the interest rates showing upward trend - making deposits and saving is a better option than looking for loans.

The top five options for saving , with maximizing the returns in view are as follows

1 - Debt Mutual Funds
These invests the funds in debt and debt related schemes. this is more advantageous as compared to a direct deposit as the manager has more information as compared to an individual investor. He will leverage that which would result in higher return. Also the result are processed capital gains and hence there is no tax deduction or TDS. In the last three years, returns have been around 10.5 to 14 % which is a lot more than the returns on bank deposits or company deposits. Even this year the returns are expected to be good and also the fact that when the interest rates decrease debt mutual fund would create capital gains.

2 - Mutual Fund Monthly Income Plan
Growth Option. This kind of fund is suitable for people with a higher risk quotient during the short term. About 20% of the funds are invested in equity so that the returns can be better than the normal debt mutual fund when the market is rising. The returns of the top five MIP's in the last three years has been 12- 14%. Although it is largely a debt oriented mutual fund and the tax treatment is the same as the debt mutual fund, caution needs to be taken while choosing the growth option. When we start to receive the monthly payouts there may be months when the principal is used for the payout. When the markets are bearish this practice would drain the fund.
3 - Company Deposits
These are deposit schemes that offer rates that lie between bank deposit rates and bank lending rates, benefitting the company as well as the consumer/ owner of the deposit. The bank makes its profit when borrowing from the public and lending to companies at a differential interest rate (spread) of about 4.5%. In effect, the deposit holders are paid less and the borrowers are charged more. But if a company has direct access to the depositor, the depositor gets a better rate than what the bank can offer and the company is able to borrow at a lesser rate when compared to a bank interest rate. The borrower must be careful and do his thorough research to check how good the credit rating of the company is before investing. On an average estimates show that one can easily get 11% - 12% on reputed companies' deposits for a 3 year term. The returns will be taxed as interest and will have TDS.

4 - Post Office Recurring Deposit.
This is a 5 year scheme where one invests on a monthly basis. However, there does exist an option for the fund to be closed after 3 years, which comes with a penalty of 1%. The advantage with the postal recurring deposit over the bank recurring deposit is that the minimum monthly investment is only Rs.10/- with no upper limit. In case the payment is made once is 6 months or on a yearly basis, there are discounts for that too. The only disadvantage of this scheme is the fixed interest rate of 7.5% only and unavailability of auto-debit to bank account. Although there are no tax benefits from this scheme, Post Offices have not been deducting TDS.

5 - Post Office Monthly Income Scheme.
This scheme is a good saving instrument for retired people. The interest is 8% divided on a monthly payout basis. If the payout is not required it can be channeled into a recurring deposit which leads to an increase of 10% on the effective returns. Also the interest so earned can be credited to any savings account. The account can be closed after 1 year with a 5% penalty or after 3 years without any penalty. But the maximum limit is 6 lacks. Keeping factors such as returns, the convenience factor to close and change to another savings scheme (important when the interest rate is rising) and the safety, the above schemes were ranked. The debt mutual funds scores the highest due to their flexibility and returns. They are closely followed by the mutual fund MIPs.
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