Options for monthly savings

One of the positive fall-outs of recent recession has been on the savings front. If recent reports are any indication, Indians have begun to set aside more from their income and the figure has surged above 33% on an average. While saving in general is a good habit, it is good enough if you keep the money aside.

The money saved should be able to grow and take care of the future needs. Luckily, there are plenty of options for savers these days unlike in the past where a handful of options were available.

Are MIPs of mutual funds a safe bet?

For your saving strategy, have a combination of methods. The first one should be on monthly basis so that it forces you to build corpus over a period of time. The second component can be less frequent and probably should allow you to enjoy your income too.

For monthly savings, as I said earlier, a number of schemes are available and each has a different profile. Here is the basic info with their features which should help you to do build money over a long period of time.

Remember the lessons learnt from the gloom

SIPs:

Mutual funds too allow monthly savings in the form of systematic investment planning (SIP). The monthly contribution can be either into debt or equity fund. Equity SIPs should be considered only if you don't need funds for a minimum period of three years as the funds are volatile because of stock market exposure. They are ideal for creating money for long term needs such as child's education, retirement planning or wealth creation.

On the other hand, SIP into a debt fund should be for short to medium term needs as returns are limited. They are a good option when you have an expense coming up. The big advantage with them is that they offer better returns than a savings bank account. Even within debt category, some schemes are volatile and so, choose the product carefully.

What is best? SIP or lump sum

Recurring deposits:

Banks and post-offices offer recurring deposit but with respect to the latter, there are restrictions with respect to withdrawal. In the current scenario, the returns offered by PO are higher at 8%. The interest income is taxed by both institutions and the product is ideal for those who are not comfortable with stock market. They bring in the discipline for saving and in the case of bank RD, the tenure is not restricted and a few nationalised banks offer the option of continuing for 10 years.

Non-risky options: Time for fresh guard

PPF:

Another long term which offers the option of saving on a monthly basis. The biggest advantage with PPF is that it has tenure of 15 years and helps you to build money for long term needs. The interest rate is fixed at 8% but the fact that there is penalty for non-contribution in a year, is good for undisciplined ones! However, there is a restriction on the amount you can contribute at Rs 70,000 per annum but both post-office and State Bank of India offer this instrument.

Is equity trading bad for your financial health?

In a nutshell:
Name of scheme	Feature
SIPs in MFS	Returns not guaranteed
PPF	Ensures minimum annual contribution
Recurring deposits	Easy to invest and manage
Insurance and Pension	Good for long term planning

Insurance and pension plans:

The concept of SIP has come into insurance and pension plans and with both products offering exposure to equity markets they are additional options for monthly savings. The premium you pay can be in monthly mode and this is ideal for building a long term corpus. Both schemes force investor to be committed to the investor as premiums have to be paid for a minimum of three years.

Srikala Bhashyam is the Managing Partner of RS Consultants. She runs an investment-consulting firm in Bangalore to provide consultancy in the areas of financial planning and media. In the last 15 years, she has worked with top publications in different locations. The primary focus of all her columns is to simplify the nuisances of Finance, which has attained a new look over the years. Besides being a columnist, Srikala has also been closely associated with some of the prestigious book projects.

The author can be reached at srikala.bhashyam@gmail.com

The views expressed in the article are the author's and not of Sify.com.

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