Following are some of the investment vehicles considered among the financial instruments:
Savings Bank Account is often the first banking product people use, which allows interest varying between 3%-5% p.a.
Money Market or Liquid Funds are a specialized form of mutual funds that invest in extremely short-term fixed income instruments and thereby provide easy liquidity. Unlike most mutual funds, money market funds are primarily oriented towards protecting your capital and then, aim to maximize returns. Money market funds usually yield better returns than savings accounts, but lower than bank fixed deposits.
Fixed Deposits with Banks are also referred to as term deposits. Fixed Deposits with banks are for investors with low risk appetite, giving return marginally higher than savings account but lower than money market fund.
Post Office Savings: Post Office Monthly Income Scheme is a low risk saving instrument, which can be availed through any post office. It provides an interest rate of 8% per annum, which is paid monthly.
Public Provident Fund: A long term savings instrument with a maturity of 15 years and interest payable at 8% per annum compounded annually. A PPF account can be opened through a nationalized bank at anytime during the year and is open all through the year for depositing money. Tax benefits can be availed for the amount invested and interest accrued is tax-free.
Company Deposits: These are short-term (six months) to medium-term (three to five years) borrowings by companies at a fixed rate of interest which is payable monthly, quarterly, semi- annually or annually. The rate of interest varies between 6-9% per annum for company FDs. The interest received is after deduction of taxes.
Bonds: It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest on a specified date, called the Maturity Date.
Mutual Funds: These are funds operated by an investment company which raises money from the public and invests in a group of assets (shares, debentures etc.), in accordance with a stated set of objectives. It is a substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints.
Shares Another most popular high-risk high return investment option available to investors is investing in shares of companies. Equity investment has the potential to yield high return but also has equivalent risk. However, it is time tested that investing judiciously for long term in well known companies always provides better returns and lower the risk element.
