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Wednesday, January 3, 2018

How to start investing - Chapter 1 - popular Bank deposits

Wish you all a very Happy New Year. Am sure you all have had a good party and a host of new year resolutions. I am eager to share mine. With full of excitement and commitment, I would like to make the topic ‘finance’ easier, and help you become wiser to check on your financial health and get better. The first of the year, I am dedicated to understand what are the simple things you need to do to begin the process of investments.

To begin, needless to say you may consider the following things for smooth execution.

Also read - Smart ULIP

Online Banking - Very customer friendly process, you can start online banking just using your debit card. You can go to the bank website and choose net banking/ Online banking option. You will be guided with the process, if you don't have the pin handy, you can generate one easily, following the instruction.

Bank account - For easy tracking and smooth transaction, I follow one account for last 8 years or so, be it mutual Funds, insurance or paying credit card bills, it also helps in maintain records

Lets start with the most traditional investments, Bank deposit.

Savings account – This is the default savings/ deposit option for any individual with a savings bank account. The cash lying in the account earn a nominal 3 to 4 percent interest per year. Though I highly recommend Liquid Mutual Funds over savings account, still it is an available default option. 

Fixed Deposit - Though I am a fan of debt mutual funds and am aware that fixed deposit cant give an inflation adjusted return, I can’t deny the fact that some of my money stays in the bank account and in the form of fixed deposits. If you already have online banking, you just need to tap on the deposits tab and you will be guided with a small 30 seconds process wherein you have to key-in basic details like - the amount, branch you choose for the deposit (this comes handy if you are depositing a large sum of money, for which you may need to visit the branch for pre-matured withdrawal). The amount you choose for the fixed deposit must be lesser than or equal to your savings bank account. You need to check the interest rates, as it varies for different tenures and then chose the term for which you wish to block the sum and interest payout instruction - Monthly/ quarterly, annually or maturity. You may also need to fill in the details like what you want to do with the maturity proceed, you may choose to get the proceed credited into your account or you can choose reinvestment option (personally, I dont like this option). Do remember to keep you PAN card  handy incase you are depositing a sum above 50,000 rupees. 

One can have multiple fixed deposit parallely with different combination of amount, term and interest rates at the same time. Minimum amount could be Rs. 1000/ 5000/ 10,000 depending on the bank you are operating in.  Choosing a nominee is advisable for a large fixed deposit, its available in online deposit window. 

Recurring Deposit - Another traditional Deposit named as Reccurring deposit is somewhat a precursor to the SIP of mutual Funds. Similar to the fixed deposit option, you need to click the deposit option, choose the tenure (mostly year and multiple of years or 6 months). In this  deposit scheme, you need to choose a fixed sum of money to be added to your kitty every month and the interest is accumulated on pro-rata basis. This is a good option to create an emergency fund or accumulating wealth in 1-2 years times span.

Advantage of Deposits 

1. It is the most liquid investment
2. It can be used as an emergency corpus
3. It gives fixed interest / return on the investment
3. One can take a loan against the deposit, most accepted collaterals by Banks 

1. Bad vehicle for medium to long term wealth creation
2. Doesn’t have any potential for upside/ variable return
3. Fixeddeposits are insured upto 1 lakh Rupee. Money above 1 lakh is not risk free, so incase the bank goes bust, they will not have any liability over 1 lakh Rupee
4. The interest earned on the deposits are taxed basis the individual’s tax bracket
Adios for today. Will come back to you with guidance on how simply one can buy mutual funds, life insurance, ULIP, health insurance, PPF, NSC etc.

Stay healthy, stay fit, and be money wise!

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