Post office monthly income account schemes

The Post Office Monthly Income Scheme is a scheme available to investors which gives you a guaranteed return on your investment.

It is a popular scheme with investors are rewarded with assured returns every month on their deposit and is one of the most beneficial investment options that can be procured as it offers returns, ensures that the capital invested is intact and also provides a fixed income every month. 

This scheme is provided by the Indian Postal Service and is administered by the Finance Ministry of India, making this one of the most secure options to invest in. 

Anyone who wants to generate a monthly income can open this account and then get an assured monthly income.

There are many ways to invest and you can lend money to someone to use it for a specific period of time and this will come back with an interest or you can also invest in stocks.

You get interest per year, which is payable on per month basis and you will get the interest each month from the date of making the investment, not from start of the month.

If you do not withdraw the amount for some month, it would not earn any interest and just lie there in the account.

This post office saving scheme does not come under sec 80C so there is no tax-exemption for the amount you invest in this, and interest income is taxable, but there is no TDS cut in this scheme.

You can deposit the money with cash, demand draft or local cheque and once you open a monthly income scheme account, you will be issued a scheme certificate and a passbook to record the transactions against the scheme. 

The maturity period of this scheme is for a specific period of times, you will be eligible for a bonus if you retain your scheme foe 6 years and your overall return including this bonus will be higher although there is a limit on the amount you can invest in the scheme.

You can have any number of accounts, but within the overall upper limit and you do not need to take your money out after maturity, you can leave the money in the account, but then it would earn the interest equal to saving bank account for next 2 years only.

You get withdraw from the income amount by directly going to the Post-office but you need to check if you want the income in your saving bank account. 

You need to confirm that you can provide ECS information at the time of opening the account and get the interest amount created in your Bank account.

Even though the maturity period for the scheme is fixed, there is an option to break it and take your money out.

 You can take your money only after 1 year and have to pay a penalty for early withdrawal which is as follows

If you break it within 1-3 yrs : 2% penalty on Deposit amount

If you break it after 3 yrs : 1% penalty on Deposit amount

A minor above age 10 years  can open an account on his/her own name directly, there is a limit for the amount invested by the guardian and it would not be included with guardian limi.

If you are a non-resident Indian / HUF then you  cannot open the Account.

The interest not withdrawn does not carry any interest.

You account can be transferred  from one post office to any Post office in India free of cost.

The amount deposited that is invested is exempt from Wealth Tax.

One of the benefits of having these schemes you as an investor, have the option to pick one that is most suited to their income and other requirements.

 Most individuals would prefer opting for those investment schemes that are relatively risk free, while offering guaranteed returns and although post office schemes are not very risky by nature do not offer high returns, whatever offered is substantial enough for applicants to invest high amounts in.

Options Trading - The Basics

Options trading is one of the instruments of investing that gives an investor a choice when it comes to making maximum profits with minimum risk.

They can be used for a variety of reasons depending on your trading goals and styles, it may be a better trading choice than owing a stock.

An option is defined as a contract that gives the buyer the right to buy or sell an asset at a specific price on or before a certain date.

Option is one of the most diversified trading instruments available and can be traded with various financial instruments like stocks, stock indexes, currencies, futures, exchange traded fund, commodities and bonds.

It is a derivative as its value is derived from something else and in the case of an index option, its value is based on the index.

It is a security and constitutes a binding contract with strictly defined terms and properties and is a valid trading instrument, whereby the holder has the right, but no obligation to buy or sell the stock or financial instrument.

The buyer will pay some price to get this right called premium and the seller will have to buy or sell the underlying stock, if the owner of option decides to exercise their right.

- Option type as CALL or PUTStrike priceOption type as call or put Expiry date An option that gives you the RIGHT  to BUY the underlying stock/instrument at agreed price called strike price, before agreed date called expiry date.

The person who is selling you the call option carries the obligation to deliver you the instrument, if you decide to exercise your right.

An option allows you to sell the stock at agreed price called strike price, before agreed date called the expiry date.

The person who is selling you the put option carries the obligation to take the delivery from you of the stock, if you decide to exercise your right.

When you trade with stock options is more than simple stock is the leverage involved as options enable you to control the shares of a specific stock without tying a large amount of capital in your trading account.

The amount of capital that you are paying is a comparatively small amount comparing to the cost of buying the same amount of stocks.

It gives one the ability to invest a smaller amount of capital and control the stock and give the option trader the flexibility.

You can magnify profit when the stock moves in your favor.

One can make money based on a relatively small movement in the stock.

Certain income producing option strategies enable you to generate a monthly passive source of income and one of the most used strategies to generate passive income is to write covered calls.

The trader who wrote the covered calls may be forced to sell his stock when the options is exercised so use this only if you are willing to depart with the stock that you own.

There are various options strategies that give the options trader the ability to make money from all market directions with limited risk exposure and potentially unlimited profit.

One can buy call options when the market is bullish, buying put options when the market is bearish and entering into various credit spread strategies to earn profit when the market is range bound.


Stock options can be used as an instrument to hedge against various risk exposure of a stock holder and as insurance to protect your stock portfolio from any adverse move in the market.

Unlike stock where you can hold on to it for many years or even passes on to your children, all options have an expiration date and there is nothing you can do to stop the options from expiring.

 The rate of time value increases over time when the options get closer to the expiration dates so be sure to watch over your open options position and not to let it expired worthless.

If you hold onto a trade and are out of money at expiration date, then you may lose that what you invested in the options.


Leverage works both ways as it can help you earn profit in shorter time frame and can break your account in half that time just as quickly.

The risks of leverage is present when one is involved with calls or puts or entering into any unlimited risk option strategies.

Options trading is a risky venture and it has substantial risk and reward involved and you need to trust your instincts and do what you feel is the best for you so that you achieve your financial goals without any losses.

Unit Link Insurance Plans - Why Invest

A Unit Linked Insurance Plan or ULIP, is a financial product that is acts both a an investment as well as insurance.

It is one of the best investment options in India and is more reliable when it comes to wealth creation as it invests in debt and equities markets with the fluctuation is counted by the net asset value (NAV).

In such a plan the premium amount, after deduction of charges, is invested into funds of your choice and the fund could be equity based, debt based etc.

The performance of the fund depend on the market although you can switch between the funds.

They are similar to those of mutual funds except that unit linked insurance plans are investment products that comes with insurance benefits.

It can be viewed as a long term investment plan, which provides risk cover for the policy holder along with investment options to invest in any number of qualified investments such as stocks, bonds or mutual funds.
 
 You pay the premium just like for an insurance policy unlike the insurance policy the premium is not just for insurance but also for investment.

After deducting some charges some in beginning, some during the policy term and for insurance ,the amount left gets invested into mutual fund of your choice. have different funds with different risk-return profile.

One may have an allocation of 80-20 to equity and debt ratio and you can switch between the funds 4 free switches in most of the cases , there after some nominal fees.

 These charges are deducted from the premium paid by the client and they account for the initial expenses incurred by the company in issuing the policy.

 These charges are deducted on a monthly basis to recover the expenses incurred by the insurer on servicing and maintaining the life insurance policy like paperwork and it could be throughout the policy term or vary at a pre determined rate.

 A part of the premium from the selected fund , is invested either in equities or debt, bonds, money market instruments etc or a combination of these and managing these investments incurs a fund management charge (FMC).

The FMC varies from fund to fund even within the same insurance company depending on the assets, a fund with higher equity component will have a higher FMC.

 These charges are deducted for managing the funds before arriving at the Net Asset Value (NAV) and the fee is charged as a percentage of funds under management.

 Mortality expenses are charged for providing a life cover to the individual and are deducted on a monthly basis.

The expenses vary with the age and either the sum assured or the sum at risk which is the difference between sum assured and fund value of the insurance policy of an individual.

It is done by including your age, mortality tables used by the industry and also the company’s claim experience though the mortality charges should be the same, some insurers levy differential rates.

 These charges are deducted for premature withdrawal partial or full with guidelines on the maximum surrender charges that can be levied by life companies.

The charges when you switch between funds ex  from Equity to debt with a limited number of switches typically 4 are allowed without any charge.

 In ULIP which offer minimum guaranteed amount or NAV, there is cost of guarantee which is deducted from the total units.

 There are online plans with no charges for premium allocation, policy administration and discontinuance except a percentage of fund management charge per annum and mortality charge from the fund value of customer in order to provide the life cover.

This makes them lower in terms of cost than equity mutual funds and make them attractive with the tax efficient transfer from debt to equity, and vice versa.

The  mortality charges go down as the fund value goes up and in case of death in the initial years of the policy, when the fund value is less than the sum assured, the insurer will pay the agreed sum to the nominee.

When the time the fund’s value goes higher than the sum assured, the death benefit will be the accumulated amount in the fund.

The mortality charge keeps reducing year after year as the sum at risk reduces which is the difference between the accumulated fund value and sum assured under the policy.

There are many nit-linked insurance products to suit your goals for your retirement planning, for your health and marriage or for investment purposes.

These plans are wealth plans that are usually of shorter time frame and focus on getting higher returns to create a good maturity amount.

Child plans are for securing child’s financial future as the money is invested to ensure that the child’s future financial goals like education are secured. Along with it, death benefit in most child plan is very comprehensive so that child’s future is not compromised.

Pension plans focus on the creating of a corpus amount so that the life insured gets regular pension after retirement.

Fixed Maturity Plans - Why Invest

Fixed maturity plans are close ended debt schemes that are open for investment for a few days during launch and then closed until maturity. 

They come with a pre determined tenure and are usually offered for tenures varying from 30 days to five years and the most commonly offered tenures are 30 days, 180 days, 370 days and 395 days. 

They invest in highly rated securities, certificate of deposits, money market instruments, bonds and government securities

The basic objective is to seek consistent returns over a fixed period and aiming to protect investors against market fluctuations. 


They are  similar to bank fixed deposits in that the money invested is locked in for the tenure of the scheme and can be described as debt funds that invest in government securities and company debt.

They usually have no equity component, unless you invest in one that chooses to have a limited equity component.

They try to protect investors against market fluctuations and offer flexibility to their fund managers and let them plan on their exact investments at the start.

This allows investors to know and be informed about the approximate returns they can get by investing in these plans.

They are ideal for all investors wanting benefits across different parameters, such as lower market risk and tax efficient returns.

Investors can choose the plan that match their investment requirements and also their cash flow requirements.

You can invest in fixed income instruments like certificate of deposits , commercial papers , other money market instruments, corporate bonds, non-convertible debentures of reputed companies, or in securities issued by the government, maturing in line with the time limit of the scheme.

Since they are closed ended schemes, an investor can invest only during the initial offer period of the scheme, and redeem only at the time of maturity of the series under the scheme.

However, unit holders holding units in demat mode, can exit by selling their units on the stock exchange where units of the scheme are listed.

They are least exposed to interest rate risk, as the fund holds instruments till maturity getting a fixed rate of return.

One can invest in highly rated credit instruments with maturity profiles of the invested securities in line with the maturity of the scheme, so there is low credit risk, with minimal liquidity risk involved.

 It works as asset allocation tools, that endeavor to provide the investor with stable returns for the period of investment.

They are also better as a tax saving instrument and if it is longer than a year, investors may choose to avail indexation benefits to check their taxable liability against prevalent inflation for the period.

When there are high prevailing rates, and with other asset classes not adequately performing,investors can invest in fixed maturity plans which lock in returns by investing in instruments maturing on or before the maturity of the scheme.

They can make use of prevailing high yields, without assuming the volatility risk of investing in a time duration product.

However they are not allowed to provide indicative yields to investors while in fixed deposits the interest rates are known in advance.

If you go for the dividend option ,then they are subject to dividend distribution tax  plus applicable surcharge and cess, which is paid by the fund and is tax free for investors.

If investors opt for the growth option, they are subject to capital gains tax and in case of a growth option with a maturity of more than one year, an individual can use the benefit of long term capital gains where the tax rate is 10% without indexation benefits or 20% with indexation benefits.

Those plans with tenure of less than a year, the dividend option is more appropriate as it results in lower tax incidence compared to the growth option, which would be taxed at the individual income tax slab rates.

It also offer double indexation benefit, which comes into play when the scheme purchase is made in one financial year and the maturity of the scheme is after two financial years.

Indexation for tax purposes allows returns generated to be adjusted for inflation so that the investors are taxed only on the real returns.

Thus, fixed maturity plans maybe riskier but compared with fixed deposits they offer better returns to the investor.

Why Invest In Gold

Gold also known as the yellow metal is an asset valued as a safe heaven in the world of investments and it known for acting as a hedge against inflation.

There are different ways to invest in gold in and we need to be aware of all the options before making a decision.

The most popular and oldest way to invest in gold is in the form of physical gold as this is what most of the people are comfortable with .

There are two ways that one can invest in physical gold

Jewellery is the most common way of investing in physical gold but it is brought by people for consumption rather than investment.

It is easy to invest in it , all you need to do is use cash or cheque and you can buy it however you do not just pay the market price of gold , but also making charges for jewellery .

When it comes to physical gold, there are chances of theft and fraud as you can be sold a inferior quality of gold in the name of high quality gold.

If a marriage going to be there then people prefer to invest in physical gold or if it will not be required for emergency in short term. 

If you do not believe in the online option , that is another reason that you can go for investing in physical gold.

Gold coins and bars are another way to invest in physical form of gold and they are sold by all the banks and jewelers . 

The good thing is that depending on the requirement you can either buy more gold bars and coins and easily available at banks and jewellery shops , but banks only sell it not buy it back. 

There is no consumption done on regular basis so a person can keep it in locker or some safe place for a long time. 

The disadvantage is that they are available at a premium price of 5-10% and at the time of selling, you will get a discounted price of 5-10% , so overall your returns will decrease.
  
Gold ETF’s which is an online version of physical gold are just like stocks , you can invest in these if you have a demat account . 

It is convenient to invest in Gold ETF if you already have a demat account and can start with a small amount of 1 gm value and as and when you want you can invest from time to time. 

However you have to pay the brokerage and you do not get a feel of gold in your hands which you get with physical gold . 

The gold ETF can also be converted to cash at times if you have not chosen the right one and there are chances that you will sell then in the time of small emergencies which you will not do with physical gold. 

The expectation is liquidity with exposure to gold for investment point and you can buy gold ETF with a demat account.

 You can invest and can consider them as liquid as you can sell them in the stock market.

Gold Mutual funds are those mutual funds which invest in another parent mutual fund which are related to gold related activities and buy physical gold , but in very small quantities .

This is not a good investment for those who track gold prices , because these funds do not invest most of their money in gold , but gold related companies .

So its mainly a equity fund which invests in companies which does nothing but invests in its parent mutual fund which finally invests in different companies .

The good part of these funds is that if you are optimistic about the future of those companies involved in gold but you will pay expense ratio two times because it is fund of funds.


These are the mutual funds which invests in real gold, pool in money from people and buy gold and you can buy the units of these mutual funds .  

The best part of these funds is that you can invest in gold through SIP route and you do not need to have a demat account to invest in gold saving funds . 

You also can invest regularly in gold through SIP through this funds but you pay administrative charges and expense ratio just like any other mutual funds. 

If you do not have a demat account and would like to regularly invest on monthly basis as this is highly liquid option also because you can anytime sell the gold fund units like any other mutual funds unit .  

e-Gold was started in India from the exchange called NSEL , which also has other commodities in e-format . 

Its is like Gold ETF , where you can invest in Gold in online format for investing in E-Gold you need a demat account, but with one of the companies that are authorized by NSEL. 

You can also take physical delivery of gold with some terms and conditions. but not all big brokerage houses demat account can be used to buy this, you need to open another demat account for this and this option is not popular with retail investors . 

You can buy this if you need physical delivery of gold at some future point of view but you also want to benefit from the online advantages like the market price and no storage cost at your side.  

Invest in gold can also be done through Gold Futures, but it more of a trading activity because its short term in nature. 

You can use Gold Future to protect the pricing, then you can lock the price so that when you want to buy the gold after 3 months, you get it at the same value .   

This option is bit technical and one should only use it if you have the knowledge of how it works.. 

You need to know when to lock the price of gold which you want to buy in future, if you fear that prices can go very high and which option are you going to choose and why it will work.

  

Bank Fixed Deposits - How To Invest

Bank deposits are one of the most preferred investment options in India as they are known for being safe and not risky, especially in comparison with other investment option like the stock market and mutual funds.

A fixed deposit (FD) is a financial instrument provided by banks which gives investors a higher rate of interest than a regular savings account, until the given maturity date.

It may or may not require the opening of a separate account and are they are considered to be very safe investments with term deposits being used to denote a larger class of investments with varying levels of liquidity.

In a fixed deposit investment, the money cannot be withdrawn from the FD as compared to a demand deposit or recurring deposit before maturity.

Banks may offer additional services to FD holders such as loans against FD certificates at competitive interest rates.

 The banks may offer lesser interest rates under uncertain economic conditions that varies in percentage terms with the time period that can vary from the short term such as 7 days to a long term of 10 years.

These investments are safer than Post Office Schemes as they are covered by the law and that guarantees a specific amount per depositor per bank with income tax and wealth tax benefits.

 Those from reputed banks are a very safe investment because such banks are carefully regulated by the Reserve Bank of India, RBI, the banking regulator in India. 
 
It is important to note that company FD is not reliable as compared to a bank FD because if the company goes bankrupt you may lose your money.

 You need to check the credit rating of a company before investing and be careful of companies which offer interest rates that are significantly higher than the average to attract your money.

An FD gives you the option of receiving regular income through the interest payments that are made every month or quarter and this is especially useful for the retired.

It must be noted that a fixed deposit will not give you the same returns that you may get in the stock markets but the risks of investing in stocks are higher.

A fixed deposit is not helpful against inflation and if inflation rises steeply during the maturity of the FD your inflation adjusted return will fall. 

There are two types of term deposits - fixed deposits and recurring deposits.

A fixed deposit is where you invest all your money at one-go whereas a recurring deposit is when you invest your money in installments.

When you opt for a term deposit, you are placing your funds in a particular bank deposit for a fixed period of time and for this banks offer you to pay a fixed interest and makes it a safe alternative because the interest payment acts as your profit from the investment.

Senior citizens usually get a higher interest and while fixed deposits offer higher interest rates, recurring deposits usually offer a lower interest rate than fixed deposits.

You can decide when you want to receive the interest due once the deposit matures, you can opt for regular interest payments on quarterly, half-yearly or annual periods of time and some banks also offer you a choice to reinvest your interest payments.

Term deposits offer a wide variety of interest rates that changes with the duration of the deposit with the greater the duration, larger is the interest rate offered.

This makes investors deposit money for as longer a time as the bank pays interests regularly and over a period of time, this money can either be reinvested in the same deposit or saved in your bank account that would earn you additional interests, thus increasing your total return.

The money you deposit with the bank acts as a source of cheap borrowing for the bank but the money in the savings accounts could be withdrawn any moment by depositors.

This increases risks for the banks and that is why banks actively try to attract deposits to invest in term deposits because the amount in deposits are unlikely to be touched for a longer period of time.

The only rule of a term deposit is that once you deposit, you cannot withdraw this money and if you want to reclaim your deposit amount, you will be fined a particular sum or your total interest payment may be reduced.

Banks may only allow you to withdraw the money after a certain minimum period.

Breaking a fixed deposit means withdrawing the money before the maturity expires and this may be necessary if you urgently require the funds or if there are better investment opportunities elsewhere. 

If you are in need of liquid cash, and you have withdrawn all of your funds in your bank accounts, you can borrow on the basis of your fixed deposits and this is called the overdraft facility.

There is a limit to how much you can borrow under this service and it may not be interest-free.

Interest payments on fixed deposits are taxable and this depends on your overall income tax bracket to which you belong.

If you fall in the 20% income tax bracket, your interest payments would be taxed at the same rate and this is why fixed deposits are usually not preferred by those in the 30% bracket.

Also, if your total interest payment in a year exceeds Rs 10,000, then the bank cuts 10% as tax deducted at source (TDS).

However, if you submit the Form 15G/H to the bank stating you have no taxable income, then the bank will not deduct tax. 

You can also split your term deposits across banks to ensure the interest is not more than the amount of INR 10,000 in a single bank.

Banks offer fixed deposits for tax-saving purposes and the amount you save in such deposits can reduce your total taxable income and thus help you save taxes.

Tax-saving deposits have a minimum tenure of 5 years and a maximum of 10 years and the government has also kept the maximum amount you can invest in such a deposit for tax purposes to Rs 1 lakh per year but the interest you earn will be taxable.


 

Micro Finance - An Overview

Micro finance refers to providing financial services, credit and savings to the poor who are running small businesses or would like to start one and are in need of capital.

Small loans for small businesses, with focus on providing credit is the way that the industry has changed over the past few decades.

Banks are reluctant to give loans to the poor as they often do not have the required collateral and are considered high risk for them when it comes to repayment.

Since the banking system is out of reach for the poor they often often go to private moneylenders who lend at high interest rates, making the poor debtors for life and continuing in poverty as they cannot pay back the loans for years to come.

Financial services have been lacking for the poor who are totally ignored by the banks and exploited by money lenders.

The access to financial services through micro finance allows the poor to obtain small loans at nominal interest to expand or start new businesses.

This generates income to improve their living conditions.and by starting small business such as tailoring, masonry, they are able to create employment for themselves and others including facilities for depositing savings that makes savings a habit.

Micro-finance institutions provide financial services that were made available to the poor to provide them loans to run small businesses, build assets, ease consumption, and manage risks in addition they offered freedom from moneylenders.

 Micro finance is a source of financial services for the small businesses, entrepreneurs, social sector and viewed as a way to reduce poverty.

In rural areas and urban slums, small groups of family members and friends are created and these groups mostly consist of women as they are considered to be more responsible when it comes to managing money.

These groups are supervised by who create rules around savings and lending among group members and after a few members of the group that are accepted for a loan, the rest have to wait for that loan to be repaid before they can obtain their own loans.

Peer pressure from other group members to repay the initial loan amount helps maintain a higher rate of loan repayments.

Micro finance which proved poor to be credit worthy, it has blossomed all across in the developing world having provided loans to millions of clients.

 The high repayment rates have led commercial banks to join in to provide loans and make profit from those previously known as unbankable.

The profitability from lending to the poor has led micro finance institutions to raise money from commercial investors such as banks, private equity firms went public.

 High repayment rates due to group lending and nominal interest rates helps to achieve economic sustainability and to scale and grow their financial services for the poor.

In recent years the micro finance industry has shifted from its original goal of social maximization to profit maximization.

 The coming of commercial investors has led to high profits are being made by hidden charges and high prices leading to the poor suffering the consequences.

High interest rates, multiple lending and group pressure from non-repayment has caused problems in the functioning of these institutions.

Due to these challenges, it is not yet known if the loans that are made for starting micro enterprises are valid, since the borrowers often lack business knowledge to grow and sustain the business and often leads to failure.

The long-term impact of micro finance remains to be seen due to unfortunate but avoidable misuse of the facility for the poor.


Micro finance can has made an impact on global poverty for certain people like those with an entrepreneurial spirit in certain places, those where entrepreneurs are that free to grow and sustain a business.

It is not something that will lead to the eradication of poverty, but it can and should be a part of the solution.