How Middle-Income Families Can Make Their Money Grow While Playing Safe

File Photo

New Delhi: Middle-income families are presented with a variety of choices for investing their savings with the help of offerings from banks, post offices, and financial firms designed specifically for them. 

These options span from low-risk government-backed plans ensuring guaranteed returns to moderate and high-risk plans that promise greater financial rewards. It's important to note that the latter category, tied to the stock market comes with a risk factor making them susceptible to market fluctuations.

Middle-income investors seeking a secure and risk-free investment strategy can consider the following schemes which provide assured returns:

-The Public Provident Fund: PPF stands out as a highly favored long-term investment option requiring a minimal annual investment of only Rs 100. It ensures guaranteed returns of 7.10 percent per annum and these returns are entirely exempt from taxes. The investments in PPF schemes qualify for tax savings under Section 80C of the Income Tax Act. It's important to note that the PPF scheme comes with a 15-year lock-in period.

-Post office saving schemes: The schemes encompass various reliable products with interest rates varying based on the tenure, ranging from 6.9 percent for a one-year term to 7.5 percent for a five-year term, compounded quarterly.

-The National Savings Certificate:  It is a government initiative lasting five years, offering an annual interest rate of 7.70 percent. Notably, both the invested amount and the earned interest are tax-exempt.

-Fixed Deposits: They are provided by banks and are well-established and secure investment options that assure guaranteed returns. The interest rate, which can range from 3.50 percent to 8.50 percent per annum depends on the bank and the tenure chosen spanning from less than a month to a maximum of 10 years.

Investment options with the potential for high returns but accompanied by risk include:

-Equity Funds: These mutual funds primarily invest in stocks and equity instruments providing returns linked to the market. However, there is no guarantee of returns and the performance is subject to market fluctuations. While equities have the potential for significant long-term returns (5+ years), there is a risk factor involved due to market volatility.

-Hybrid Funds: These funds invest in both equity and debt instruments. Their returns are influenced by market conditions and are well-suited for a medium-term investment horizon (3-5 years). While they are less volatile than pure equity funds they carry higher risk compared to debt funds.

Investment options with a moderate level of risk include:

-National Pension Scheme (NPS): The NPS, a government-backed initiative promoting retirement savings, features market-linked returns. Regulated by a government institution, it is deemed a moderately secure investment choice.

-Debt Funds: These funds predominantly invest in fixed income securities, presenting low-risk investment opportunities with predictable returns. However, they are susceptible to default risk and interest rate fluctuations. Designed for short-term investments they are suitable for tenures ranging from one to five years.

For individuals aged 60 and above, emphasizing secure investment options that ensure a reliable and consistent income is crucial.

Considerations for Senior Citizens:

1.Senior Citizens Savings Scheme (SCSS)

2.Post Office Monthly Income Scheme (POMIS)

3.Senior Citizen Fixed Deposits (FDs) and Recurring Deposits (RDs)

It is essential for investors to have a clear understanding of the chosen financial products especially when dealing with high-risk market-linked schemes before committing funds. Maintaining a diversified and well-balanced portfolio also contributes to minimizing overall risk.