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PPF, Savings Account, Mutual Funds: How to get the best returns?

Inculcating some behaviors and practices at the time of making investments will help you increase your wealth and make you richer.

Priya kapoor | September 6, 2017 | Updated 17:22 IST
PPF, Savings Account, Mutual Funds: How to get the best returns?

Can you make yourself richer? Of course, you can. We are not asking you to get a home cooked food to the office to save on the money. Or cut back on your cell phone services or mowing a lawn by yourself. In fact, we are talking about inculcating some behaviors and practices at the time of making investments that will help you increase your wealth and make you richer. These healthy investments are beneficial to you in the long-run. The sooner you start the better.

Here are some time-tested strategies that can leave you with more money in hand.

Invest in the beginning of the financial year
Despite the recent interest rate cut by 10 basis point, Public Provident Fund (PPF) is still the best investment bet. It is the only fixed income product that enjoys exempt, exempt, exempt (EEE) status. If you are a conservative investor you can further milk it by putting your money in it at the beginning of the financial year. Here's how it works. Say, you invest Rs.1.5 lakh-the maximum amount to avail section 80C tax benefit in a year-in PPF every year for 15 years. You have three options. Option 1 is to invest Rs.1.5 lakh in the beginning of the financial year, in April. Option 2 is to invest at the end of the financial year. Option 3 is to invest in the beginning of every month-that is Rs 12,500 for 12 months for 15 years.

At a current rate of 7.8%, if you pick option 1, then at the end of the PPF tenor of 15 years, the total amount that you will get is Rs.43.2 lakh. If you pick option 2, at the end of the tenor you will get Rs.40.09 lakh. In case of option 3, you will get a total amount of Rs.42.49 lakh. This means that the earlier you invest in PPF in a financial year, the better will your returns be. An annual investment of Rs 1.5 lakh made over 15 years at the beginning of the financial year will leave you richer by Rs 3.11 lakh

Choose liquid funds
Lately banks have started cutting rates on their savings account. On 31st July, 2017, State Bank of India slashed its interest rate on savings account deposits by 50 basis points to 3.5 per annum on balance of Rs 1 crore and below. Subsequently, other banks followed. If you do not want to compromise on the liquidity it makes sense to park your money in liquid funds. Offered by mutual funds, they give better post tax returns. Moreover, they don't have lock-in period, entry or exit loads.

Move to the MCLR rate
Another way to pocket more money is by switching to Marginal Cost of Fund-based Lending Rate (MCLR) if your home loan is linked to a base rate.  Borrowers who availed home loan before 1st April 2016 have their home loan linked to base rate. MCLR helps faster transmission of cuts and help lower your home loan EMI. If the loan is linked to the bank's 12-month MCLR, the next change will happen after 12 months. A MCLR rate also has a spread on it. For instance the base rate of SBI is 9% while its MCLR is 8%. The spread on the latter is 40 basis points. So, you must also look at the spread above which bank would like to lend. While MCLR may change, the spread won't. Keep factors like switchover fee in mind too before making a move.

Continue regular investing
The highs and lows of the market shouldn't disrupt your Saving Investment Plans (SIPs) and make you a market timer. The latter takes emotions out of investing by investing in the market on a predetermined day whether markets have gone up, down or simply remained sideways and often comes out to be a winner. A market timer, who withdraws his investment before falls and reinvest afterwards often loses out to the regular investors. According to experts, constant churning doesn't always deliver the best results

Get professional advice
While you may not like shelling out some amount for seeking advice on your financial matters, doing so pays you in the long run. A financial planner offers you holistic advice based on your financial goals and provides you options to choose from plethora of products in exchange of a fixed fee. This fee ranges from Rs 10,000-Rs 25,000. Such a strategy can save you more falling into the traps of mis-selling of products by salesman and bank professionals on the name of free advice and blocking your funds. While recently banks have been made liable for mis-selling third-party products and can be taken to task in the ombudsman, it certainly amounts to waste of time.


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