Your Savings account is your primary medium to allow cash inflow in terms of salary and to allow cash outflow for routine expenses. If your cash inflow is much higher than cash outflow, you will have sufficient savings in your account. In this case, you should think about transferring money from your savings account to other investment options, which can have better potential to earn higher interest.
Investment Strategy to Park Surplus Money
The surplus amount from your regular income needs proper management to generate large amount of wealth over a long and medium term and to create an emergency fund in short-term.
Long-Term Investment Goal with PPF
You can open a PPF (Public Provident Fund) account to create corpus over the long-term of 15 years or more. You can cultivate a habit of investing the fixed amount every month in PPF account up to Rs. 1.5 lacs in a financial year. Such a disciplined approach will create a large pool of wealth with tax-free returns. The current interest rate in PPF account is 7.6%, against 3.5% in savings bank account.
Long-Term Investment Goal with Mutual Funds
If you are an aggressive investor and are willing to take a higher risk for higher returns, you can choose ELSS( Equity Linked Saving Scheme ) mutual fund, instead of PPF. Historically, ELSS has given more returns than PPF. Lock-in period is also three years against 15 years in PPF. Both the options can provide you with tax benefits under income tax act.
Support your Long Term Investment with Fixed Deposit
However, there are two reasons your long-term investment goal is not complete only with PPF or ELSS. First, your salary may be high enough to save more than Rs. 1.5 lacs in one year. Second, PPF is long-term wealth creator. It is not a tool for short-term or emergency expenses. Similarly, in downward equity cycle, ELSS can generate a lesser return or even losses in short to medium period. You must continue above ten years to get real returns out of ELSS.
To give justice to both these reasons, you can opt to open the Fixed Deposit with cumulative growth option. You can invest in Fixed Deposit without any maximum limit. Ideally, you should keep a goal to open one new Fixed Deposit every three months. Over the period of three to five years, you can generate huge corpus to address an emergency and create the wealth without loss of interest opportunity. At present, Bajaj Finance offers Fixed Deposit with interest rate up to 8.40%. You can consider investing in such a Fixed Deposit offering if you want better returns for your investment.
Medium Term Investment Goal with Cumulative Fixed Deposit
In the medium term, you would like to manage your investments up to the next five to seven years. It is a time horizon in which you would want to focus on the growth of your portfolio with safety in mind. You can choose Fixed Deposits with a cumulative option so that you can generate a sizable corpus in next five to seven years. You can use FD calculator to know maturity amount of your investment.
Short-Term Investment Goal with Fixed Deposit
For emergencies and planned short-term expenses, you can invest the amount equivalent to your six months’ expenses into a Fixed Deposit. Such an FD can have a maturity period of 1-2 years. If you wish to add some money to your regular income, you can opt for monthly interest payout. This strategy is quite justified, as in short-term your priority is liquidity and not growth. Even in the short-term, FD is far better than a savings account.