Opting to invest in safe schemes

Govt SCHEMES  FLASHBACK to October 2007. The bulls were hitting new highs on Dalal Street and just about every investor was lured by the dizzying returns offered by the stock market. Cut to 2008 and the downward slide of the market sent investors scurrying for fixed income instruments. No doubt, fixed deposits were the first to pop up in most minds, but the sheen had faded due to a low interest regime.      Fortunately, the options aren't limited, thanks to a series of government investment schemes, which may not be the most-talked about modes of investment but could add a degree of stability to your portfolio and cater to your needs at different stages of life. SundayET gives you the highlights:  NATIONAL SAVINGS CERTIFICATE (NSC)  Getting started with a National Savings Certificate (NSC) could mean investing as little as Rs 500 or taking it up to any amount that you are comfortable with, provided you are willing to bear the lock-in period of about sic years. The high points of the NSC are that it gives you about interest at 8% compounded half yearly, which means that an investment of Rs 1,000 would grow to Rs 1601 in six years. Being a tax saving scheme, your investment in the NSC entitles you to a rebate under Sector 80C of the Income-Tax Act, but your interest in fully taxable." However, annual interest earned is deemed to be reinvested and can also qualify for tax rebate for the first five years under section 80 C," points out Mukesh Gupta, director of Wealthcare Securities. These certificates can also be pledged as a security against a loan in most banks and financial institutions.  PUBLIC PROVIDENT FUND (PPF)  Apart from contributing to the employee provident fund at your workplace, you also have the chance to contribute to the public provident fund (PPF) with a minimum investment of Rs 500. Despite a lock-in of 15 years and a maximum investment of Rs 70,000 per annum, the PPF is generally viewed as a good long-term investment given the fact it you can avail tax rebates under Section 80 C but more importantly, you get a tax free return of 8% compounded annually. Dhruv Agarwala, co-founder of iTrust Financial Advisors, also points out that while no withdrawals are possible in the first five years, after this investors have the option of taking a loan against their investment by paying interest at 1% higher, subject to the restrictions on amount. Moreover, the amount that accrues in your PPF account is totally your own, in the sense that it is not subject to attachment under any order or decree of court in respect of any debt or liability.  POST OFFICE MONTHLY INCOME SCHEME (MIS)  This is perhaps the only scheme of this kind, which gives a regular income to its investors, with an interest rate of 8% payable monthly. While it has a lockin period of six years, there is a maturity bonus of 5% available for those who are willing to stay it out for five years. "However, premature closing of the account is permitted one year after you open the account, with a deduction of 2% of deposit on premature closure. If closure occurs after 3 yrs, then at 1% discount," says Anil Chopra, Group CEO and director, Bajaj Capital. However, the maximum amount that can be invested under this scheme is Rs 4.5 lakh in single name and Rs 9 lakh in joint accounts. Also, this scheme, does not qualify for any rebates under Section 80 C and the interest income is also taxable.  KISAN VIKAS PATRA (KVP)  Chopra says KVP is perhaps best known for the fact that it allows your investment to double within 8 years and 7 months. And while investment under this scheme can be made with Rs 500, there is no upper limit on investment and it promises interest at 8% compounded annually. And while there is facility for premature encashment as well as the option of pledging this as a security against loan, the downside of this scheme is that your investment does not qualify for a tax rebate and interest is also fully taxable.      While all these schemes boast of being risk free investments, with high levels of transparency and no TDS payments involved, choosing between them largely depends your interest expectations as well as your goals. According to Agarwala, if interest rates are the criteria, then PPF tops the list, followed by NSC and then KVP and MIS below. "However, if one were to look at flexibility, then the MIS would be the most flexible, followed by NSC and KVP, and PPF would be at the bottom," he adds.      While individuals have the option of choosing multiple schemes at the same time, some experts feel that it could be linked to life stage milestones. "A person who is just starting off her career may just opt for NSC as their tax slab is not high. Meanwhile, amount earmarked for financial goals should be invested with KVP, " says Gupta. While PPF is generally seen an effective means to deal with retirement planning, MIS can be counted upon for situations where the monthly income is necessary.  lisa.thomson@timesgroup.com