Saturday, July 30, 2011

How to protect your hard earned money ?

As a banker served in a bank for  more than 39 years, I came across various instances whereby the customers are losing their money by investing in unremunerative and unproductive investments.
I would like to share herebelow my experience and viewpoints for people who are willing to put in their hard earned money in safe investments.
Why savings ?
You need to save because you require money in the future. Your  future requirements may be
·         To take care of  your health  and the health of your dependants
·         To pay the school and college fees to be incurred by the your children
·         To buy a new house or flat
·         To buy a new car
·         To buy various household requirements like refrigerators, washing machines, dining sets, new beds, clothes, books etc etc.

How much to save ?
·         There is no such hard and fast rule for reserving any money for  savings. The portion for investment differs from person to person. A person earning a very good income,  however, may not be having  much expenses and he can save more  whereas a person earning a meager income, however, in a position to meet several expenses can hardly save some money. Anyhow each person despite the facts that they earn a reasonable income or meager income should develop the habit of saving money at least a small portion and the amount thus saved will definitelyl be very much helpful in protecting their future interests to a large extent.
What are the different types of investments available ?
·         Bank deposits: Certain portion of money can be invested in bank deposits. There are a lot of advantages in investing the money in bank deposits. The money available in a bank can be withdrawn immediately within a short span of time. There are different kinds of deposit schemes available in the banks. The following are some of the schemes:

1.       Savings bank deposits: When a person invests any money in savings bank deposits, the amount can be withdrawn at any time subject to the amount available to his credit. In case he deposits an amount of Rs. 10000/-, he can withdraw Rs. 5000/- during the same day. There are no restrictions in this scheme. He can issue cheques to third parties instead of dealing in cash transactions. Moreover the cheque payments will serve as recorded entries which will be legally binding for requirements, in future. On account of availability of ATM cards, the person can withdraw the amount at any point of time through any ATMs installed anywhere.
2.       Current account: Normally current accounts are permitted for business transactions. In this particular type of investment scheme also, apart from cheque book facility  ATM card facilities are also available. This scheme is akin to savings bank scheme except that savings bank accounts are not permitted for business transactions.
3.       Recurring Deposit scheme: In this scheme, the customer chooses an option for investment . The period of deposit can be one year, two years, three years etc . He can remit a fixed sum of money each month; quarterly; half-yearly or yearly. This induces the customer to save compulsorily an amount each month and at the end of the investment period he can withdraw the entire money deposited in the scheme along with  interest. This scheme is more suitable for persons who are spendthrift lacking will power to safe keep their hard earned money . Normally bankers recommend this type of scheme to salaried persons and persons drawing pensions regularly each month.
4.       Fixed deposit scheme: In this scheme, a fixed amount is deposited for a definite period say, one month, two months, three months, six months, one year, two years, three years etc. Depending the period of investment, the rate of interest differs. Normally longer the period, the interest payment is also high. The customer have the option to withdraw the interest payments on monthly, quarterly, bimonthly, half yearly and yearly basis. This scheme is more suitable for investing the surplus money on hand. Normally people prefer these  type of investments for the following purposes viz., – to purchase jewellery, houses, cars, two wheelers, to meet expenses in connection with the marriages of children, educational expenses, health checkup etc.
5.       Reinvestment scheme: The fixed deposit scheme is called reinvestment scheme under certain situations and the difference between  the fixed deposit scheme and the reinvestment scheme is that in the former case, interest payments are made periodically and in the latter case, the interest is paid at the end of the investment period i.e. at the time of maturity of the deposit. In other words,  at the end of the investment period, the customer gets the principal amount invested, interest amount and interest for the interest accrued. The amount available at the time of maturity in this scheme will be more than the fixed deposit scheme on account of the facts, that the interest is compounded

6.       Other schemes: The abovementioned schemes viz savings bank, current account, recurring deposit, fixed deposit and reinvestment schemes are called the basic schemes and banks offer different kinds of schemes basing upon the abovementioned basic schemes through different packages and different combinations. Just like the saying goes –“ Old wine in a new bottle”
·         Insurance schemes:  Whereas we call it as”instalments” in the case of bank deposit schemes, we call it as “premium” in the case of insurance schemes. Insurance schemes will not offer more interest benefits akin to bank deposits, however, the insurance policies cover several risks, like life risk, fire risk, riot risk etc etc.
·         Shares/debentures: Many people are interested in investing the amount in shares of corporate and there is no fixed period for investment in shares. The shareholders are  in fact the owners of the corporates and they get some dividend each year when the company earns any profit. The amount invested in shares attract 100% risk. Either the investor gets very good income from the investment or no income at all and sometimes, he can lose the entire amount invested during some unforeseen circumstances

·         Mutual funds: When an amount is invested in mutual funds, the companies take the responsibility for safekeeping the money in investing in diversified portfolios and the market risk is reduced to a reasonable extent. The returns available through mutual funds cannot be compared with the returns through direct investment in shares on account of the facts, that the companies can pay the returns to the investors after meeting all their expenses in handling various mutual fund schemes. Investments in mutual funds are also risky
·         Gold jewellery: People invest in gold and gold jewellery on account of the facts, that the gold appreciates each year and especially in countries like India, people are vigorous in investing in gold.
·         Real Estate: For long term investments, real estate are good. However, for investing in real estate a person has to accumulate his savings from various sources. The disadvantage in investing real estate is that even though the appreciation will be higher comparing to any other investments, liquidity is very low and a person has to wait for a long time in order to sell his property and realize the amount to his credit. Wise people accumulate their savings in bank deposits like recurring deposits and fixed deposits initially and thereafter utilize the maturity portion of these deposits in acquiring the immovable properties.

It is the responsibility of each individual to reserve a reasonable amount depending upon his income each day or each month and invest in schemes suitable to them. The amount invested will definitely be helpful under emergent situations. Instead of borrowing money from outside, depending upon the amount invested in schemes will yield a lot of happiness and peace of mind.

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