Best Compound Interest Investment Options in India
The best compounding interest investments in India include both safe and aggressive investments. Here is the list of compounding investment options in India:
| Safe Compounding Investments | Aggressive Compounding Investments |
|---|
| Fixed Deposits | Equity Mutual Funds |
| Public Provident Fund (PPF) | Equity-Linked Savings Scheme (ELSS) |
| National Savings Scheme (NSC) | National Pension System (NPS) |
| Life Insurance Savings Plans | Unit-Linked Insurance Plans (ULIPs) with Equity Fund investment |
| Debt Mutual Funds | |
| Unit Linked Insurance Plans (ULIPs) with Debt Fund investment | |
Must Read - How to Invest in NPS?
A fixed deposit is a type of deposit with a fixed period and interest for a sum of money. Different banks offer varied rates. It can be opened both offline and online. To understand whether you should invest in a fixed deposit, we need to understand its following features:
Fixed deposits guarantee the return specified after you have invested your funds. Financial institutions provide interest rates on their website and also have a fixed deposit interest calculator where you can calculate the interest against the sum of money and time.
If your total interest earnings do not exceed Rs. ₹10,000, tax will not be deducted. This can be beneficial if your deposits are made in small amounts.
You can decide the period for a fixed deposit at your convenience. However, every bank has its minimum tenure. You can redeem or extend the fixed deposit once the decided period comes to an end.
You can avail yourself of a loan against the fixed deposit. Generally, the loan can be taken up to an amount of 95% of the total fixed deposit. However, this percentage differs from one bank to another.
It is a long-term investment option with attractive interest and return rates. Through this saving scheme, you can make sure to have a sufficient amount of money for retirement. Following are the features of PPF in brief:
The PPF that you take must be for at least 15 years. After 15 years, you can extend it every 5 years.
For opening a PPF account, you need a minimum deposit of ₹500 and a maximum of ₹1,50,000. You can make the entire payment in one go or by paying small amounts in 12 instalments.
You have to deposit at least once in your PPF account in 15 years. This deposit can be made through cheques, cash, or even online. The minimum annual investment can be ₹6000.
PPF schemes are provided and backed by the government. This offers a guarantee and safety for your deposits.
Life Insurance Saving Plans
Life insurance savings plans are safe long-term investments that offer guaranteed returns. For instance, iSelect Guaranteed Future from Canara HSBC Life Insurance offers the following benefits:
Maturity proceeds are guaranteed and predefined. You can contribute for the entire policy period or for a limited time at your convenience.
Recommended Reading: Guaranteed Assured INcome Plan
Investing for the long term allows you to receive free bonus additions which enhances your fund value in the plan.
In iSelect Guaranteed Future Plan, you have the option to start receiving a regular income once you turn 60. This is a survival benefit and does not affect your life cover.
These are the best compound interest investments in India where the amount is invested in securities with fixed income. Such securities include treasury bills, commercial papers, corporate bonds, and certificates of deposits. The following are features of such funds:
Debt funds are invested in securities whose rate of return and maturity value are already known to you. This ensures less risk and a steady return.
Unit Linked Insurance Plans with Debt Funds
ULIP refers to the combination of insurance and investment plans. In simple words, the premium amount you pay is partly used for insurance and partly for investment in debt. These debt funds include debentures, government bonds, securities, and corporate bonds. The following are the features of ULIP with debt funds:
Tax-Savings - You can enjoy the benefit of tax savings as premiums paid towards ULIP are tax deductible up to ₹1,50,000 as per the Income Tax Act, 1961 Section 80C.
It is one of the best compound interest investments where your savings are pooled from time to time in one fund, which is invested based on guidelines in numerous portfolios, including government bonds, debentures, and shares.
In these funds, your finances are invested in stocks of different companies. These are also called growth funds. It is beneficial for you since it has higher returns than both FDs and debt funds. Following are the features of Equity Mutual Funds:
Like other ULIPs, it is a combination of both insurance and investment. In this category, the investment is riskier since it is associated with fluctuations in the market. The following are its features:
Investment Term & Tax Savings - With plans like Invest 4G ULIP from Canara HSBC Life Insurance, you can invest in plans up to 99 years of age. With a limited pay option, you can build your retirement corpus till the age of 60 and then draw a tax-free pension until the corpus lasts.
Also Read - Defined Benefit Pension Plan
The switching option allows you to switch your corpus from equity funds to debt anytime.
