New Delhi: There is not a single person who doesn’t give a thought on making investments. Commonly, people opt for long-term investment options but sometimes it might impact the financial plans. Keeping this in mind, people should opt for the investment options which offer flexibility to meet the short-term financial needs too. Below are some of the options available:
Public Provident Fund
Introduced in 1968 by National Savings Institute of Ministry of Finance, Public Provident Fund (PPF) is a savings-cum-tax-savings option. With this scheme the government aimed at mobilizing small savings through investment with reasonable returns added with income tax benefits.
This investment option comes with tenure of 15 years and the interest rate for PPF account is announced by the Ministry of Finance every quarter. Currently, the rate of interest is 7.6 per cent per annum.
There are three ways you can use your PPF for short-term financial needs. Firstly by premature withdrawal. Premature withdrawal can be done from the seventh financial year of the opening of the account. Only 50 per cent of the balance can be withdrawn at the end of the fourth year immediately preceding the year of withdrawal or up to 50 per cent of the balance at the end of the year before planned withdrawal, whichever is lower.
For example if the year of withdrawal is 2018-19, and you had Rs 6 lakh balance in the PPF account at the end of 2014-15 and in Rs 8 lakh in 2017-18, then you can withdraw Rs 3 lakh.
Secondly, you can also take loan from it between third and sixth financial year. Minimum loan allowed is 25 per cent of the balance at the end of two years preceding the year in which loan is sought.
For example, if the loan is applied in 2018-19 and the balance in the PPF account at the end of 2016-17 is Rs 3 lakh then the person is eligible for only Rs. 75,000.
Thirdly, with premature closure one can use the balance of PPF account for short-term needs. It is allowed only after five years and only for higher education of children or treatment of life-threatening ailments of self, spouse, parents or children. The interest given on premature closure will be 1 per cent less than PPF interest at the time of withdrawal.
Employees’ Provident Fund
Employees’ Provident Fund was introduced in 1952 with the aim of promoting savings for employees. Both, employees as well as employer, have to make regular and monthly contributions to build fund in EPF. The earnings in EPF is tax free, which gives financial security after retirement or in emergencies, as well as it helps in getting funds for certain pressing needs too. Though a long-term investment option, EPF can help in fulfilling the short-term needs too as EPF account holders are allowed mid-term, partial withdrawal for buying/constructing a house through a registered society. The contribution in EPF from the subscriber should be for at least three years and should be a member of registered housing society which already has 10 members. The amount for which the account holder is eligible is 90 per cent of EPF balance which should be at least Rs 20,000 along with the spouse’s balance.
Senior Citizens’ Saving Scheme (SCSS)
As the name of the investment option suggests, Senior Citizens’ Saving Scheme, it is only for the senior citizens. This provides regular income and risk-free tax saving investment. It is not that people only of or above 60 years of age can avail this scheme but people who have opted for voluntary retirement scheme or superannuation within the age of 55-60 or retired defense personnel with a minimum age of 50 years. Any amount up to Rs 15 lakhs (singly or jointly in multiple of 1000) can be invested in SCSS but it is important to note that the amount can’t exceed the money received on retirement. Hence, any individual can invest either Rs 15 lakh or the amount received on retirement, whichever is low.
This helps in short-term need through premature closure. It comes with tenure of five years but premature in SCSS is allowed after first and second year. Though there is a penalty of 1.5 per cent of the deposit after first year and 1.1 per cent after second year.
Since, childhood we must have heard about fixed deposits. It was and still is considered to be one of the best options for investments and savings. A fixed deposit is an investment and savings options offered by banks or NBFCs which gives higher rate of interest as compared to normal savings account. It is considered to be one of the safest investments.
This can also help in getting the short-term needs fulfilled through premature closure. Though there is a penalty of 0.5 per cent to 1 per cent below rate applicable to period for which the deposit has been maintained or below original rate, whichever is low.
SIP in Mutual Funds
In this investment option, one can use SIP pause to cater to the short-term requirements. Typically, the period for which one can pause SIP is 1-3 months and this can be availed only once during the tenure of SIP.
Endowment policies are traditional form of investment and tax saving. To meet short-term need one can avail loan against their endowment or money-back policies after paying premium for minimum three years. These policies can be pledged in bank and loan will be given against them. Loan amount can be anything between 80 to 90 per cent of the surrender value and the interest rate varies from bank to bank.
Normally, insurance companies offer ULIPs (Unit Linked Insurance Plans) and these also help in getting the short-term needs through partial withdrawal. Normally, a ULIP comes with a lock-in period of five years and after the lock-in period one can withdraw the amount partially or completely.
The withdrawal depends on the insurer and the terms and conditions of policy. It can be 10 per cent or 20 per cent of total premiums paid till date or 25 per cent of the fund value.