The Hindu Business Line : Making your money work for you

My sister Sakshi, who was away in Singapore on an assignment, , returned home after almost a year. Since I had not seen her after I took up my first job, I treated her at the Taj. We discussed my job, my boss, colleagues, growth prospects and so on.

After hearing impatiently to descriptions of my binges and buy-sprees, the serious sibling came on heavily with the Big Sister act. "So this is what you do with all the money? Have you not started making plans yet?"

Save on taxes

At 23, I can't think beyond shopping and, partying. But, then, I also had quite a bit of money in the bank. "What should I do?" I asked her.

That was enough cue for Sakshi to start off on how I should invest to save on taxes, considering my near- and long-term needs. "You can save at least Rs 30,000 in taxes in a year if you invest up to Rs 1 lakh in certain eligible investments," she said. To me that translated into more visits to the Landmark book store. .

Equity-linked schemes

My thoughts were harshly interrupted by Sakshi's lecture: "Most tax-saving investments are for the long term; say, a minimum of three years. So, you have to decide how much money you can lock-in that long.

For a major part of the investment, you can consider equity-linked savings schemes. These are mutual funds that invest mainly in equity, and have a three-year lock-in period. These schemes are good investments even without the tax benefit.

"For the debt portion, Public Provident Fund (PPF) or a five-year bank tax-savings deposit is a good option. You can invest 75-80 per cent in equity-oriented schemes and 20 per cent in debt. Five-ten per cent of your savings can also go towards retirement funds."

I stared at her.

Sakshi would not relent: "Now don't look puzzled. I know at 23, you do not want to think about retirement. But it really pays to start early. You don't have to allocate extra funds, as retirement planning can be a part of your tax planning itself.

Pension plans by insurance companies and mutual funds also qualify for tax-breaks and give an exposure to equity that can pep up returns in the long run. Unit-linked pension plans have an edge as their fund management charges are low vis-à-vis mutual funds."

But what do I do if I need the money in, say, six months, one, or even two years? I may want to buy a property in two years or decide to study further or just go on a holiday.

Should I keep that money in the bank? I thought I had her there.

Short-term options

But Sakshi explained that there are better options even for short term than just keeping money in the savings bank account. "You can invest in one of those short-term debt mutual funds that allow you to withdraw at any time. They offer better returns than savings bank accounts. If you can afford to put your money away for at least a year, try investing in fixed deposits that offer special higher rates for a certain time frame, say, 390 days, 400 days and so on." Could I, with this wealth of gyan, make my money pay, as Sakshi had been doing?

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The Research Bureau,

The Hindu Business Line,

859-860, Anna Salai, Chennai-600002.

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