The Covid-19 Pandemic has affected the world economy in many ways. Given job loss, falling interest rates on fiscal schemes, and excessive spending on healthcare, almost everyone is facing financial turbulence. To manage the monetary repercussions, we have compiled a list of investment and savings schemes that you can consider parking your funds in.
1. RBI’s Floating Rate Savings Bond 2020 Scheme
The Reserve Bank of India launched this scheme on July 1, 2020, given the Covid 19 situation. You can purchase the bonds if you are a resident of India. Non-resident Indians are not allowed in this scheme. You can purchase these bonds from authorized bank branches only that too in dematerialized form.
• The RBI Floating Rate Savings Bond Scheme carries an interest rate of 7.15%. This rate will be revised every 6 months.
• The rate of interest will be 35 basis points above that for National Saving Certificate (NSC).
• The lock-in period is for 7 years. However, senior citizens may benefit from a few exemptions in specific cases.
• There is no cap on investment, but the bonds are taxable under the Income Tax Act of 1961.
2. PPF (Public Provident Fund)
The interest rate is 7.1%, thus, PPF is a great option for investment during Covid-19. The contributions towards the Fund are also tax exempted under Section 80C.
• You can invest up to Rs. 1.5 lakhs. The tenure is up to 15 years.
• You can renew the account every 5 years. If you extend the tenure, there is no need for additional deposits.
• The payment can be through Demand Draft, online transfer, cash, cheque, PO, or one-time deposit not greater than 12 instalments.
3. Dynamic Asset Allocation Funds
In difficult times of a Pandemic, it is good to invest in debt or equity such as Dynamic Asset Allocation Funds. Depending on the market valuations, the funds change the allocation between debt and equity, dynamically. The funds can go 100% debt or equity.
• This is done to generate maximum returns on the risk taken.
• The return generation works in a way that when valuations are high, the funds reduce equity allocation and shift towards the safety of debt.
• This reduces the market risk, and when valuations stabilize, they shift to equity. Thus, such kind of investment can work well in the Covid-19 era because of risk-adjusted returns.
4. EPF (Employees’ Provident Fund)
Under the Employees’ Provident Fund, the employee has to pay a specific contribution towards the EPF account. The employer too contributes an equal amount. EPF contribution for employees and employers stands at 10% of the dearness allowance and basic wage for all classes of establishments under the EPF & MP Act, 1952.
• Members are allowed to take non-refundable advances from respective accounts to fulfil financial emergencies because of coronavirus-induced lockdown.
• The claims will be settled within 3 days. You can request only once in advance to fight the COVID-19 pandemic.
• You can withdraw up to 3 months of basic salary and DA. Or you can even withdraw up to 75% of the account’s credit balance, whichever is lower.
5. International Funds
Here the investment is in stocks for companies outside India. This helps with geographical diversification and reduces risk related to a specific country. Given Coronavirus, the economy has slowed down for every nation around the world. But with investment in different country equity markets, the returns are not just dependent on the Indian market alone. So, you may want to invest in the world’s biggest companies for return stability.
6. National Savings Certificate VIII Issue
The Indian Post Offices issues National Savings Certificate at an interest rate of 6.8 per cent. It is a government-backed scheme providing fixed income. NSC is a savings scheme with a minimum deposit amount of Rs. 100. There is however no upper limit on the deposit.
• The deposits under this scheme are eligible for a tax rebate as per conditions of Section 80 of the Income Tax Act.
• The interest rate is revised every quarter. It is calculated on a half-yearly compounded basis.
• The certificate is provided in a passbook via an exclusive e-mode.
7. Debt Mutual Funds
Though these Funds do not have a fixed return but offer a return equal to 4% to 6% of the invested amount. So as per your risk appetite, you can choose PSU, liquid funds, banking funds, etc during Pandemic time. If held for more than 3 years, you can even enjoy an indexation benefit with a 20% taxation rate. Then the taxation is per the existing slab rate. One of the industries to look for is Pharmaceutical and healthcare.
8. Sukanya Samriddhi Yojana
The Finance Ministry had extended the deadline by 3 months for minimum deposit in SSY for 2019-20 up to June 30 because of the Covid-19 outbreak. The relaxations had been introduced for small savings schemes in the interest of depositors.
• This is an encouragement for savings that parents can make for daughters under 10 years of age. You can invest up to 21 years.
• The maximum cap is Rs. 1.5 lakhs per year as an investment.
• The current interest rate on the scheme is 7.6%. The interest-earning and contribution are tax-free.
9. Corporate Fixed Deposits
Since the bank Fixed Deposit rates have been slashed during the Covid-19 period, you can look for top-rate Corporate Fixed Deposits instead. This will help improve your return even though the interest earned is taxable as per the slab rate. You can check out the higher return Corporate FDs. Aim for AAA-rated Fixed Deposits with low allocation amounts in marquee names.
10. Kisan Vikas Patra
The Indian Post offers KVP as a fixed return investment scheme. It is a great option during Coronavirus Pandemic at an interest rate of 6.9% per year. This rate is subject to change as per the directions of the Finance Ministry. KVP gives capital protection in volatile markets.
• You can invest in denominations of Rs. 1,000, Rs. 5,000, Rs. 10,000, and Rs. 50,000.
• The is no upper limit for investment in this scheme.
• Returns are taxable under the IT Act. TDS is exempt from withdrawals if withdrawn after the maturity period.
• This certificate is transferable from one person to another.
• The lock-in period is 30 months. However, there is a facility for premature withdrawal.
11. Index Funds
This is an equity fund. It is an excellent investment option in times when stock market indices fall down to a record level. As an investor, you can pick index fund units at a lower cost. The asset allocation is the same as that of its underlying index. It tracks the performance of BSE Sensex or NSE Nifty. The Indices contain stocks of big companies from every sector.
• The returns will be similar to that of the index being tracked.
• After the Coronavirus situation comes under control, the Indices will get better in performance with companies getting back to complete capacity.
• So, for the long term, Index Funds are good for investment.
12. Overnight Funds
You can invest in overnight mutual funds if you are not keen on risking short-term investments. Especially in times of Coronavirus, people may tend to be risk-averse. Overnight Funds are opened-ended debt funds. These invest in assets and securities that mature in one day. Thus, the exposure to risk is lower as securities mature in a few days or hours. You can enter and exit the fund during trading hours. Thus, it is a viable option for surplus funds liquid in nature. You can use the money in times of emergency easily.
To Conclude
Before you choose to save or invest, you must have complete knowledge of the particular schemes. Then you must analyze your risk appetite and need to gather surplus funds. How much do you want to save or invest for a specific period? How much return do you wish to accumulate in a specific month, quarter, year, or a shorter period? Though the Covid-19 era is a trying time, your investment and savings strategy should be pragmatic. Keep your financial goals in mind, know the liquidity requirements, and consult a financial advisor if necessary, to take the final call.
