Micro Investments
Dawn Of The Small Investor
You can begin saving with as little as `10 a month . Aditi Jain and Pritam Goswami look at the financial options for micro savings
To start any financial planning , small investors begin with a big handicap – little money . With small means , they have few options for investing . While their incomes are meagre and unstable , they also lack access to banking services or credit . But small investors like daily wage earners , low-income group salary earners , housewives and college students can look at lowdeposit schemes for their financial security . The idea is to make a small start .
Recurring deposits
Many people with a regular income are hesitant to take the first steps towards financial planning . While the popularity of recurring deposits is waning , they are still a good bet for beginners . Several banks provide recurring deposits ( RD ) facility for customers to deposit a small amount from their income on a monthly basis . There is a fixed period for maturity , after which the account holder can withdraw the amount with interest . They can start investing anywhere from `10 a month for a fixed period of time . The lock-in period is usually between six months and 10 years .
Ashish Kumar Patel , Senior Officer at ICICI Bank , says that many of their clients come from middle income backgrounds , which include housewives and students . “ `500 is a small amount which they can deposit every month easily just by saving slowly ,” he says . Many banks like ICICI Bank offer interest in the range of 7-7.25 per cent for a 15-month lock-in period .
The recurring deposit scheme also draws tax deduction benefits . In case interest earnings exceed `10,000 a year , a 10 per cent TDS is deducted .
For the unbanked population , the RD facility is also available in Indian post offices . This means that one doesn ’ t need to go far in search of a bank , and it is particularly advantageous for those who live in rural areas . With rising inflation , the interest earned on RD is low compared to other financial instruments , but this platform is still excellent for those eking out a living below poverty line ( BPL ).
RD minimum balance `100-`500 per month
Period of maturity Six months-10 years
Interest offer 6-6.75 per cent
Systematic investment plans
Some bankers say that customers are slowly turning away from monthly deposit schemes and moving to short term plans . Others say that with the flooding of investment offerings like insurance and mutual funds in the market , the concept of systematic investment plan or SIPs is diminishing as well .
But SIP is still a good option for little investors as small amounts can be deposited on a weekly , monthly or quarterly basis for a particular period of time .
This scheme was first launched for the small investor by the Indian government and is meant for those who cannot afford to invest in lump sum fixed deposits or mutual funds . SIPs enable individuals to deposit a fixed amount of money every month for a specified time duration . These investments do not disturb monthly budgets , and yet help to save money for the future . While informed investors have the financial prowess to invest in equity mutual funds , SIP ’ s rationale is to impart financial discipline in the lives of small investors and help them tide over emergency spending .
A SIP investment should not be too high as to miss payments . Neither should it be too low to decrease returns . It also helps to have clear
There has been a shift from traditional methods of banking like FDs and RDs to mutual funds and SIPs
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Outlook Money July 2018 www . outlookmoney . com