Thursday, July 3, 2008

Economy in the Grip of Spiral Inflation - Should We Invest?

With the Indian Economy experiencing 11% spiral inflation, an average Indian previously buying essentials for Rs100 now paying Rs111, the burning prices of edible oil/lentils/cooking gas/fish & vegetables making deep holes in our pockets, bus/tram/taxi/auto fares on rise - situation is really grave. In this scenario the burning question is: Should we invest and if at all we do so, where should we invest to get good returns? The following avenues may really prove profitable in this situation: -

  1. PPF (Public Provident Fund): The PPF carries 8% interest per annum & the interest is fully tax-free. In addition tax exemption benefit u/s 80 of the Income Tax Act 1961 can be availed. A maximum amount of Rs 70000 can be invested in the PPF.A minimum amount of Rs 500 p.a. need to be deposited in this 15-year term fund.
  2. Fixed Deposits With Banks: The present interest rate on Bank Deposits vary between 8.45% & 9%. Senior citizens will get between 8.70% to 9.50%. However interest on FD with Bank is taxable but the Principal amount can be withdrawn before the term period.
  3. Mutual Fund Fixed Maturity Plan (FMP): This is a Debenture / Bond based fund and is more or less similar to FD with banks. The term period can extend up to 3/6/12/14 months. The present rate of interest on 3 months FMP, after tax deduction is 8.41% p.a.
  4. Postal Monthly Income Scheme (MIS): Presently, Postal MIS lost its importance after the Bank Interest hike.8% rate of interest is currently offered & 5% Bonus can be obtained after its 6 years term period.
  5. Shares: Most risky of all investments but since the market is on the downswing, this period can be a good time for investment in IT, Pharmaceuticals, Fast Moving Consumer Goods (FMCG) Shares.
  6. Equity Based Mutual Fund: Risky like shares, but investment in Yield Fund at this stage can be profitable.

Contributed By:
Prof. Jayanta Mitra
(Globsyn Business School)

3 comments:

Unknown said...

Investment in shares through SIP can be one option.


Akash Garg
GBS AHD

Aditya said...

Investments in frontliner stks as RIL L&T at this reasonable rates is a good option, as in long run these stks will give good returns.
Outperformer asset of the year gold also seems to be a good option. I believe this high inflation will soon be normalized & again there will be talks of INDIA's high growth instead of inflation.

Sunil Bhojwani said...

Thats' great such a large options to invest in even in an economy caught in inflation. But, I personally prefer "play safe, be safe", by investing in Fixed Deposits.