Tips for Investment in India

Many Indian citizens come to the USA to settle here with their family members on family based immigration visa. They will stay for a reasonably long time here as they have their green cards and are allowed to stay in the USA as permanent residents. Such persons have to invest their money in India prior to coming here. It may not be advisable to bring their entire saving here along with them as that will substantially reduce their capital in the ratio of around 40, based on current conversion rate of US $. Moreover, the interest rate in India is much higher as compared to the USA and the money invested in India can fetch good interest rate to all such people.

There are many schemes available for the investment in India, both long term and short term. The persons living India for a long time have to invest their money, mostly in long term schemes so that they have not to bother for such investments, while they stay here. Also, such schemes have to be safe as such people are old and fall in senior citizens category and will not have any opportunity of earning in future. The suggested investment schemes are as follows.

1. Government schemes- There are many government schemes for investment in India that are very safe and pay around 8% of cumulative interest. RBI bonds, Railway bonds are such schemes. These schemes are for the period of 5 years and can be cumulative or non cumulative. If you are going to need the interest income in your hands, then, make investment in non Cumulative scheme, otherwise opt for cumulative scheme, where the interest earned by you is also reinvested, making your basic amount to grow. Some of the nationalized banks have recently started paying interest of 9% on fixed deposits for the period of 5 years. Such schemes are the best in terms of safety, being controlled by the government. However, it is difficult to withdraw money from such schemes during investment period without heavy loss of interest. It is suggested to invest around 50% of your capital in such schemes.

2. Post office schemes- The money can be invested in MIS scheme of the post office for 6 years that pays/deposits 8% interest every month in your account and the invested capital is given back on maturity. However, maximum investment of Rs. 300,000 can only be made per individual in this scheme. If you are married and stay with your spouse, you can invest Rs. 600,000 total in this scheme, which can fetch you an interest of Rs.4000 every month. Post office also offers time deposits schemes for 1, 2, 3, and 5 years. The interest rate varies from 6.25% for one year deposits to 7% for 5 years deposits. Such deposits can also be on cumulative or non cumulative basis as per your choice. There are National saving certificates available for the period of 6 years, paying the interest of 8% annually. Such certificates can give you the income tax rebate up to investment of Rs.100,000. Post office also issues KVP (Kisan Vikas Patra) that doubles your money after eight and a half year. There is a provision of withdrawing money after 3 years in KVP. This investment is also very safe as all the post offices are handled by the government. It is suggested to invest around 20% of your money in post office between MIS and KVP schemes. However, it may be noted that all post offices work manually and the working can be found very slow.

3. PPF scheme with banks/post offices- the Public Provident fund scheme is highly popular in India amongst all classes of people as the amount invested up to Rs. 100,000 is exempted from the income tax and there is absolutely no income tax to be paid on its interest income that is 8 %. The scheme duration is 15 years that may be problematic to some of old and senior people. However, 20% of the amount in your account is allowed to be withdrawn after you complete 5 years in the scheme. The account of PPF can be with some of the nationalized banks or post office. It is a good scheme if you have already opened your account at the young age. There is a maximum limit of Rs.70, 000 per year per account in this scheme. The period of scheme can be increased in the interval of every 15 years in the steps of 5 years each. The total amount of principle and the interest is income tax free at the time of withdrawal. If you are above 50 years and have not opened the account so far, it will be wise to leave this scheme.

4. Mutual funds- As stock market is going sky-high nowadays in India, mutual funds can be a very profitable investment, if made thoughtfully. The rate of return is also generally high to the tune of around 13 %. But there is a certain amount of risk involved in this investment. The positive aspect of this investment is that the dividend earned is fully exempted from the income tax. It is suggested to invest around 8% of your capital in such funds, under the guidance of some expert. Also, make sure to act fast in selling such funds when the market rates are high.

5. Stock market- the rate of return can be very high with high degree of the risk involved. It also requires close study of the market and some fast decisions. I would advise not to invest in stock market looking to these risk factors.

6. Gold, silver etc- This investment has lost its importance lately as the gold prices are not increasing rapidly at present as compared to earlier days. However, if you want to give gold to your daughter or daughter in law as per the Indian custom at the time of their marriage, you may think investing around 5 to 6 % in this.

7. Bank saving accounts- This is the liquid asset available with you for taking care of your urgent expenses. Always keep around 10 to 15 % of your money in the saving account of your bank. This amount can be withdrawn anytime through check and is to be used as an emergency fund. Though interest rate is merely 3 %, this is the most important form of investment and can save you from many problems.

All above investments are allowed till you are the resident of the USA. But when you become a citizen of the USA, the entire scenario changes as some of these schemes do not allow investments from non citizens. It also must be noted that the interest fetched from all above investments is fully taxable, except in PPF scheme. Each Indian citizen has to file income tax return every year, showing all his income.

Though many persons would feel my investment plan to be highly conservative, I still feel that it is always better to invest in safe schemes, may be with little less interest, to save your hard earned money at an old age.