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Investing money simply means planning to accumulate money or build a corpus for one’s financial goals, which can be many like buying a car, house, retirement plan and more. There are many ways for investing money, like Fixed Deposits (FD), Recurring Deposit (RD), Post office, Public Provident Fund (PPF), National Pension Scheme (NPS), Mutual Funds and many more, through which a large section of investors in our country is investing their money.
Despite so many options for investing your money, there is still a section of people that back out from the notion of investment, just for the reason, in many of the investment ways like FD’s, RD’s, post office, NPS, PPF, the invested money get locked, till its maturity period, and when the investors withdraw the money before the maturity, they face two difficulties:
- They have to pay the penalty.
- They do not receive the calculated returns.
Well, if you too have the same reason, then you need to know about mutual fund investment. In Mutual Fund Investment, the invested money is not locked up, rather it is managed by the professional managers. The professional managers invest your fund, in money-making instruments and stocks, so that your investment can earn returns for you.
Let’s understand how your invested money is treated in different investment structures and how much you are accessible to your money:
1. Fixed Deposits: In Fixed Deposits or FD’s, the money invested is locked until its maturity period. The FD investors are not allowed for any early or premature withdrawals. However, if the investor is in the need of money and wants to withdraw money, before the maturity period, they would have to break their FD account, which will cost them a premature withdrawal penalty. The penalties range from 0-15% of the initial invested amount.
2. Recurring Deposit: In Recurring Deposits or RD’s, the money invested, is locked until its maturity period. A bank that offers the facility of opening a recurring deposit account, do offer the facility, premature withdrawal but with a penalty, that is charged by the bank. Also, the interest payable on returns will be calculated based on how much of the tenure is completed.
3. PPF: PPF or Public Provident fund, is a kind of tax-saving instrument, as per Section 80C. The invested amount in PPF is locked for 15 years, as these funds do contain a lock-in period of 15 years. Premature withdrawal is allowed in PPF, but after 5 years of investment, only if you can furnish proof of medical or another emergency need. Partial withdrawals are allowed penalty-free after seven years.
4. NPS: National Pension Scheme or NPS, is also a kind of tax-saving fund, and it is the best suitable fund for the retirement plan. As a pension scheme, it is important for you to continue investing until the age of 60. However, there is an option for partial withdrawal of 25%, after the three years of investment, for certain purposes like children’s wedding or higher studies, building/buying a house or medical treatment and more. Also, you cannot withdraw the entire corpus of the NPS scheme after your retirement, you must keep at least 40% of your corpus, aside, in order to receive a regular pension from a PFRDA-registered insurance firm.
5. Mutual Funds: Mutual funds are considered best for long term investments and give good returns over a long period, but these funds are fragile in nature. An investor investing in mutual funds has complete access to their funds, that is if the investor of a mutual fund, faces any drastic situation in the midterm only, then he/she can easily withdraw their units of a mutual fund from the market. They do not have to pay any kind of pre-withdrawal penalty, or any kind of exit load, only, when the investor withdraws their money before maturity, in that situation, the returns generated would be calculated based on the current market value of the asset purchased.
Also, in mutual funds, there are funds that come with a very short maturity of up to 91 days, which is Liquid Funds. If a long-term investment is not fit for you, you can consider your investment in Liquid Mutual Funds.
As of now, you must have understood that in mutual funds, your money is locked, but the key of the locker is with you, you can take out your money, at the time when you need it. So, plan your investment in mutual funds, and feel the joy of money growth, with complete access to your invested money.
Most importantly, always consult a financial planner or advisor, before starting your investments. They will help you select the best fund, for your investments as per your requirement.
You can also contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).