When you have
surplus money to create wealth, you have several options for investment. Your
investment plan should take care of short-term requirements also, even if you
consider a long-term horizon of investment to generate higher interest income.
Addressing Short-term Needs
After one or two
years of investment, or earlier, you may require funds urgently to address
unforeseen needs. If your cash inflow is affected due to reasons like loss of
job or delay in payments from the customer, we might not be able to facilitate
funds during emergencies. During such events, we should explore our existing
investments that can come to our rescue at much lesser cost and time.
Let's explore
five most convenient long-term investment options we all have: Public Provident
Fund (PPF), EPF, Fixed Deposit, Senior Citizen Saving Scheme and Insurance
Policy.
Public Provident Fund (PPF):
Public Provident
Fund(PPF) is a type of deposit that you create with government over a period of
15 years or more. Rules associated with Public Provident Fund are generally
considered complicated, however, it offers long-term returns and restricts
avoidable expenditure.
When you invest
in PPF, you should remember that your year-counter always starts on 1st April
post your first investment, and not the date on which you opened the account.
Given below are some rules for withdrawals
and loans from your PPF account:
- Withdrawal is allowed only from seventh year and loan is permitted only between third and sixth years.
- Withdrawal is limited to 50% of minimum balance maintained by you in the last four years, while loan is limited to 25% of minimum balance maintained in previous two years.
- Premature closure is possible only after five years and that also in case of medical emergencies or children’s higher education.
Recommendation: Make sure you consider whether you have
other investment options available with you. You can use an FD Calculator to
check the future value of your PPF account if you don't withdraw funds from it.
Employee Provident Fund (EPF)
Employee
Provident Fund is the deposit made out of deduction from salary and
contribution from employer, thus creating a retirement fund.
EPF allows
withdrawals only in exceptional cases like buying a home, medical treatment,
marriage and likewise. In each case, the amount is limited by various rules,
and in most cases, it is subjected to completion of five-years subscription in
EPF.
Senior Citizen Saving Scheme
Senior Citizen
Saving Scheme is a lumpsum deposit made by individuals of 60 years or above, to
generate regular income. Anytime after one year, only premature closure is
allowed. There are no available provisions for partial withdrawal or loan in
this scheme.
Fixed Deposits
Fixed Deposits
can also be a sound investment option to meet your short-term money needs. If
you want money only for a short period, overdraft against FD is better options.
Make sure that you check current FD interest rates and previous rates to decide
opportunity cost. Nowadays, quality financial institutions provide Fixed
deposit with several investment options and flexibility keeping in mind of
long-term and short-term objectives.
Endowment Insurance Policies
Endowment
Insurance policies are meant to avail lumpsum amount after a long period of ten
years or above. When a minimum of three premiums are paid, it can come to your
rescue during emergencies.
Our Recommendation
Your decision to withdraw money depends on the purpose
of your withdrawal and amount you need to cover your short-term need. While you
make an investment plan, consider checking options given by financial
institutions to avail more flexibility for your future needs. You should make
sure to consider the age of your investment, an amount required, repayment
plan, penal interest and current FD interest rates to make a final decision. 
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