6 instruments that can kill your money
Making money is a lot easier as compared to keeping it. Once you are in that grind of getting regular pay cheques, you need to have the knowledge to preserve and more importantly, grow your money.
Lack of proper guidance can lead us to invest our money in bad instruments leading to gradual erosion. Although mistakes are a frequent occurrence in anyone’s life, if we do not learn from them then there is no point.
I have mentioned a few instances wherein you tend to loose out on your hard earned money.
Post Office Deposit Schemes
These are probably the oldest schemes currently available in the market. Even though NRIs are not allowed to invest in these schemes, it was necessary to give them a mention. The interest rate offered is way too low, and keep your money invested in this would lead to capital erosion.
- The interest rate offer is somewhere around 8.5%.
- It has a maturity period of 5 years.
- It does not have TDS (Tax deduction at source)
- Minimum investment amount is 1500 INR
- NRIs cannot open this account
You putting your money in FDs would result in a gradual reduction in its value. Even though it is not a good option but amongst all the other ones available, this one is still acceptable. The interest rate is quite low, but your principal amount remains untouched in that case so it is a good bet.
If you do not wish to stagnate your money, then there is no point in making a fixed deposit.
Tip: The interest earned on NRO fixed deposits will attract tax based on the prevailing laws at that time. Whereas the interest earned on NRE accounts is tax-free.
Get Rich Schemes
There are rare instances where the sales person is convincing that you end up getting duped. There is absolutely no honest way of getting rich quickly. It takes time and proper planning. So if in case someone offers you a scheme which will double your money in a few months then its probably a scam.
Now I am not against this through and through. I know someone might be really in need for some immediate cash or that someone might be a good friend or relative. Helping someone out is a good deed, but one must also be cautious and use own judgement. You must know who is in genuine need of help and who is just trying to ride on you for some cash.
The plastic cards
One of the new age inventions where you do not need any hard cash to make any transactions just swipes the card and its done. But the main element of expense here is missing. When you tend to pay in cash, you actually feel the pinch of losing something so it holds more value to you.
All that a credit card does it that it pays on your behalf, and you have to repay at a later date. But due to this quick remedy, it is very easy to get a false sense of extra cash flow. You eventually end up spending much more than needed and then regret later.
So if you wish to remain financially stable, it’s always a sensible option to keep a tab on your spendings via credit cards.
Before we go ahead, let me make it clear. By insurance plans, I specifically mean those plans which offer a set “return” on your premium. If in the event that at the end of the term of the plan or maturity of the plan, you did not use the plan at all then you are entitled to a maturity amount.
This is a totally wrong concept where the investment and insurance are clubbed together. This was also a revolutionary concept brought by the insurance industry a few years back to encourage the masses to avail insurances.
The Indian consumer has a very bad habit, he cannot understand the basic concept of an insurance. If nothing happens to him/her then what about the premiums that he paid? They have all gone to waste !!
The insurance industry understands this issue very well and they have been extremely successful in exploiting it to the fullest.
The premium charged is high and the cover provided is too low. The whole purpose of an insurance of defeated in this case. Not to mention the yearly money drain that you suffer in terms of premiums. In order to avoid such a fate, it is important to keep insurance and investment separate.
Please note that when the above points are made, that doesn’t mean that one should not invest in these instruments at all. Asset diversification is also important, just because equity gives a much higher return you cannot expose your entire portfolio to the stock market. That would be a dumb thing to do.
What I want to stress upon is that the investment should be well diversified and they should not tilt towards a particular asset class.
Happy Investing !!