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Investment Features Insurance-linked Investment Scheme Recurring Deposit Public Provident Fund Fixed Deposits GroupFund
Service Providers Insurance Companies Banks and Post Offices Post Offices Banks NBFC
Rate of Return No Guaranteed Return 7.00-7.50 % p.a. 8.00 % p.a. 9.00 % p.a. 11.00-18 % p.a.
Additional Benefit Risk Cover to the extent of 250 times of monthly premium Loan facility available Loan facility available Loan facility available Members can participate in Auctions held every month
Tenure Min: 10 Years. Max: 40 Years. Subject to age of Policy Holders Min: 1 Year, Max: 10 Years 15 Years, option to extend for any period in a block of 5 years Min: 1 Year, Max: 10 Years Min: 2 Years, Max: 5 Years
Minimum Investment Rs. 250 Rs. 50 for Bank Recurring Deposit Rs. 500 Rs 10,000. Min: Rs 4,000.
Maximum Investment No Limit No Limit No Limit No Limit No Limit (as entry is possible in multiple funds)
Premature withdrawal or surrender value 80% of MSA (Maturity Sum Assured) after 3 yrs upto 4th year, 90% of MSA during 5th year. Interest penalty levied, but this varies from bank to bank. Allowed to withdraw 50% of the balance at the end of the fourth year. Premature withdrawal leads to loss of interest income. Members can bid higher in Auctions held every month in order to have access to the Pot.
Tax Benefit Under Section 80C upto annual premium of Rs.100000 No Tax Benefit Under Section 80C upto Maximum Rs. 70000 No Tax Benefit No
Risk Very Low No Risk No Risk No Risk Very Low/No Risk
Interest Income Tax Free Return Taxable but No TDS Tax Free Return Taxable but No TDS Taxable but No TDS


Households can be either Surplus Units (earn more than they spend) or Deficit Units (spend more than they earn). Surplus units tend to save wisely while deficit units wish to borrow smartly. The upshot: deposit rates have to be high to attract Savers and lending rates have to be competitive to attract Borrowers. Else savers would not save or borrowers would not borrow making the entire financial system ineffective. Hence, deposit and lending rates keep changing at regular intervals to reflect this reality.

Every household has wealth in the shape of Assets and Liabilities. Assets can be land, buildings, jewelery, shares, bonds, fixed deposits, cash and bank balances, and chits. Liabilities may take the shape of housing loans, educational loans, vehicle loans, personal loans, credit cards, and chits. Assets are created out of Savings and Liabilities are the result of Borrowings. While every household would like to own Assets, sometimes it is not possible without creating a matching Liability. We may buy a vehicle or meet higher education expenses without a loan, but we cannot buy a house without a loan. If we save first and then buy a house, we will never be able to own property which we truly deserve because of housing inflation. It means property prices rise faster than our ability to save. 

Hence, housing loans allow us to buy property in that we can afford. Similarly, loans are beneficial to meet our short-term and medium-term requirements when there is shortage of cash. Sometimes, we may need to invest for the short-term/medium-term as we don’t have any purpose of utilizing funds. Against this backdrop, how does a household go about making more informed financial decisions? When should they Save or when should they Borrow? Should they avail personal loans while participating in recurring deposits program? Should they break fixed deposits and buy vehicles?  Should they participate in insurance or investments? Should they borrow and invest in shares? Should they use credit cards and buy consumer durables? Should they go on a vacation with a loan? Should they buy gold or buy gold bonds? Should they sell Assets to dispose-off Liabilities?

How does a household deal with this financial dilemma? The conservative approach to financial matters is live within your means. It means you should not borrow. Always earn first and spend next. The aggressive approach is live beyond your means. It means you should always spend first and earn next. Traditionally, Indian households had been conservative while Americans had been aggressive. In the modern day society, borrowing is no longer a taboo. In the Indian context, young generation is equally comfortable with borrowings and savings simultaneously. 

Let us review a host of financial products that are accessible to the households. Broadly, all household savings should be channelized into a productive investment. It means that all investments should generate high income to beat the loss in the value of money (read: inflation). To earn higher rate of Returns on investments, we need to bet on risky financial products (compromise on Safety). Otherwise, we should hold on to the investments for a longer period (compromise on Liquidity). To cut a long story short, financial decisions are all about striking an appropriate balance in terms of Safety, Liquidity, and Returns. Every individual should make financial decisions according to the age and stage of his life. These decisions must sustain the lifestyle even after retirement.



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