Now that we have covered why should Millennials think about investing, we are going to explore the ample investment opportunities that we have at our disposal to help save and grow our hard earned money.
Government saving schemes
Whenever the country is in need of money, it sells bonds to banks or general public. While we are not getting the historical high returns of 18.04% which we got in 1996, investors can still avail a decent annual return on their savings. Let’s get into what type of bonds are available at our National Savings Banks.
Defense Saving Certificates
These are high paying bonds and only recommended for people who know that they won’t be needing their money anytime soon as it’s maturity is 10 years. If you do decide to withdraw before completion of 1st year then you are not entitled to any profit. This bond has no investment limit and it also comes in several denominations to suit your needs, ranging all the way from 500 to 1,000,000. Current profit rates are 12.47% netting 324,000 in it’s 10 year tenure on each 100,000.
Behbood Savings Certificates
Keeping in mind the needs of the Widows, Disables & Senior Citizen above the age of 60, government launched these certificates to yield higher returns for their investors on a monthly basis instead of a lump sum amount on maturity. Investment could be started from denomination of 5,000 to 1,000,000, but a single investor can only invest up to 5 million. Service charges for early withdrawal are more forgiving from 1% to only 0.25%. Current profit rate for this bond is 14.28%, able to bring your 100,000 investment to 385,600 by its tenure end.
Regular Income Certificates
A bond for people for whom 10 years is a really long time, government launched a bond with a maturity of 5 years. You can start your investment with the smallest denomination of 50,000 to 10,000,000. There is no maximum investment limit for this bond, though profit rates are not as high. Also, if you withdraw your money before it’s maturity then service charges are deducted ranging from 0.5% to 2% of your total amount. Currently profit rate stands at 12% which in money terms is taking your 100,000 to 220,000 in 10 years.
Special Savings Certificates
For those who don’t have 50,000 lying around and 5 years to spare, this bond would appear lucrative as you can start with a low denomination of only 500 with a maturity of just 3 years and no investment limit as well. While there are no service charges of premature withdrawal after 6 months but if a withdrawal is made before 6 months then no profit is paid. Important thing to note is that profit is only paid twice every year with a rate of 12.40% i.e value of your 100,000 to 137,200 in 3 years.
Short Term Savings Certificates
This is the shortest maturity bond of 3, 6 or 9 months only with no maximum investment limit. You can purchase this bond with its smallest denomination of 10,000 to largest of 10,000,000. However, note that cash is only paid out on maturity. Currently its profit rates are at 9.98%. You can grow your 100,000 to 107,485 in a 9 month tenure. This option is best for people who have upcoming expenses but also want to fight off inflation to keep their purchasing power steady.
Normally they are considered more of a gamble than an investment, as chances of winning are always very low. Keeping that aspect of prize bonds in mind, government has also launched their Premium Prize Bond. These bonds while starting from 40,000, not only have a winning prize as high as 8 crores but also pay a 3% biannual profit to all bond holders. Point to note again is that if you do win a big prize, tax rate for filers is 15% of prize value and 25% for non-filers.
All millennials should at the very least have a savings account instead of a current account. Even if you don’t plan to save much, just having money in there is often enough to generate profit. Who doesn’t like looking at their bank statement and seeing a random 1,000 rupee profit being deposited into your account? Once again, you can reach out to your current bank and check their benefits along with profit rates, as some banks will provide you free debit card services or insurance for up to a million in case of an accident on just maintaining 10,000 monthly average balance.
If earning little monthly profit is not something that excites you and you would rather just get a big amount which you can pay back overtime, then look no further than Oraan. Committees are where a group of friends or family pool in their money and each month a random person from the group is selected who gets to take home that pooled amount. If there are 20 people in your group and each member pays 20,000 monthly then 1 lucky person gets to take home 400,000. This is a good option if you have trustworthy friends. Apart from trust factor, another big drawback of committees are that only the early ones get any benefit out of it. A group of 20 members means that it would last for almost 2 years and if you happen to be that 20th guy who gets his 400,000 at the end then you have not only lost your money’s worth to inflation but also the chance for it to grow, if you would have invested it elsewhere.
While in a committee, pool of money is given to a single person, in mutual funds the entire pool is invested by the fund manager for everyone to get a share of profit or loss at once. Of all the above mentioned options, mutual funds are the easiest to get into as you can open your investment account in roughly 5 minutes with only 500 to start with. For basic accounts with a low investment limit, there is no paperwork and to top it all off, most Asset Management Companies (AMC) will send their sales representatives to your doorstep to collect your documents to upgrade or open your investment account. In contrast to bonds, most mutual funds have no investment limit, you enjoy daily trackable profit and can withdraw anytime anywhere with a push of a button. Freedom of choice however does come at a cost. Though the rate of return is high but it is less than that of a termed deposit of let’s say 5 or 10 years. What it lacks in initial return, it makes up for itself in the long run thanks to compound interest. Compound interest grows the longer you keep your money invested. Whereas a bond may continue to give you 12% return for 10 years straight, a mutual fund can begin at 10% but at the end of the same 10 year tenure, you could be looking at a return of 18%. Furthermore, if you have a bigger risk appetite in favor of much higher returns, you can always opt in for stocks and equity funds. Instead of annualized percentage returns, these funds provide absolute returns. Just 1 point up means your money has grown or lost 1% of its value in a single day.
Lastly, as per questions from our last article, I would like to briefly mention that while government bonds offer a fixed interest, mutual funds however actually do provide you the options to choose from either conventional funds or islamic funds. Most AMCs always disclose the shariah compliant companies they invest in along with their halal investment criteria so that you can invest with a peace of mind that your earnings are riba free.
That’s it for the second episode of TechJuice Investment guide. In the next episode we are going to get into the details of all types of mutual funds that available in Pakistan. Have some questions? Post in the comments section and we’ll answer them.