How will you benefit from investing early in mutual funds?

The nation is in a mood to save. The urge to save is so high that despite numerous lost jobs, slashed salaries and dipping incomes – the income tax mopped up in FY21 is an indication — Indians are saving a lot. A research report by the State Bank of India has said that deposits in the bank rose by a whopping Rs 2.8 lakh crore in FY21. More significant, in the five weeks between April 1 and May 7, it has raced past Rs 1 lakh crore even during the savage second wave of the infection.

 All this comes at a time when the government is looking for long term funds for investment in infrastructure that would not only create economic assets but would also generate employment. This is perhaps the idea time for the government to take advantage of this urge to save in safe instruments and float fixed and guaranteed return investments offering rates that are a bit higher than the average rate of inflation.

These should ideally be tax free and there should be no upper limit for investment. According to instruments floated by the Reserve Bank of India in 2003, the interest can be payable semi-annually and also on a cumulative basis. The maturity period might be six years.

According to the instrument floated by the RBI 18 years ago, the minimum investment was Rs 1,000 and in multiples thereof. Those instruments offered 8% return. However, in keeping with the declining interest rate regime, any current instrument can carry a rate of 7% or so, just a shade lower than Public Provident Fund. The instruments called 8% Savings (Taxable) Bonds were not transferable and were not tradeable in the secondary market. Neither could those be pledged as collaterals for loans from banks and NBFCs. Nowadays one could call them ‘Reimagining India’ bonds.