There is a hundred buck note in your wallet that you don't need. If you were to remove it, get a coffee and cake, you won't miss it. But maybe you don't know that this note of 100 is a very powerful dude. It can get you a piece of India's top ranking blue chip companies. With this you can become a creditor to the Government of India. Or you can be a fat-cat lender to India's top institutions and corporates. You choose what you want this poor misunderstood 100 bucks to do: sit unsung in your wallet or buy you a piece of the world. If you're sure you don't want to eat this note today and would like to see it flex its muscles, here is the way to go. The Public Provident Fund (PPF)You can simply add the money to your (or your spouse's or kids') existing PPF account, or open a new one, if you haven't an account yet. PPF, as you know, is a 15 year recurring deposit that currently gives 8 per cent per annum return, a tax rebate, allows you to pay no tax on the final amount and earns you compound interest. In fact, if left undisturbed, the corpus in a PPF account, after 15 years of savings, will have an interest component that is almost equal to the principal put in. You can contribute as little as Rs 500 in a whole year (or as much as Rs 70,000), so your Rs 100 can be added at any time, as you are allowed 12 contributions in a year. Part of the Government borrowing programme, PPF is a zero-risk instrument, that means that your money will come back to you. The risk, if any, is only of the interest rate falling in the next budget and in the years after that. National Savings Certificates (NSC)You can buy a NSC for Rs 100 from your neighbourhood post office, since the NSCs come in denominations of Rs 100, Rs 500, Rs1,000, Rs 5,000 and Rs 10,000. Your money earns 8 per cent per annum for six years, at the end of which you have to redeem your Certificate. You get a tax rebate today and if your interest income is lower than Rs 9,000, you pay no tax on interest earned. This too, is free from credit risk as the Government will honour its borrowings. Better still, it carries no interest rate risk because you are locked into the rate at which you buy the Certificate. Even if rates were to fall in the next budget, the higher interest NSCs you own, will continue to earn at the previous rates, unlike the PPF account or bank deposits. Kisan Vikas Patra (KVP)Your hundred bucks can buy you one KVP, that comes in denominations similar to the NSC, except that the highest KVP can be bought for Rs 50,000. Rs 100 grows to Rs 200 in eight years and seven months, giving an effective return of 8.41 per cent. A bearer instrument, a KVP can be bought from a post- office and is risk-free as it comes under the Government's borrowing programme. No tax rebates are offered on a KVP investment. You can consider it if you have already exhausted your tax-saving investment limits. Again, if you get locked into the rate today, future rate cuts in this instrument will have no impact on your existing investment. Post Office Time DepositYou can make a one year, two year, three year or five year deposit with your Rs 100 since the minimum amount for this account is only Rs 50. You can make a deposit of any amount, since there is no upper limit on the amount invested. Depending on the tenure, you get rates that range from 6.25 per cent to 7.5 per cent on your deposit. Since they belong to the Government's debt, your money is safe from credit risk. Getting locked into a higher rate today is a good idea. Post Office Recurring DepositIf you think you will have a spare hundred every month for the next five years, open a recurring deposit with the post office and get 7.5 per cent return. An account can be opened with as little as Rs 10, with no upper limit on your deposit amount. Get locked into this rate today and you won't regret it when the rates fall finally, as they must. Mutual fundsIf you are happy to move away from the assured return, risk-free environment and want higher return, you need to hike your risk-appetite. Mutual funds are efficient vehicles that allow you to buy India's top companies for small amounts. Though the entry barrier in most funds is between Rs 500 to Rs 5,000, once you have bought into a scheme, incremental amounts can be added in most schemes for as little as one Rupee. Here is a list of what you can buy: • Equity Funds: These are mutual fund schemes that allow you to invest in shares of companies without directly trading in the stock exchange or opening a demat account. You will buy units of a mutual fund scheme, the corpus of the scheme will then be invested in shares of select companies. Each unit you own, in effect, means a tiny fraction of all the shares held by the scheme, sometimes more than 50 top ranking companies in the Indian stock market. • Debt Funds: When you invest in a debt fund, the corpus of the scheme gets invested in debt paper. This could be government debt, institutional or corporate. Not only do you get a wide range of debt products in your portfolio, you also have a shot at capital growth in debt since the fund will trade in the secondary debt market, something that individuals in India find difficult to do. • Balanced Funds: To strike a balance between the return of equity and the safety of debt, you could consider a balanced fund that makes an asset allocation between debt, equity and cash. So, count your change at the end of the month and plant the spare money. Just Rs 100 a month at 8 per cent becomes about Rs 18,000 in ten years.
