SAVINGS AND INVESTMENTS.....BY: S.R.Balachandren,SL

Savings and Investments

The habit of saving and investment should be encouraged from childhood by parents.

It has the following advantages:

1. It helps to reduce unnecessary spending,

2. A uniform level of life could be maintained. That is to save when you earn more at the earlier stage and spend when your income reduces,

3. It provides funds for a scheduled event/time and

4. A proper plan for a bright future could be achieved.

It should be ensured that the savings are properly invested so that it would be safe and increases in value. Savings should never be utilised for a non-constructive expenditure (entertainment etc.), but only for enhancing assets. The following methods are available for savings:

1. Chit Funds - This was in practice in the 1960s in rural areas. Some families get together and contribute a sum every month. A contributor can take a loan from the fund and the interest received is shared by all contributors. This system helped to purchase jewellry, furniture etc. However, this system failed due to frauds committed by some members.

2. Tills - This is an interesting system for children who are given tills. They deposit coins as and when they make a saving and when the till box is opened, the entire amount is used for a special purpose.

3. Postal Savings - This is also an ideal system for small children. They can deposit money even in small amounts as and when they are available and feel proud to carry a pass book.

4. Gold Coins - The value of gold is always on the increase and therefore the regular purchase of gold coins is a good investment. This collection could be utilised for the purchase of jewellry etc.

5. Life Insurance – It is rarely that people understand that insurance premia paid on life policies is an investment. This not only gives a cover against contingencies, but results in valuable investments at maturity. At present, there are several insurance companies in competition and attractive offers are made.

Every earning family member should maintain a bank account and an insurance policy.

6. Treasury Bills - This is a commendable investment which is risk-free. Further, the income is also tax-free for individuals. The rates are also attractive when compared to other deposit rates. There was a time when purchasing Treasury Bills was difficult and was availed of only by educated persons. People had to forward their bid to the Central Bank and pay, if it was successful. That, too, only on Fridays. If the bid is rejected, one had to wait for one week, losing interest.

Currently, with the repurchase system, one can invest on any working day.

Applications are sent to primary dealers and banks, which are rendering a good service at present. Once funds are deposited, bankers will advice the investor pertaining to reinvestment, withdrawal of funds partially or full encashment etc.

7. Savings and Call or Term Deposits - Funds could be invested in Savings, Call or Term Deposits maintained by banks. However, the interest is liable for 10% withholding tax (exemption could be claimed if total income is less than Rs. 300,000/=). Normally, these rates are lower than Treasury Bill rates. However, some banks offer attractive prizes on Savings Accounts to the depositors.

It is better to allocate the funds so that one qualifies for the prizes while maximising income (capital rationing).

8. Unit Trusts - This system is now popular in India and could be operated with proper professional advice. In the case of unit trusts, you enjoy dividend income in addition to capital gain on sale of investments. Of course, capital losses may also be incurred.

9. Securities - One could purchase shares in public quoted companies. The Sri Lankan share market is fairly strong at present. On the other hand, securities could be kept as long-term investments and the investor could enjoy dividend income and increase in share value. Investors could also roll their money in the share market which requires professional advice and

10. Immovable Properties - Purchase of land and houses are valuable investments. Savings, together with borrowings, as necessary could be utilised to invest in immovable property.

One important thing to remember is not to deposit all savings in one investment. Diversification will avoid any material risk. i.e. One should not have all eggs in one basket.

S. R. Balachandran
Council Member
The National Chamber of Commerce of Sri Lanka

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