UNDERSTAND YOUR
INVESTMENT OPTIONS. WHAT SUITS YOU BEST……..
People
invest for a variety of reasons. While some invest to meet their children’s
educational expenses, others do so to fund their post-retirement life etc. But
the key aim for all is to attain financial stability over the long-term. The
typical mindset of most people is that you have to work more to earn more.
Unsurprisingly, the money would be of no use if you have no time to enjoy it.
Work can’t be cloned. More work leads to extended working hours and less time
for you and your family. The key is to invest wisely. And talking of
investments, here are the various options that you can follow.
1. PUBLIC PROVIDENT FUND (PPF)
Well this
was a no-brainer. If you belong to the salaried class or are a small business
owner, you should consider the PPF as your first option. You do not need to
explore other options before you consider this.
Investing in
PPFs is perhaps the best and most secure option to generate wealth over the
long-term. What more, the returns are entirely tax free. You can open a PPF
account in any nationalized or private bank or your nearest post office.
The minimum
annual investment is ₹500 while the maximum is ₹1,50,000. The money invested in a
PPF scheme is locked for 15 years and you earn compound interest on it. You can
extend the investment period in a block of five years. The lock-in period is
the only negative thing about a PPF account. But you may partially withdraw the
amount at the end of the sixth year. You can also take a loan against your PPF
balance.
2. MUTUAL FUNDS
Mutual Funds’
investments are generally preferred by people who want to invest in equities
and bonds with a balance of risk & return. In recent years, investing in
stock market via Mutual fund has gained huge popularity. Many people are
getting educated and want to taste the equity market. And for that, mutual
funds are the best way to enter.
One can
invest in mutual fund for longer time by systematic investment plan (SIP) and
get a much better return compared to other investment products. SIP helps to
build a portfolio over a longer time horizon with small investments at regular
intervals which reduces the risk of instability in the market.
You can, of
course, invest in lump sum. But most people usually don’t have enough money to make
a one-time investment. SIP helps in riding market instability because you
invest regularly. An SIP can be started with as little as ₹500 every month.
3. POST OFFICE
SAVING SCHEMES (POSS)
It’s
one of the safest investment instruments in India and offers the highest
return. The post office monthly income scheme is immensely suitable for retired
persons who want a regular income. You can park your provident fund money in a
post office with absolutely no risk. But the rate of interest is pretty low.
Being
a govt. savings scheme, it has very low risk. Also there is no TDS in a POSS. Post
Office offers various schemes such as National Savings Certificates (NSC),
National Savings Scheme (NSS), Kisan Vikas Patra, Monthly Income Scheme and Recurring Deposit Scheme.
Among
them, NSC for 10 years is a good post office investment option with a
guaranteed return amount. In case you don’t want to take risk and the
investment period is of 10 years, then NSC can provide a decent return on investment.
4. Bank Fixed Deposits (FDs)
A Term Deposit or bank fixed deposit as it’s
often called is a good choice if your investment period is 6-24 months. It is
very common and simple product which does not need much explanation. Also the
rules vary from one bank to another. Typically, smaller banks offer higher
interest rates. The minimum investment period is 30 days.
Pros:
Easy availability and ease of
operation/withdrawal
Good interest rate
Safety of capital
Cons:
Usually early withdrawal has a penalty
Lesser interest compared to Corporate
Deposits
5. Equity linked savings scheme
(ELSS)
If you want
to save tax besides growing your money, then ELSS is one of the best options.
Invest in top ELSS funds where the return could be anywhere near 12%, whereas
PPFs and other tax saving instruments will fetch you up to 8% returns.
Investors who can take limited risks but expect to pocket high return over the
long-term, should opt for ELSS.
Contrary to popular perception ELSS funds have generated
good returns in last 5 years. Well you can’t expect them to perform like
Diversified Equity funds or Thematic funds.
Why? Because they take comparatively lesser risk. It has
only 3-year lock-in period which is shorter compared to other 80C investments.
6. INVESTIN IN STOCKS
If you have
age on your side and open to take risks, then the stock market is the best
option. But you must do your homework regarding which stock to invest, or take
professional help. Even though investing in
direct stock is risky, but if one can invest for a long term of more than 15
years, higher return is expected.
There are 2 ways in which you can invest in equities:
Through primary market (applying for shares that are offered to
the public)
Through secondary market (buying shares that are listed on the
stock exchanges)
It is recommended that you should not make frequent trades as you
are in the market for the long run. In this way all your funds will go into
commission. As an investment option, investing in equity shares is considered
to bring a high level of risk associated with it.
Equity
Stocks have the best possibility to return the most returns if chosen wisely.
All the billionaires in the world are rich because they have either stocks or
real estate as one of investment option.
You can only
save money with conservative investment options. If you’re serious about getting rich, then
majority of portfolio should be towards high quality stocks and real estate.
It has been
proven world over that equity/shares in quality companies is the best
investment option for long-term returns. You don’t need to restrict to Indian
Equity. You can also buy shares in US and other countries or invest in some
international equity funds.
7. COMPANY FIXED DEPOSIT
Company FDs
are preferred over bank FDs for their higher interest rates. Corporate FDs are
instruments used by companies to borrow money from small investors. You need to
select the investment period carefully as the money cannot be withdrawn before
maturity.
Unlike bank FDs, the corporate
fixed deposit schemes are not covered under any Insurance benefit. These
instruments are not governed by the Reserve Bank of India. So Company FDs are
mostly suitable for those long term investors who can bear some amount of risk.
8. Initial Public Offering (IPO)
IPOs, in a
sense, are once in a lifetime opportunities. It happens only once for each
company. If an IPO is launched by a reputed company then the stock value is
almost certain to rise during listing. You can pocket a decent amount by
selling your stocks and can also stay invested for a long term. But there are
some risks though, and lack of information is one of them.
9. Bonds
If you feel
uncomfortable to invest in the equity market and mutual funds, then you can
invest in bonds. There are several good bonds in the market that provide a high
return on investment. Bonds are regulated by the government. A 10-year bond
typically offers 8% interest. Bonds, again, are a long-term investment to build
wealth over time.
10. Real
estate
The
real estate sector is still one of the most attractive investment options, even
after being hit hard by last year’s demonetisation. There are huge prospects in
the leading sectors like commercial, housing, manufacturing, hospitality,
retail and others. The value of property usually rises every six months and you
can invest in a plot of land or flat. Real estate investments carry low risk.
11. ULIP PLAN
Unit linked
insurance plans or ULIPs invest in equities and debt markets. The ups and downs
are captured by the net asset value (NAV). Although ULIPs are not recommended
product due to the various charges, but if you are investing for a long period
of time then ULIP can also give a decent return of 7-8% on investments.
Besides
that, one can also get income tax exemption on investment as well; means the
net yield will be much higher. ULIPs offer tax benefits under Section 80C.
Maximum Rs 1.5 lakhs of deduction can be claimed under this. Also the
redemption proceeds are tax-free under Section 10(D).
12. Gold/Commodity investments
Gold has formed the major portion of assets in Indian
household. From analyzing our clients and studying wealth reports, we find
Indian hold their assets primarily as real estate and gold i.e., average
Indian’s assets 80% is made of gold/realty. Gold has been considered as a hedge
against inflation for long time.
It’s good to have gold but make sure it doesn’t form more
than 10% of your overall assets. Why? Because it has no utility (other than as jewelry
which makes it primarily fashion accessory than an investment option).
You buy with a notion there will be someone else to buy at
higher price in future. Indians also don’t buy other commodities much, so we
better avoid them as it’s not for the ordinary investor.
Tip: If you consider gold as an investment option, then the
best way to invest in gold is Gold ETFs. You store it in paper format. So there
are no making charges, damages, theft issues or storage hassles.
13. National Savings
Certificate (NSC)
NSC is a popular choice among rural Indians. The minimum investment is
Rs.100 and one has option to choose 5 or 10 year period. Just like PPF, the
Indian government fixes the interest rate for NSC each year.
However, one needs to pay
interest on interest earned from National Savings Certificate. The section
80TTA removed the tax benefits of interest from NSC. That’s why we advocate to make
use of PPF instead of NSC.
Re-invest the interest from NSC to get 80C benefit. For e.g. you receive Rs 8,800 as interest from Rs 1
lakh investment in NSC. Instead of withdrawing and paying tax, you can allow it
to accumulate and show this 8,800 as re-investment next year and claim tax
deduction under 80C .Cool, isn’t it?
14. Senior Citizen Savings Scheme
(SCSS)
Probably the best
investment option plans if
you’re above 60 years. The rate of interest for Senior Citizen Savings Scheme
is nearly 8.4% now. Usually the interest is around 1% above the 10 year
government securities yield.
So for e.g.,
if the 10 year yield is 8% in a year, the SCSS interest will be 9% give or take
10 basis points.
Pros:
High
interest rate
Tax saving
under 80C
Provided
liquidity as interest is paid quarterly
Cons:
15 lakh
maximum investment limit
Interest is
taxable
Tax saving
limited to Rs 1 lakh
Some bank
FDs offer higher returns for Senior Citizens
15. MONEY MARKET FUNDS
Money Market
Funds are ideal as short-term investments options. These also called Liquid funds. As the name suggests, liquidity is the primary motto. These offer
slightly higher returns than Savings Accounts.
The returns
range from 5.5 to 9% based on the period and risk category. Liquid funds are
fairly safe investments as they invest in fixed income securities of
governments and corporates.
Money market
funds are one of largest pie of mutual fund industry. ICICI Pru Liquid
Plan and HDFC Liquid Fund are some of best liquid funds to consider for
investment in India
If you have
surplus money for 2-10 months, then consider investing in a money market fund.
Earns better interest than Savings Bank Account. The withdrawal money is
usually credited the next day or two. Also look for liquid funds with total
assets managed more than Rs.400 crores.
16. NATIONAL PENTION SYSTEM
National
Pension System (NPS) has got way more attractive than it was earlier and become
one of best investment
options now. Broadly, All individuals
between age of 18 to 60 can join the NPS.
You get tax
benefit for investment upto Rs 50,000 under section 80CCD(1B) in addition to Rs
1.5 lakh under section 80C.
The
investments are regulated by PFRDA and hence considered a safe investment
option. You can choose the percentage exposure you want to equity.
The minimum
investment is Rs.500 per month and fund management charge is very low at 0.01%.
Another long term safe
investment for conservative investors.
17. Atal Pension Yojana
Atal Pension
Yojana is a recent investment option launched ny MOdi government. Here any
Indian between 18-40 years can join the scheme.
The
government will contribute 50% of your contribution for 5 years or Rs 1000.
Whichever is lower is applicable.
But this
government contribution is only for non-income tax payers. If you want monthly
pension of Rs 5000, then your monthly contribution starting from age 20 years
is Rs 250 approx.
This is safe
investment option for lower income people for long term investments. You cannot withdraw before
attaining 60 years unless exceptional scenario.
18. DEVERSIFIED MUTUAL FUNDS
INVESTMENT
The primary
aim of ELSS is tax saving, the goal of diversified mutual funds is wealth
creation to meet goals.
Did you know
that if you had invested Rs.1,00,000 in HDFC Top 200 fund in 1996, your corpus
is worth nearly Rs 23,00,000 now. That is staggering 2200% return over 20
years. You can easily marry your daughter, put you kid through college with
this fund.
Mutual funds
are ideal for an individual investor who can’t follow the market regularly. It
allows a professional to take care of your investments. You should invest
with/for some long-term goals in mind. It provides you with diversification.
Tip: Try to
invest in a low-cost Index fund, if you want to keep your costs low. Yes, you
can dabble in active funds but the risk is also higher. In an index fund, the
only risk is the risk of stock market. The chance of all top 50 India companies
failing at same time is highly unlikely.
CONCLUSION:
Though past
performance of any product is not always a guarantee for their future
performance, then also it is advised to buy any investment product which has a
good track record over last few years and which charges low management fees.
