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What makes a good investment option? There are several factors to measure the effectiveness of a savings and investment plan. From the flexibility of investing to the amount of tax exemption it allows – the financial plan should be aligned with your life goals. For most of the investors, if you list down, the following factors influence their investment decision:
Depending on your goals and needs, you can decide which factor has more significant to for long-term investment. Also, you cannot have the best of all worlds; every investment will have a few advantages along with the disadvantages.
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You need to invest in plans which fit the need or purpose of the investment. Thus, investment plans can be broadly divided into three types based on their possible uses:
|Growth Investment Plans||Safe Investment Plans||Income Investment Plans|
Long –term investment option
Usually aggressive, and volatile
Have a lock-in period or they do not allow premature withdrawals
Equity stocks, mutual funds, ULIPs, PPF, NPS, etc. are a few examples
Medium-term investment option
These investments keep your capital safe.
Doesn't allow withdrawal within the first few years of investment
Guaranteed savings plans, fixed deposits, etc.,
Low-risk investment option
Turns your lump sum investment into a monthly or quarterly income
Plans with a small equity allocation
Pension plans, Senior Citizen Savings Scheme, POMIS, etc.
Generally, investment plans help you attain your life goals if you choose them as per the financial plan that you have. Whether you have a short-term or long-term financial goal, consider your financial milestones and choose a plan accordingly.
Let us consider the below-mentioned top investment options in India.
Direct equity stocks are one of the best investment options for aggressive investors. Investing in listed equity stocks of companies on the stock exchanges is known as Direct Equity investment. You can get capital gains or dividend returns from the direct stock investments. Performance of stocks depends on factors such as market position, company’s performance, etc.
You need to have a bank account and a Demat account to start investing in this. Also, if you want to invest and benefit from stock investments consistently, you must have a high risk appetite. Understand the functioning of equity stocks and markets before you start investing.
Equity mutual funds are primarily invested in equity stocks and related securities. These are one of the best investment options in India for small investors who want to benefit from equity market growth. You can start investing in well-diversified portfolios of equity stocks with as little as Rs 500 through equity mutual funds.
These funds can invest anywhere between 70 to 95% of the fund value in equity stocks and related instruments. Since these are equity-based, they offer a high risk-return ratio. Typically, there are two types of equity mutual funds:
In these types of funds, the fund manager is actively involved. The expertise and capability of the fund manager play an important role in the performance of this fund. They choose the stocks that the fund will invest in based on research and analysis. Active funds are considered riskier than passive investment options.
In this type of fund, the fund manager doesn’t play a major role. The fund is based on a particular index or market portfolio. For example, a fund that is built up of stocks of NIFTY50, etc. The performance of the index determines the performance of this fund.
Debt mutual funds or bond funds are investment options to consider if you do not have a high-risk appetite or want to avoid volatility. These are also a diversified portfolio of fixed-income securities.
In Debt Funds, the amount is invested in fixed-income securities including government and corporate bonds, debentures and other long-term fixed-income securities. Depending on the type of securities held in the portfolio, funds can have a varied risk profile. You should check the ratings of the securities held by the fund to assess the risk before investing.
Funds with top-rated securities or government bonds are suitable if you want the stability of returns with less risk. Thus, you can consider debt funds when:
Note that the risk of changing interest rates will still be present in all debt funds.
National Pension System is one of the government backed investment plan designed to help you secure your retirement financially. It is regulated by Pension Fund Regulatory and Development Authority (PFRDA).
This helps you to create a strong retirement corpus at your disposal. You can use the NPS retirement account as a salaried or self-employed investor.
There are two types of NPS accounts
The primary difference between NPS and other provident fund investments is that NPS allows you to build your corpus aggressively. It follows an auto-rebalancing method to maintain a portfolio with a declining risk as you age. Additionally, you can avail of a deduction of up to Rs 2 lakhs for your contribution.
The risk-return on NPS investment will depend on the portfolio mix you choose and the length of time you stay invested. Thus, this retirement investment option works well for both risk-averse and aggressive investors.
PPF is one of the most popular and best investment options for people considering to put their money into safe investment options. The 15-year plan is the best investment plan to safely achieve your long-term life goals. Originally, introduced as a safe retirement investment plan for self-employed, the plan has been popular for long-term investors, because it provides:
You can claim a deduction under section 80C up to Rs. 1.5 lakhs. Also, the maturity value is tax-free.
You can borrow from the accumulated corpus within the first 5 years of the account. After 5 years partial withdrawals are allowed.
Low-risk investment with a market-linked rate of interest, which is revised every year.
Minimum of 15 years, after that you can extend the account in batches of 5 years.
Know more about Public Provident Fund.
Bank fixed deposit is another popular investment options in India that ensures the safety of your money and provides stable returns. You can invest a lump sum amount and it will offer a fixed rate of interest for a specific term. After your term is over, you will receive the principal with compound interest added over the term.
Consider the following things while investing in a bank fixed deposit:
Senior Citizen Saving Scheme or SCSS is one of the investment options, which help investors fulfill their retirement goals as it helps generate a stable income. It is one of the small saving investment options and you can invest a lump sum in this scheme after turning 60. You will receive a fixed interest pay-out every quarter.
You can open an SCSS account in 2 ways:
It is a very popular investment option for senior citizens due to its guaranteed and attractive returns. The current rate of returns is 7.6% (Q3 FY 2022-23). These rates are subject to change quarterly.
Here are some features of SCSS you should know:
A Unit Linked Insurance Plan (ULIP) can be considered as an investment option as it provides insurance along with an avenue for investment. A part of the premium paid by the policyholder goes toward the life cover, and the other part goes towards the funds chosen by the policyholder. This life insurance plan offers market-linked returns, and hence, an investor should weigh in both the pros and cons of the plan before investing in it.
Canara HSBC Life Insurance Invest 4G is a ULIP that offers life cover and market linked returns. It has 8 fund options to choose from with partial withdrawal option.
Real estate is a good investment option in India. It is, however, usually a big-ticket investment. The investment refers to buying properties such as homes, plots and land. This is one of the best investment options that can help you combat inflation. Investing in this can give you a shot at both regular as well as capital gain income.
You can put the building you have purchased for rent and earn a secondary income. This will ensure that you get monthly rent in form of returns. If your property has appreciated, then you can sell it for a higher price and can get a capital gain.
There is a famous saying that there are 3 things important in real estate and they are, ‘location, location, location’. This is the predominant factor that decides the success of your real estate investment.
Having real estate at a good location may be expensive but can also get you a higher price for rent and has better chances of appreciation.
RBI Bonds are one of the safest investment options in India. The Reserve Bank of India, i.e., RBI issues bonds to the public to raise money for the development of various government projects. These bonds have a specific term. After maturity, money is returned along with the interest generated.
You can buy these bonds from any of the 12 national chains along with 4 private banks. To acknowledge your debt, RBI will issue you a certificate of holding. This certificate will act as proof upon maturity.
Pradhan Mantri Vaya Vandana Yojana (PMVVY) is one of the investment options available for the financial safety of senior citizens, i.e., those who are 60 and above. It helps you with a regular income stream after the age of 60.
It also offers interest of 7.4% per annum but it has longer validity. This is the ongoing interest rate that is available till March 31, 2023.
Here are some features of PMVVY for which you may consider this investment option:
In India, Gold is often seen as a go-to investment option to keep a family’s legacy safe. But rising costs and making charges have now made it almost impossible to buy gold as a family heirloom.
Instead, investment options like Gold ETFs allow you to build gold purchasing power gradually over time. These are commonly known as ‘paper gold’. It contains gold stocks and investments. Unlike expensive gold, these can be brought according to your capacity from the stock market.
Since this is an ETF, i.e., Exchange Traded Fund, this is managed passively. It mirrors the physical gold price movement of the same quality. The higher the gold rates, the higher the ETF’s NAV will grow.
Thus, if you invest a small sum regularly in SIP mode, you can accumulate more units at lower prices.
Guaranteed saving or income plans offer life cover along with guaranteed returns to help you achieve the milestones of life easily. For example, Canara HSBC Life Insurance iSelect Guaranteed Future is a life insurance cum savings plan that allows you to build a corpus over a period of time (as chosen by you), to help you attain your goals.
The returns are guaranteed based on the investment period and the number of annual contributions that you make.
In any investment plan, the amount of returns depends on the time for which you stay invested in it. The longer your term, the better the returns you can expect. Also, it is worth keeping in mind that plans that guarantees higher returns have higher risk of investment. However, if a plan doesn’t offer a high rate of return, it offers a nominal return amount. So, it can be said that rate of return is indirectly proportional to the guarantee of return.
Typically, the investment plans that offer high returns do not guarantee on the returns. And the longer you stay invested in a plan; the chances are high that you will get better returns.
Saving and investment plans are an integral part of a financial planning as they help to build corpus for the life goals. However, as there are multiple options to invest in, you cannot expect to find a “One Size Fits All” plan. You should find options that fit your goals and milestones.
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