India, with a population of over 135 crores, has a middle-class population of around 35 crores. No wonder they have to bear most of the tax and related financial burdens along with other responsibilities. To be relieved from this stress and provide a support system for your financial health, you have to have multiple income sources. Investment is one such option that can overcome the issue.
Factors to be Considered Before Investing in a Savings Plan
Before investing anywhere, one needs to consider some factors that may help choose the best and most beneficial saving plans most suited for their family's needs.
- Financial Literacy - It is certain that there are a lot of scammers always ready to cheat you and steal money. Thus, one should possess sufficient knowledge to make prudent decisions to manage one's financial matters. Being financially literate means having these understandings-
1. High priority for savings.
2. Knowledge of various financial instruments.
3. Knowledge of how the economy works.
4. Disciplined investing, into diversified asset allocation.
- Investment Time Horizon - It is the period for which an investor wishes to withhold the investment without liquifying for cash. One should have proper knowledge on what amount would be most profitable in the future.
- Risk- Return Analysis - No investment is profitable if it doesn't provide returns. The investment must be made with due diligence and after proper analysis of various schemes and saving plans.
- Wealth Goals - Investments are mostly made to achieve wealth goals that may not be possibly achieved by spending a month's salary for a middle class individual. Choose your wealth goals and then look for the most suitable saving plans worth your investment.
- Investing Strategy - Investment strategy is the guide to invest. There are some pre-written protocols, and a set of behavioural traits an investor must possess to become a successful investor. Understand those rules and follow the strategies properly before deciding on investing.
Best Investment Plans for Middle-Class Population
Here is the list of the top best saving plans for the Indian Middle-Class population.
|S. No.||Investment Asset||Return (Expected)||Risk (Expected)||Time Horizon||Tax Implications|
|1||Direct Equity Investment||Relative||High Risk||Relative||Exempt up to Rs. 1 lakh; Excess of which is taxable at 10%|
|2||Public Provident Fund (PPF)||7.90%||No Risk||15 years||Deductions up to Rs. 1.5 lakh u/s 80C; Fully exempt from tax|
|3||National Pension Scheme (NPS)||10%-12%||Low to Moderate||18-65 years||Deductions up to Rs. 1.5 lakh u/s 80C; Additional Deduction Rs. 50k u/s 80 CCD(1B)|
|4||Senior Citizens Saving Scheme (SCSS)||7.5%-8.5%||No Risk||5 years||Deductions up to Rs. 1.5 lakh u/s 80C; Interest is fully taxable|
|5||Mutual Fund Investing||Relative||Moderate Risk||Relative||Deductions up to Rs. 1.5 lakh u/s 80C (Under ELSS funds). Qualifies Capital Gains Tax.|
|6||Sovereign GOld Bond (SGB)||2.5% (+) Relative.||Low Risk||8 Years||Only Interest is taxable|
|7||Index Investing||Relative||Moderate Risk||Relative||Qualifies capital gains tax|
|8||ETF Investing||Relative||Moderate Risk||Relative||Qualifies capital gains tax|
|9||Fixed Deposit Schemes||6%-7%||No Risk||7 Days||Deductions up to Rs. 1.5 lakh u/s 80C.|
|10||Government Securities||6%-8%||Low Risk||5 - 40 Years||Deductions up to Rs. 1.5 lakh u/s 80C.|
|11||Unit Linked Insurance Plan (ULIP)||Relative||Moderate Risk||5 Years||Deductions up to Rs. 1.5 lakh u/s 80C; Furthermore the returns are exempt u/s 10(10D)|
|12||Pradhan Mantri Vaya Vandana Yojana (PMVVY)||8%||Low Risk||Relative||Not eligible for deductions. Taxable based on slab rates.|
|13||Hybrid Funds||Relative||Moderate Risk||Relative||Deductions up to Rs. 1.5 lakh u/s 80C. Qualifies Capital Gains Tax.|
|14||RBI Bonds||7.15%||Low Risk||7 Years||Qualifies Capital Gains Tax; Interest on bonds is fully taxable.|
|15||Real Estate Investing||Relative||Moderate Risk||Relative||Qualifies capital gains tax|
|16||Post Office Monthly Income Scheme (POMIS)||6.5%-7%||Low Risk||5 Years||Not eligible for deduction. Taxable based on slab rates.|
|17||Bullion Investing||Relative||Moderate Risk||Relative||Qualifies capital gains tax|
|18||Savings Account||3%-4%||No Risk||Relative||Deductions up to Rs. 10,000 u/s 80TTA. Taxable based on slab rates.|
|19||Recurring Deposit Account||6%-7%||No RIsk||6 Months||Deductions up to Rs. 10,000 lakh u/s 80TTA. Taxable based on slab rates.|
|20||Crypto Investment||Relative||High Risk||Relative||May not be treated under Capital Gain. But, it is taxable.|
It's important to note that the above list is non-exhaustive; the rates and returns are not perpetual and may change over time.
Equity Investment- Under this investment, a certain number of company shares are bought, entitling the owner to be compensated according to his ownership percentage. An individual or company that invests money into a private or public company to become a shareholder is an equity investment. It gives returns year after year if invested with care and knowledge.
Public Provident Fund- It is a no-risk investment and a most popular long-term saving-cum-investment. India's government guarantees investment in the fund and the interest rates are set by the government quarterly.
National Pension Scheme (NPS)- An investment cum pension scheme for all the employees from the public sector, private sector, and even the unorganized sector except for those who work in the armed forces. It is a saving, pension, and investment scheme, all under one basket.
Senior Citizen Savings Scheme (SCSS)- SCSS is an investment cum pension scheme for Indian residents aged over 60 years, i.e. senior citizens. The scheme can provide better returns with optimum savings.
Mutual Fund Investing- An investment where a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. It is subject to market risk, and the returns generated are purely based on market conditions and asset allocation.
Sovereign Gold Bond (SGB)- The government security issued by the Reserved Bank of India (RBI) denominated in terms of gold on a per gram basis. It is not very flexible and is traded on the gold price. However, it is more favourable than an actual gold purchase.
Index Investing is one of the best passive investing strategies that attempt to generate returns similar to a broad market index. It has to be approached as in SIP.
ETF Investing- ETF or Exchange Trading Fund involves different types of investments pooled together into a single entity.
Fixed Deposit Schemes- It is one of the most effective ways to grow savings with utmost safety, the returns are assured and remain unaffected by market fluctuations. FDs can be easily renewed and offer the highest stability.
Government Securities- It is a better form of the fixed deposit that offers better return rates to the investors. You receive full repayment of invested principal at the maturity of the security. These are government debt issuances used to fund daily operations, and special infrastructure and military operations.
Unit Linked Insurance Plan (ULIP)- Under ULIP policyholders make a regular premium payment, part of which is utilized for insurance coverage. Simultaneously, the remaining portions are pooled with assets from other policyholders; these are then invested in equity and debt instruments, similar to mutual funds.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)- A pension scheme available for senior citizens. You get an annual interest on your investment, and the subscriber will get an assured pension based on a guaranteed return rate.
Hybrid Funds- It is a classification of mutual funds or ETFs that invest in different assets or classes to produce a diversified portfolio. They may be defined as asset allocation funds. The investor can invest in multiple asset classes through a single fund.
RBI Bonds- It offers a stable and more competitive rate of return than bank savings accounts. Income earned is non-cumulative, and the interest earned is directly transferred into the savings account.
Real Estate Investing- Real estate investing is becoming more popular. An investor can become a landlord of a rental property and enjoy the returns either in rent money or other forms.
Post Office Monthly Income Scheme (POMIS)- Under this scheme, the investor invests a certain amount and earns a fixed interest every month. It is highly reliable, and a low-risk MIS and generates a steady income.
Bullion Investing- Investment is made in precious metals.
Savings Account- It is a simple saving withdrawal account with regulated access. It depends on how often you make a transaction, but it also offers exceptional flexibility that's ideal for building an emergency fund.
Recurring Deposit Account- RD account is a kind of term deposit available with banks. A fixed amount is deposited by the people having regular income monthly into an RD account. It is one of the safest investment options.
Crypto Investment- Cryptocurrencies are digital assets; it is a high-risk investment but provides higher returns than any other asset class for the past decade. You need to invest at the right time for a good return in the future.
Saving plans are a good source for accumulating wealth to have a sustainable life during retirement and compensate for the important needs of life. These plans are further used for wealth creation which is the major goal of investing. Investing at the right time and choosing the right saving plans provide a sense of relief and satisfaction and help in living a life free of financial misfortune.