Start investing as early as possible. The longer you invest, the more ROI you create and can create higher wealth in the long term. Here are some of the best ways to invest your money in India:
Public Provident Fund (PPF)
An investment in PPF means you can save a lot of money you’d otherwise give away as tax. The deposits made are deductible under section 80c. Also, in addition, the interest and principal don’t have any taxes levied on them.
Public Provident fund or PPF is one of the safest bets you can make in India. Fully tax exempted this offers returns above and over inflation.
The maximum you can invest in a year is 150000. Starting 3rd year avail loans from your investment. The rate of interest is comparatively high when you see options like bank deposits. Managed by the govt of India, these are a safe choice.
You can cash out only after 15 or so years.
When you ultimately withdraw, the corpus is tax exempted. The interest is higher than that you get in most FDs. Plus interest in FDs is taxed meaning there’s no sizeable above inflation rate of return on sum invested. The real rates are negative when tallied against inflation.
For all these benefits there has to be something going against it. And there is. The only problem is PPF is not liquid. You get to withdraw or take loans against it after 6 years and withdrawal after 15 years.
National Pension System (NPS)
National Pension Scheme is available to all kinds of employees be it public or private sector. The NPS came in the wake of our government doing away with the pension scheme that employees enjoyed until death. The biggest lingering attraction with a govt. Job owed to the fact that you’d get pension for life. Now, if you want pension after retirement, better contribute to the NPS.
The scheme is uniformly available throughout India across all kinds of jobs. The money you put inside NPS is invested in equity and debt.
Up to 1.5 lakhs of money deposited in NPS under tier 1 is exempted from tax. In addition, you can get 50000 more in tax savings.
Based on the returns from equity and debt instruments you get around 8% returns. You can encash only after 60 at which point you can withdraw 60% of the amount as lumpsum. The rest is paid out to you as a monthly pension.
Just like PPF NPS is another govt. Of India backed scheme. NPS at the name suggests revolves around the idea of pension solutions. The fund invests in equity, bonds, securities as per investor’s choice.
Among the two choices auto and active, the funds get disbursed under different assets. The active option takes your interest into consideration when investing in assets.
The lock in period depends on the investor’s age and matures when the person is 60, the retirement age.
The interest is tax free. If opting for lump sum payment 40% of the returns are tax free and the rest is subject to tax. The amount if chosen to receive as regular pension is still taxable for the full amount.
Senior Citizen Savings Scheme
Senior savings scheme is for citizens of India who are above 60years of age. The interest rates are high at 8.6%. In your old age this can be one of the best investment decisions since you get an 8.6% interest rate which is better than regular savings and bank FD.
It will even beat some debt instruments. Banks and post offices both offer the opportunity. The most you can invest in the scheme is 15 lakhs
Equity Linked Savings Scheme (ELSS)
You get a higher return of 15% to 18% while investing in ELSS compared to PPF or other govt. Schemes.
One of the best ELSS’s around is Axis Long Term Growth Fund with average returns of 10% year on year. That fund has a lock in period of 5 years during which what you invested essentially doubles.
Most ELSS funds have a lock in period, a lesser lock-in period of 3 years and any earning over Rs. 1 Lakhs is taxable. That said, when you invest 1.5 lakhs into it it is exempt under section 80c. It’s taxed because of the newly introduced LTCG tax and is seen as a long term investment.
Mutual funds are another form of investment that has the potential to generate quite a bit of earnings for you. Mutual funds do carry a lot of investment risks, but the gains are worthwhile to pursue. The money you invest along with investments from others. All of this combined together form a big pool that’s finally invested into a number of instruments like bonds, equities and debt instruments. Any mutual fund will have a balance of this or an exclusive focus on equities alone. Whatever be the choice, these units grow in value in a compounded manner generating you lots of wealth after a decade or so.
If the interest rates given by PPF seem unappealing to you, you’re not alone. A lot of people think like you. Fortunately, there are some other investment options like mutual funds. These are market linked and go up and down based on the market movement.
The returns you get are directly proportional to the performance of the fund.
The risk is definitely higher. It’s added by the uncertainty and opaqueness around which most Indian companies operate. But given all the problems mutual funds still beat most other options by a long shot. COming to mutual funds there are two broad options for you.
The first one is the equity mutual fund.
Equity funds are market linked funds. Equity mutual funds provide high ROI by investing in different shares that make up india inc. Because the return is directly linked to company performance, equity funds can deliver large returns.
Again, the risk involved is higher.
With equity mutual funds don’t be fooled to imagine that all of it is invested in equity alone. 35% of the money is invested in debt and money market instruments.
The second type of mutual funds are debt mutual funds
Debt Mutual Fund
Sometimes companies raise money for themselves by selling debt. They offer higher interest than banks. It results in steady ROI to you as an investor. There’s very little risk involved with debt funds unless the company itself goes under. Debt funds are considered one of the best investment options for investors who want to gain a steady ROI. Also under these funds the mutual fund invest in fixed interest securities like govt bonds, in corporate bonds, in treasury bills and things like that. The goal is to generate capital for the govt. Or company.
Invest directly in the share market
This option is even more risky compared to mutual funds but well worth it if you take the time to study different stocks and understand the underlying triggers that translate into upswings.
Equities are the source of funding for a company. The shares expressed in terms of value and price get people interested. There’s always a chance to double or triple your capital with enough time.
Tax Saving fixed deposit
A safe investment that doesn’t carry the usual market risks is investing in tax saving fixed deposits. The interest rates vary depending on the bank you choose to go with.
The interest rates vary from bank to bank is usually between 6.2 to 8.5%
FDs are usually non tax saving. So what’s the difference here? The interest earned is still taxable. And the FD can’t be broken before a period of five years.
Unit Linked Insurance Plans (ULIPs)
At the outset itself let me tell you that ULIPs are a money sucker. Don’t invest too much into them. The idea is to cover life while also provide you earnings. Whatever premium you pay is deductible under section 80C
The returns too are tax exempt under section 10 D
The returns vary depending on the combination of equity, debt or hybrid funds.
It’s great that your returns are tax exempted and your money can grow into a large sum. That said the fees that ranges up to 4% and the management charges of 1.35% annually eat into your returns. Though you save tax, the charges aren’t worth. It’s better to keep the insurance policy separate so you have the potential for the biggest returns.
If you take a purely insurance policy you can get a good amount when the policy expires or upon death.
Bank Fixed Deposits
FIxed deposits are another option that offer a fixed amount of steady return over the tenure of investment. The returns are paid back month to month, quarterly or annually as per guidelines and interest rates set by the bank.
FDs offer cumulative and non cumulative options. Meaning the interest may or may not get compounded when paid back at the end of the period. Always go for the compounded option for higher returns.
The interests are currently 6.50% (for regular account holders) to over 7% (for senior citizens) for the tenure of 1 year.
Which investment option is the best one for you
Some of the mentioned investment routes are fixed income while others fluctuate with the market. Both investment options are essential for your portfolio as they balance the most risky ones with the least risky items and get ideal returns for you.
You don’t want to bet the house on mutual funds or equities because there’s always a chance that the stocks may not perform as well as expected. Keep your financial goals in mind first because that way you couple short and long term goals to meet these goals. Keep tax in mind and maintain a mx of risk and ingenuity.
How should you determine asset allocation
Asset here in this case simply refers to the amount of money you have with you for investments. The objective is to balance risk and returns. This is achieved by asset distribution in away that thinks of the risk the duration during which the assets will be invested and so n,
With diversification you distribute funds in a way that you reduce the risk to a minimum. The investment is routed through different assets to reduce the risk stemming from volatility.
Avoid the Most Frequent Money-Losing Mistakes
You can avoid the most frequent money-losing mistakes by keeping some important points in mind:
- Just don’t invest everything into equity or PPF
- Neither the most risk averse nor the most risk-prone wins.
- Set long term financial goals
- Start investing through SIP
Note – The aforementioned tips are applicable to all investment options.