Investments are important because in today’s world, just earning money is not enough. You work hard for the money you earn. But that may not be adequate for you to lead a comfortable lifestyle or fulfill your dreams and goals. To do that, you need to make your money work hard for you as well. This is why you invest. Money lying idle in your bank account is an opportunity lost. You should invest that money smartly to get good returns out of it.
2. Types of Investments in India
The Indian investor has a number of investment options to choose from. Some are traditional investments that have been used across generations, while some are relatively newer options that have become popular in recent years. Here are some popular investment options available in India.
Stocks, also known as company shares, are probably the most famous investment vehicle in India. When you buy a company’s stock, you buy ownership in that company that allows you to participate in the company’s growth. Stocks are offered by companies that are publicly listed on stock exchanges and can be bought by any investor. Stocks are ideal long-term investments. But investing in stocks should not be equated to trading in the stock market, which is a speculative activity.
Mutual funds have been around for the past few decades but they have gained popularity only in the last few years. These are investment vehicles that pool the money of many investors and invest it in a way to earn optimum returns. Different types of mutual funds invest in different securities. Equity mutual funds invest primarily in stocks and equity-related instruments, while debt mutual funds invest in bonds and papers. There are also hybrid mutual funds that invest in equity as well as debt. Mutual funds are flexible investment vehicles, in which you can begin and stop investing as per your convenience. Apart from tax-saving mutual funds, you can redeem investments from mutual funds any time as well.
Fixed deposits are investment vehicles that are for a specific, pre-defined time period. They offer complete capital protection as well as guaranteed returns. They are ideal for conservative investors who stay away from risks. Fixed deposits are offered by banks and for different time periods. Fixed deposit interest rates change as per economic conditions and are decided by the banks themselves. Fixed deposits are typically locked-in investments, but investors are often allowed to avail loans or overdraft facilities against them. There is also a tax-saving variant of fixed deposit, which comes with a lock-in of 5 years.
A recurring deposit (RD) is another fixed tenure investment that allows investors to put in a specific amount every month for a pre-defined period of time. RDs are offered by banks and post offices. The interest rates are defined by the institution offering it. An RD allows the investor to invest a small amount every month to build a corpus over a defined time period. RDs offer capital protection as well as guaranteed returns.
Public Provident Fund
The Public Provident Fund (PPF) is a long-term tax-saving investment vehicle that comes with a lock-in period of 15 years. Investments made in PPF can be used to earn a tax break. The PPF rate is decided by the Government of India every quarter. The corpus withdrawn at the end of the 15-year period is completely tax-free in the hands of the investor. PPF also allows loans and partial withdrawals after certain conditions have been met.
Employee Provident Fund
The Employee Provident Fund (EPF) is another retirement-oriented investment vehicle that earns a tax break under Section 80C. EPF deductions are typically a part of an earner’s monthly salary and the same amount is matched by the employer as well. Upon maturity, the withdrawn corpus from EPF is also entirely tax-free. EPF rates are also decided by the Government of India every quarter.
National Pension System
The National Pension System (NPS) is a relatively new tax-saving investment option. Investors in the NPS stay locked-in till retirement and can earn higher returns than PPF or EPF since the NPS offers plan options that invest in equities as well. The maturity corpus from the NPS is not entirely tax-free and a part of it has to be used to purchase an annuity that will give the investor a regular pension.
3. Where should you invest your money?
Since there are so many types of investment vehicles, it is normal for an investor to get overwhelmed. Someone new to investing would not where to invest their money. Making the wrong investment choice can lead to financial losses, which is something that no one wants. This is why you should use the following factors to decide where to invest your money.
Typically, younger investors have fewer responsibilities and a longer time horizon. When you have a long working life in front of you, you can invest in vehicles with a long-term view and also keep increasing your investment amount with an increase in your income. This is why equity-oriented investments like equity mutual funds would be a better option for young investors, as compared to something like fixed deposits. But on the other hand, older investors can opt for safer avenues like FDs.
Investment goals can be either short-term or long-term. For a short-term goal, you should opt for a safer investment and use the return-generating potential of equities for long-term goals. Goals can also be negotiable and non-negotiable. For non-negotiable goals like children’s education or down payment for a house, guaranteed-return investments would be a good choice. But if the goal is negotiable, which means that it can be pushed back by a few months, then investing in equity mutual funds or stocks can be beneficial. Plus, if these investments do really well, then you can even meet the goal before time.
Another thing to think about when choosing an investment option is your own profile. Factors like how much you are earning and how many financial dependants you have are also critical. A young investor with a lot of time on hand may not be able to take equity-related risks if he also has the responsibility to take care of his family. Similarly, someone older with no dependents and a steady source of income can choose to invest in equities to earn higher returns.
This is why it is said that when it comes to investments, one size doesn’t fit all. Investments not only have to be chosen carefully but also planned properly to get the most out of them.
4. How should I plan my investments?
The first step in planning your investments is to figure out the right investment that fits your profile and needs. Here are a few things to keep in mind when planning your investments:
Choose investments carefully after doing adequate research
Don’t fall for quick-buck schemes that promise high returns in a short time
The ClearTax lease calculator allows you to calculate monthly lease payments, total payments, and total interest paid. Just enter the required details such as asset value, residual value, lease term and interest rate to get the results.
Use ClearTax down payment calculator to know how much amount you need in hand to purchase an asset. Enter the required particulars and get to know the cash needed, down payment, processing fee, loan amount and monthly payment.
Use ClearTax future value calculator to calculate the future value of initial and periodic investments at a specific interest rate. You can get to know the total investment made, and the total interest earned.
Use ClearTax interest calculator to calculate simple and compound interest. Simply, enter the details of the principal amount, interest rate, period, and compounding frequency to know the interest earned.
Digital gold is issued by the state-owned MMTC (Metals and Minerals Trading Corporation of India), which is associated with PAMP (Produits Artistiques Métaux Précieux), Switzerland, who is a global leader in branding bullion. By investing in digital gold, you purchase 24K 99.9% pure gold digitally.
You need to have a margin account with the broker to avail the margin trading facility (MTF). The margin varies across brokers. Margin trading is a facility under which you buy stocks that you can’t afford. You are allowed to buy stocks by paying a marginal amount of the actual value.
In a SIP, you can set aside a small amount of money monthly or quarterly rather than investing a lump sum. On the other hand, an RD lets you deposit a fixed amount each month for a predefined duration. At the end of the tenure, you will get back the principal amount and the interest.
Top 6 Safe Investments in India that offer good returns. With a plethora of options to choose from, it's quite obvious that one would not be sure of where to invest. To term a particular investment avenue as the ‘best’, we need to analyse one’s requirement and risk appetite.
Traditionally, the Indians are conservative investors, and they generally don't prefer investing in risky investment options. However, the trend is changing of late. Stock markets, mutual funds, and corporate bonds have become a viable investment option in India.
A trading account is used to buy or sell equity shares in a stock market. Previously, the stock exchange functioned on the open outcry system. In this, the traders used hand signals and verbal communication to convey their buying/selling decisions.
Under dematerialisation, your share certificates are converted from physical form to electronic form so as to increase their accessibility. You need a Demat Account number to settle trades electronically. Having a Demat Account allows you to buy shares and store them safely.
Derivatives are financial contracts whose value is dependent on an underlying asset or group of assets. The commonly used assets are stocks, bonds, currencies, commodities and market indices. The value of the underlying assets keeps changing according to market conditions.
Stock market terminology relates to industry-specific jargons which are used in the stock markets regularly. Even the experts and amateurs use these terms frequently to explain trading strategies, indices, stock market patterns and other components of the stock trading industry.
Equity Linked Saving Schemes under the new tax regime have lost their prior tax-free status, but despite these might still be one of the best long term investment options available. Tax free options like PPF and ULIPs do not match to ELSS in generating the returns ELSS can.
Getting a raise is a right time to make smart investing decisions. Understand how even the smallest of increase in your Systematic Investment Plan can help generate greater returns for you to achieve your financial goals. If you have an SIP, increase your monthly contribution to the same as your inc
For those of you wondering how to become a crorepati in 10 years time, one point to note is that the earlier you start investing towards your future the sooner you will reach your goal. Here we have few tips and guidelines to help you accumulate your first milestone through systematic and discipline
A stock market is a platform where investors can buy and sell the shares of publicly traded companies. If you want to invest in the stock markets you must first understand how this market actually works. Here we give you an insight into how the stock markets function.
Financial planning or the lack of it in your 50s can either make or break you. This decade is particularly significant as you need to make provisions for your retirement, have funds for your children’s education, have reserves for emergencies and of course save enough for a comfortable future. Here
Financial planning can seem like a daunting task for many but it doesn’t have to be that way anymore. In your 40s, your priorities and your goals will be very different from that in your 20s or 30s and hence your planning must also take this into account. To help you build your wealth and have a sol
Fixed Income Investments - Here we have compiled some of the best-fixed income investment options that are on offer in India. The list includes some well known as well as some lesser known funds and schemes that can be availed by Indian citizens.
When stock split takes place, there is an increase in the number of shares of that company without any change in the market capitalization. The number of shares during a stock split goes up but the price per share goes down.
When an investor subscribes to the equity share of a company, he becomes a shareholder. For the company, such a contribution is like a liability on which it needs to give returns to the shareholder. Investors earn returns in equity investments by
Gilt funds are those funds which invest in fixed-interest generating securities of the central and state governments. You earn returns from gilt funds in the form of interest accrued and capital appreciation on the amount invested.
ISIN Code Search - The International Securities Identification Number (ISIN) is a unique code that is used to identify specific securities you can serach the fund hiuse name and ISIN number here . Learn more about it here...
The CRR or the Cash Reserve Ratio is the share of a bank’s total deposit to be maintained with the latter in the form liquid cash. This is mandated by the RBI with the latter in the form liquid cash. Know about CRR objective, working impact on economy & how is it different from SLR.
Tax-free bonds are types of goods or financial products, which the government enterprises issue. One example for this is the municipal bonds. They offer you a fixed interest rate, and hence is a low-risk investment avenue.
Non Convertible Debentures are scheme that proved to be a dark horse as they started delivering smaller but steady returns over time. Like traditional corporate FDs, NCD too is a fixed-income investment with a specific term and interest income.
KYC / Know your Customer is a one-time exercise that needs to be done to invest in mutual funds & various other applications. Find out the procedure to get it done online through Aadhaar, documents required, learn eKYC with ClearTax and how to check KYC Status.