GUIDANCE AND AWARENESS FOR INVESTMENT PLANNING –
Are Mutual Funds good for investments or should I look for safer options like Fixed Deposits? Such questions might be plaguing you. So many Investment options and not knowing where to invest. With this article, we are providing you a set of best investment options in India not just to get higher returns but also maintain investment security:
Table of Content:
1. Mutual Funds
2. Public Provident Fund
3. Bank Fixed Deposits
4. National Pension System
5. Recurring Deposits
6. Senior Citizens Saving Scheme
7. Unit Linked Insurance Plan
8. Gold ETF
9. Real Estate
10. Post Office Monthly Income Scheme
11. Factors to be Considered Before Investing
Top 10 Investment Plans in India
There are several factors associated with investment planning which are indicative of how much returns you can earn, how secure your investments will be and what the benefits are. Firstly, you must consider your investment horizon and goals which will further help you select from the best investment plans.
There are investment options which are suitable for Long-term financial goals, some are for short-term objectives and some facilitate tax savings. However, it is important to identify which investment product you are going to invest in and how you’re going to move ahead with it. Investments could be financial and non-financial. Financial investments include money invested in Bank deposits, mutual funds, Fixed Deposits, etc., while non-financial investments include money invested in gold, real estate, etc.
Before finalizing any investment option, it is advised that you go through all the available financial vehicles carefully and then make the right choice. Consider the risk involved and the return offered by the investment plan that you are planning to go for. Note that returns and risks are directly proportional to each other; higher the return offered, the higher the risk involved.
Let us have an insight of these investment options and their suitability-
1. Mutual Funds
Investors often end up in a dilemma when it comes to Mutual Funds. Of course, they are risky because they are market linked but higher returns cannot be overlooked. If you want to invest in markets but do not have required experience and expertise, you can opt to invest in Mutual Funds and get higher returns than many other investment options. These are market-related investments that invest money in various financial instruments such as debt, equity, stocks, money market funds, etc., wherein the returns are generated as per the market performance of the fund.
There are broadly three categories of Mutual Funds- Equity Funds, Debt Funds and Hybrid Funds each of which invest in different asset classes.
What are Equity Mutual Funds?
Equity funds are market-linked securities that invest 65% of their assets in equity and provide a higher ROI by investing in shares of companies with different market capitalizations. Since the returns offered are higher, the risk involved is also higher in equity funds.
These funds are further categorised according to Market capitalisation (Large Cap, Small Cap, Mid Cap and Multi Cap), Tax-saving Mutual Funds (ELSS) and Sectoral or Thematic Funds.
Who should invest in Equity Funds:
# Investors with High risk appetite
# Individuals looking for Long Term Investment options
# Investors seeking Tax-saving investments can invest in Equity Linked Saving Schemes (ELSS)
What are Debt Mutual Funds?
Debt mutual funds include instruments like government securities, corporate bonds, commercial paper, treasury bills and other money market instruments, wherein the investment is made under fixed-interest securities. These funds are ideal for investors who have a low risk appetite, as they offer a steady ROI.
Who should invest in Debt Funds:
# Risk averse investors
# Individuals with investment horizon of 3 to 4 years
# Investors looking for highly liquid investments
What are Hybrid Mutual Funds?
Mutual Funds that invest in more than one type of investment security, such as stocks and bonds are called Hybrid funds. This makes these funds ideal for beginners or core holdings in a portfolio for diversification. The asset allocation of hybrid funds can either remain fixed or continue to change over time.
Who should invest in Hybrid Funds:
# Conservative investors seeking low-risk investment avenues
# Novice investors who want substantial equity exposure in their overall portfolio, without taking high risk
# Investors with long term investment horizon
2. Public Provident Fund
Public Provident Fund (PPF) is a government backed investment plan which will help its subscribers to enjoy risk-free investments for the long-term. The interest rate on a PPF account is revised and paid by the Government every quarter. The current interest rate is 7.9%. There is a maturity period of 15 years under PPF. But, the money in your PPF account can only be partially withdrawn after a time period of 6 years. However, one can take a loan on the balance of PPF account.
Since this scheme is regulated by the Government, the principal amount as well as interest earned is completely secure. Also, PPF comes under the EEE category (Exempt-Exempt-Exempt) in which the principal amount, interest earned and maturity amount are exempted from tax. Contribution to PPF account (up to Rs 1.5 lakh per annum) is eligible for deduction under section 80C of Income Tax Act.
Who should invest in Public Provident Fund:
# The investments made in favour of PPF account are locked in for a period of 15 years which makes it suitable for investors seeking long-term investment options
# Investors who would like to enjoy tax rebate
3. Bank Fixed Deposits
Following the traditional investment ways, Fixed Deposits are one of the most popular options available. These deposits are made with banks, with the guarantee of offering fixed returns over a fixed period of time. As per the bank guidelines, and the tenure of FD selected by the investor which varies from 7 days to 10 years. However, individuals can also choose from available tax-saver fixed deposits available for a fixed period of 5 to 10 years.
While investing in Fixed deposits, the investor has options of either making a cumulative deposit or choosing a non-cumulative deposit. In the cumulative option, the interest gets reinvested into the principal amount and is payable at the time of maturity, whereas, in the non-cumulative option, the interest is paid to the investor as per the underwriting.
Who should Invest in Fixed Deposits:
# Investors looking for guaranteed returns
# Conservative investors with no to low risk appetite
# Investors seeking investment options with flexible tenure
4. National Pension System
Are you planning your investment for a good retirement fund but higher returns than other schemes? Here is a good option. National Pension Scheme (NPS) is a Government-backed scheme that allows its investors to invest in various market-linked instruments such as equities and debt; the final pension amount depends on returns from these investments. There is 75% to 50% equity exposure for National Pension Scheme which stabilizes the risk-return proportion for the investors.
NPS, regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA), is open to all individuals between the ages of 18 and 60; the maximum age can, however, be extended to 70. The individuals can withdraw partial amounts (up to 25%) from the NPS after 3 years of opening the account.
Who should invest in NPS:
# NPS also gives additional tax benefits up to Rs.50,000 under Section 80CCD(1B).
Investors seeking tax-saving option can opt to invest in NPS
# Investors with long-term financial requirement
5. Recurring Deposits
Recurring Deposits (RD) are term deposits offered by Indian Banks wherein the subscribers are allowed to make regular deposits and earn good returns. This instrument offers flexibility of investment by allowing the investors to choose the tenure on their own. Usually the tenure of a RD ranges from 1 year to 10 years. Individuals can open an RD account with their respective banks and proceed with deposits of fixed amounts every month. The interest earned is paid at the time of maturity along with the invested amount.
Who should invest in Recurring Deposits:
# Investors willing to make regular monthly deposits and earn interest income
# Investors seeking an investment option which is rich in liquidity factor
# People with low income can invest in RD, make small deposits every month and earn good interest at maturity.
6. Senior Citizens Saving Scheme (SCSS)
Here is a 5 year saving scheme available for Indian Senior Citizens. Under this scheme, individuals above 60 years of age can make deposits for 5 years from the date of opening the account and earn good interest on the amount. The current rate of interest for this scheme is 8.6%. The tenure of this investment instrument can be extended by 3 years.
SCSS is offering the highest interest rate as compared to other saving schemes available in India. You can get your accounts opened through Public/Private sector banks or Indian Post Offices. Moreover, it is also counted in the list of best tax-saving schemes as the investment done under this scheme is tax-deductible under Section 80C, of the Income Tax Act, 1961 up to Rs. 1.5 lakh per annum.
Who should invest in SCSS:
# Senior Citizens who are looking for investment options which gives them regular income, tax benefits and high safety
# Individuals willing to invest for long-term wealth creation with government backed schemes
7.Unit Linked Insurance Plans (ULIP)
Unlike Insurance policies, a Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that gives an investor both insurance and investment option under a single integrated plan. The investors looking for secure life plans and earning secure returns can opt to invest in ULIPs (Unit Linked Insurance Plan). Under a ULIP, the investor or policyholder can pay the premium either on a monthly or annual basis.
Similar to other insurance plans, the investors are supposed to pay an yearly premium in favor ULIP. A part of this premium is used for providing insurance cover and the rest of the amount is invested in the fund (Equity, Debt or Hybrid) chosen by the policyholder. The beneficiaries will get insurance cover or the market fund whatever is higher based on the chosen ULIP plan.
Aggressive and conservative investors can invest in either equity or debt oriented plans, respectively. While traditional insurance plans are known to offer returns of 4%-6%, Unit Linked Insurance Plans can offer you returns in double digits, specifically if invested in equity funds.
Who should invest in ULIP:
# Investors seeking dual benefits of capital investments as well as a life cover
# People who do not have much time for investing but want to save money. There are active fund managers of the ULIPs who keep track of the investment portfolio with utmost dedication
# Investors with a long term investment horizon (15 years)
Gold ETFs or Gold Exchange Traded Funds are instruments that function as a mix of stock and gold investments. These funds are traded on the National Stock Exchange (NSE) and can be bought and sold just like any other company stock. Gold ETFs are passive instruments based on gold prices, which make them completely transparent in terms of pricing.
While market-linked instruments are volatile in terms of risk, they tend to offer higher amounts of returns as well. Hence, the choice of financial instrument for the purpose of making investments should be made only after gaining complete information about the product and the market.
Who should invest in Gold ETFs:
# Investors who are willing to invest in gold markets
# Conservative investors with low risk appetite
# Individuals who want to invest in Gold but do not want to spend on making, storage and additional charges can invest in Gold ETFs
One of the fastest growing sectors in the country, the real estate sector holds huge prospects in sectors like hospitality, commercial, housing, manufacturing, and retail, etc. Retail investments are undoubtedly known to be safe investments with high returns in India. The risk involved is very low, while the chances of property prices increasing are very high. However, it is to be noted that it might get difficult to sell property quickly in case of urgent monetary requirements.
Real estate assets can be liquified as and when the investor or the owner of the property wishes to do so. Investors have the option to invest in Commercial or Residential properties or invest in Real Estate Mutual Funds to get high returns. Investments in commercial spaces such as offices or shops can not only generate higher returns but also contribute in diversifying the assets in investments
Who should invest in Real Estate:
# Investors looking for options which appreciate in value with inflation can invest in Real Estate
# Investors who are willing to generate regular rental income
# Individuals willing to diversify their investment assets
10.Post-Office Monthly Income Scheme (POMIS)
The monthly saving scheme regulated by Post Offices in India is one of the best schemes for monthly income. This is a Government backed saving scheme which allows the investors to save a specific amount every month. The maturity period of the scheme is 5 years from the date on which account is opened. Any individual who is a resident of India (not NRIs) is eligible to open a Post-office MIS account with a minimum Rs. 1,500.
Investors are free to open either POMIS account either individually or jointly. But, investors who are looking for a scheme which offers them tax-saving option cannot opt for this instrument because Post Office Monthly Income Scheme does not offer any tax rebate on the investments or maturity amount.
Who should invest in POMIS:
# Investors who are seeking fixed monthly income but are unwilling to take any risks in their investments
# It is more favourable for retired individuals or senior citizens who have landed into the no-more-paycheck zone
# Investors willing to indulge in a one-time investment to serve the purpose of getting regular income
# Investors with long-term financial goals
Factors to consider before choosing an Investment Instrument
Here are some of the key factors which must be kept in mind to execute a benefiting investment:
# Financial Goal
Financial Goal, while planning investments, is the basic factor but also the most important one. There are different schemes/plans which suit different investment goals. Are you investing for retirement? For a child’s higher education? To buy property? One must keep their goals in mind before heading towards the available options. For instance when an individual is planning his/her retirement, he would prefer a plan which gives him long-term regular income. Hence, he would like to invest in Retirement Funds or NPS etc.
# Investment Horizon
The next factor is for how long would you like to keep yourself invested- what is the investment horizon. There are schemes available according to this requirement classified under Long-Term, Short-Term and Medium-term investments. If you want to keep yourself invested for a long-time you can invest in Long-term mutual funds or PPF. And, short-term investors can choose Recurring Deposits or Debt Funds.
# Tax Benefits
Majority of investors seek options which not only save their money but also give tax benefits. In that case, you should analyse different Tax-saving investments and select the one which gives you the best of both worlds.
# Investment Risks
Some investment instruments, majorly the ones which are market-linked, are prone to some degree of risks such as Mutual Funds and NPS. Risk tolerance is something which differs in every individual. For instance, a salaried person may not be able to bear market risks but on the other hand, a businessman has that tolerance in him. One must avoid investing hastily on the assets which give higher returns and pay good attention to what degree of risk is involved in the particular investment option. Also, analyse your risk tolerance before investing your assets in any scheme.
Now, last but definitely not the least, how much will your investments grow? Of course there is no point in investing in a scheme which is not going to give you satisfactory returns. Before finalising an investment plan, review the historic returns, performance and other different factors to understand how and to what level your investments will grow in future.
In order to make smart investments, you must have in-depth knowledge of the different investment options available in the market. For most of the investors, the choice of a suitable scheme depends upon financial objective, time period, risk level, etc. Also, do not get confused between savings and investments. These are two broad terms the former refers to a passive way of saving your money whereas the latter also focuses on creating & growing wealth.