Where to invest money? Here are some options
A plethora of investment options in market makes it difficult to choose where to invest. To simplify your decision, here is a list of popular investment options.
To simplify your investment decision, here is a list of popular investment options.
Public Provident Fund (PPF)
PPF is one of the safest options as it is a government-backed scheme. This fixed income product enjoys the exempt-exempt-exempt (EEE) status because the amount invested is deductible from your income before calculation of tax as per section 80C of the Income Tax Act, and interest earned and maturity amount are tax-exempt. You can open a PPF account with either a post office or bank.
It comes with a lock-in period of 15 years from the end of the financial year in which it was opened. One can deposit the money either as a lump sum or maximum 12 monthly deposits in a financial year. The scheme allows partial withdrawal and premature closure subject to certain conditions. The account will accept a minimum deposit of Rs 500 and maximum of Rs 1.5 lakh in a financial year. Non-deposit in a year will attract a penalty.
Also Read: Know all the rules and benefits of PPF
Also Read: 15 lesser known facts about PPF
Fixed deposits (FD)
This is another fixed income product. One can invest either in a bank FD or company FD, or both. The minimum investment amount, tenure, and interest rate offered on FDs vary among banks and companies. There is no maximum limit on the investment amount. Generally, company FDs offer higher interest rates as compared to a bank FD but risks of investing in company FDs are usually higher.
According to the Deposit Insurance and Credit Guarantee Corporation (DICGC) website, banks and all co-operative banks deposits (except for primary cooperative societies) are insured for maximum up to Rs 1 lakh per bank. Further, banks are regulated by the Reserve Bank of India (RBI). However, a company FD is an unsecured loan and repayment of principal and interest are not guaranteed in case of default.
Equity shares or stocks
Investing in equity shares is known to be risky. Therefore, one must have the knowledge on how to analyse a particular stock before making any investment decision. You can invest either via initial public offerings (IPO) where the shares are offered for the first time or in the secondary market by buying them from stock exchanges.
There is no guarantee at all of the capital you invest in buying shares or of the return from them as their price may fluctuate at any time. Financial experts advise that investment in equity should be for the long term - at least five years or more. At the same time, equity is considered an essential component of an investor's portfolio as it is viewed as one of the few investment options with returns that can beat inflation in the long run.
For those who do not have the wherewithal or bandwidth to analyse and pick individual stocks can take the mutual funds (MFs) route. MFs invest not only in equities but also in various others asset classes such as bonds, gold, and so on. Mutual funds are managed by fund managers who have professional knowledge about investing in different asset class.
Depending on your risk profile and duration of your financial goal, you can decide on the type of scheme to invest in, i.e., equity, debt, or balanced MFs etc. You can invest in MFs either as a lump sum or monthly via SIPs.
Also Read: Investing in MFs vs. Direct equity: Which is better?
Recurring deposits (RDs)
If you wish to deposit money at regular intervals while looking for safety, RD can be an option for you. It can be opened with a bank or post office. The term of an RD will vary from one bank to another. The post office offers a 5-year RD account, whereas an RD with a bank like the State Bank of India comes with tenure of 12-120 months, as per its website.
Post office savings schemes
Other than the PPF and RD, the post office offers various other schemes. These include time deposits, Senior Citizens Savings Scheme, Monthly Income Scheme, Kisan Vikas Patra and National Savings Certificate. The features, limit on investment amount and interest rates offered varies in these schemes. They are considered quite safe as they are backed by the government of India.
Also read: 5-year Bank FD vs NSC: Which is better tax saving investment?
Unit-linked insurance plans (Ulips)
Ulips offer insurance and investment under a single plan. It invests both in debt and equities. However, there are several charges that one needs to know as they affect your maturity amount. The maturity amount is tax-exempt as per current laws. Withdrawals are allowed only after expiry of the five-year lock-in period.
Also Read: MFs vs. Ulips: Who is the real winner?
Sukanya Samriddhi Yojana (SSY)
Parents of a girl child can invest in SSY for higher education and marriage purposes. The scheme was launched under the government's 'Beti Bachao Beti Padhao' campaign. The account can be opened at any post office or authorised bank branch. It has a lock-in period of 21 years. Partial withdrawals are allowed subject to certain conditions. You can invest a minimum of Rs 1,000 and maximum of Rs 1.5 lakh in a financial year.
Also Read: All you need to know about Sukanya Samriddhi Yojana
National Pension System (NPS)
Those who want pension in their retirement years can choose to invest in NPS. It is a defined contribution pension system where your contribution is invested in a mix of assets - equity, corporate bonds, government securities and alternative investment funds - as per your choice. Anyone between the age 18 years and 60 years can join the scheme.
Minimum investment amount is Rs 1,000 in a financial year with no maximum limit. The returns are market-linked; therefore, the pension amount depends on the corpus accumulated at maturity. The scheme will mature when you attain the age of 60 years. 40 percent of the corpus has to be used to buy annuity and rest can be taken as lump sum. Partial withdrawals are allowed subject to conditions.
Also Read: Does NPS suit your financial profile?
Although gold does not yield consistent returns like FDs, it is one of the most popular investment options for Indians. This is because gold is seen as something that can offer safety and stability during uncertain times.
You can buy physical gold -jewellery, coins, bars - or paper gold - gold ETFs, gold mutual funds, Sovereign Gold Bonds and digitally via Paytm and Stockholding Corporation of India. Click here to know how much gold you should hold in your portfolio and why experts say not to invest too much in gold.
Also Read: How jewellers calculate the price of gold jewellery
There are various types of bonds such as zero-coupon bonds, tax-free bonds, taxable bonds, PSU bonds, 7.75% RBI Bonds. Features of these bonds vary, therefore, before investing one must know the minimum investment amount, tenure, taxation on interest and maturity amount, and liquidity. You can buy those bonds for the first time whenever government or issuing company opens it subscription or from the secondary market.
You can buy a property to live in or as an investment to earn rental income and/or sell it at later date to make capital gains. Price of a house varies with size, locality, location, and the state of the real estate market when you are buying or selling your house. While people have reportedly made huge gains in real estate, there are several risks involved such as untimely delivery, the risk of fraud in sale/purchase, low liquidity, the fact that it cannot be sold as sub-units etc. Further, according to market experts, although the likelihood of generating similar profits as earlier in real estate is low, certain pockets may offer some scope.
Also Read: Follow these principles before buying a house
*Sovereign Gold Bonds will have matuity of 8 years