Investment in India: Why and where to invest

Investment

Just earning money is not important in today’s world. This is where investments come to scene. Your hard earned money should be put to work so than you can live a life full of comfort and fulfil all your dreams and goals.

It is rightly said that the money kept idle is an opportunity lost. Hence it is important to invest your money in right investment avenues.

Types of Investments:

Indian investors have a variety of investment options ranging from traditional investments to some relatively newer investment options to choose from.

Here is a list of some of the most popular investment instruments in India:

  1. Stocks: Also known as shares, stocks are one of the most popular investment avenue in India. Buying shares means you buy ownership in that company and are thus participating in the company’s growth. Stocks can only be offered by the companies that are publically listed in a stock exchange. Stocks can be bought by people who are looking for a long-term investment option however investing in stock market is a speculative activity.
  2. Mutual Funds: Mutual Funds have recently gained popularity. Mutual Funds are investment vehicles where the money of many investors are pooled in and are further invested in a way to earn returns. There are different types of mutual funds that invest in different securities. An equity mutual fund will invest mainly in equity related securities, while a debt fund will invest primarily in bonds and papers. A hybrid mutual fund on the other hand invests both in equity and in debt. An investor can begin and stop investing in mutual funds as per their convenience.
  3. Fixed Deposits: Fixed deposits offer complete capital protection and guaranteed returns and are idle for investors that are risk averse. Fixed deposits are offered by banks and are available for different periods of time. The rate of interest on fixed deposit changes as per the economic conditions of the country. Investors are allowed to avail loans and overdraft facilities against fixed deposits. The tax-saving variant of fixed deposit comes with a lock-in period of minimum 5 years.
  4. Recurring Deposit: An R.D allows an investor to invest a specific amount of money every month for a period of time. Banks and post offices offer RDs for investment. The rate of interest are decided by the institution offering it. An RD offers capital protection along with guaranteed returns.
  5. Public Provident Fund: A PPF is a long term investment vehicle that comes with the tax saving benefit with a lock in period of 15 years. The PPF rate is decided by the Government of India quarterly. The lump sum amount withdrawn at the end of a period of 15 years is tax-free. PPF allows the investors to avail loans or withdraw partial amounts after certain conditions have been fulfilled.
  6. Employees Provident Fund: Just like PPF an EPF is also a retirement oriented investment avenue. It is eligible for a tax break under Section 80C of the Income Tax Act. The amount of EPF is deducted from the monthly salary of the earner and the amount is matched with the employer’s contribution towards the same. The amount of money received at the time of maturity is tax free and the rates like PPF are decided by the Government of India quarterly.
  7. National Pension System: NPS is a relatively new investment option with the benefit of tax saving. The people who invest is NPS stay locked-in till the time of retirement. An NPS can earn higher returns compared to PPF and EPF as they provide plan that invests in equities. The amount received at the time of maturity is not completely tax free. A part of the amount received at the time of maturity should be used to purchase an annuity which will give the investors a regular pension.

Where the money should be invested?

If you are new to the world of investing, it is quite natural to be confused as to where you should invest your money out of all the avenues available for investment. A wrong investment decision can lead to a financial loss which nobody ever wants in their life.

Here are some of the factors which you should consider when deciding where to invest your money:

  1. Age: Age plays an important role when you are planning to invest your money. Young people do don’t have much responsibilities on their shoulders and also have a longer time duration to invest their money. A youngster can invest in long-term investment vehicles and can also increase the amount of money they invest with time as their income increases. Therefore, a young investor can invest in equity related investment avenues like equity mutual funds. On the other hand, older people cannot handle much risk and thus should invest in safer investment options like fixed deposits.
  2. Goal: The goal behind investing the money also plays an important role while deciding the investment instrument to put your money in. the goal of investing can be both short term and long term. It can also be negotiable and non-negotiable. Non-negotiable goals are the ones which cannot be pushed back like child’s education or down payment for a house etc. For such goals investing in options promising guaranteed returns would be a good choice. If the goal on the other hand is negotiable then you can invest in equity mutual funds or stocks.
  3. Profile: The investment vehicle to invest in also is decided on the basis of the profile of the investor like what is his/her earning and how many people are financially dependent of them. For instance; a young investor with a steady income has a lot of time to invest but should not invest in equity mutual funds if he has a family to look after and to be taken care of. On the other hand, an older investor with regular income and no responsibility can very well invest in equity mutual funds.

How to plan your investments?

While planning your investment you should keep in mind the following things:

  • Do proper research before choosing the investment vehicle.
  • Don’t trust schemes that promise higher returns in a short period of time.
  • Review your investment in stocks and mutual funds at regular intervals.
  • Always learn about the tax implications on the returns you will earn from an investment.
  • Keep your investment simple and do not invest in avenues which you do not understand.

We hope that with this article we have helped you understand some of the important things related to investments. Hence, now it is your call to be smart and prudent while investing your money to generate the wealth you wish to have.

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