Saving and investing every month is a habit that you should master as it will help you build a sizeable corpus for the future. However, investing for a long-term requires a great deal of patience, dedication, and to a certain extent, persistence. Furthermore, for an average investor in India, there are plenty of investment options to choose from. As a result, it can get quite confusing to pick a plan that will help you save for the long term.
The best way to go about this is to take a diversified approach, that is, invest your money every month in a variety of investment instruments. This not only mitigates the risk of losing all your money, but you also ensure that you are not relying on only one source for generating returns.
But then again, you are placed with the question of how much to invest and where exactly to invest that money. To answer this question, you need to consider how much risk you are willing to take, your investment timeline, and your financial goals. It is based on these factors that you should develop your portfolio. For example, if you are willing to take a high risk, then you can invest in stock markets. On the other hand, those with low-risk quotient can opt for fixed deposits and Public Provident Funds.
To help you in your quest to save, here are the some of the best investment options which are suitable for long-term:
Direct Equities, a.k.a. Stock Markets
It is a well-known fact that investing in stock markets is a risky business. As an asset class, stocks are highly volatile and there is no absolute guarantee of returns. To make things trickier, picking the right stock is quite difficult and it requires a great deal of research and fundamental analysis. However, on the bright side, equities are known to deliver far superior returns in the long run than other asset classes. Plenty of people have become considerably rich by investing in stocks and this is the reason why equities remain one of the most popular investment options.
Of course, to invest in stocks, you need to understand how to fundamentally analyse a company. You can follow sites like Bankbazaar.com, which provide an overview of a company’s stock. You may also opt for intra-day trading, that is, buying and selling securities on the same day, but that requires a great deal of skill and technical analysis. Whatever may be the case, invest in different companies across different sectors to diversify your portfolio.
If you find stock markets to be intimidating or difficult to crack, you can always opt for mutual funds. Simply put, mutual funds are trusts that collect money from people who share a common investment goal and invest it in equities, bonds, and other securities. These funds are managed by fund managers and the returns generated depend greatly on their abilities to manage the funds.
Mutual funds can be categorised into debt mutual funds and equity mutual funds. As the name suggests, debt mutual funds invest primarily in debt instruments and they are considered to be relatively safer. However, returns here may not exceed 9%. Equity funds, on the other hand, invest primarily in stocks. While they are risky, some of the best performing mutual funds houses have delivered a 3-year return of 24%.
Within mutual funds, you also have Equity Linked Savings Scheme (ELSS) which are tax-saving instruments. They are eligible for deduction under the Section 80C of the Income Tax Act and the lock-in period is 3 years.
Public Provident Fund (PPF)
In a scenario where investors have a plethora of investment options to choose from, PPF still remains one of the most sought-after investments. This is because the returns generated here are tax-free and the principal invested in this scheme can be claimed under the Section 80C of the Income Tax Act. The lock-in period is 15 years although, subscribers can opt for early withdrawal starting from the 7th year.
Investing in PPF is quite similar to investing in a recurring deposit – a fixed amount is deducted from your account every month and is invested in the scheme. Alternately, you can also invest a lump sum. However, keep in mind that in a year, your contributions cannot exceed Rs.1.5 lakh.
National Pension Scheme (NPS)
National Pension Scheme is an excellent scheme launched by the Government of India to provide financial security in old age. The idea here is to create a retirement corpus by investing regularly in the NPS over the course of your career.
Upon retirement, you can exit from the scheme by purchasing an annuity using at least 40% of the accumulated sum. This annuity would provide you with a monthly pension for the rest of your life. The remaining amount can be withdrawn as a lump sum. Needless to mention, NPS is eligible for tax deductions. This is a terrific investment option if you are looking to build a sizeable retirement fund.
Gold is considered to be an excellent hedge against inflation. This is because as the cost of living rises, so does its price. It is for this reason that every investor should allocate a certain percentage of his portfolio to gold. Keep in mind that gold jewellery may not be a feasible option from an investment perspective because of the making charges. The best way to invest in gold is through gold coins, gold Exchange-Traded Funds (ETFs) and Sovereign Gold Bonds.
Fixed Deposits (FD)
Fixed deposits are considered to be the safest investment options in India. The rate of interest varies across different tenures and owing to their safe nature, they are preferred by many people. Presently, some of the most popular banks in India offer interest rates on FDs up to 7.5%. However, the tenure, in this case, will be more than a year. Furthermore, depositors are insured up to Rs.1 lakh for both – principal and interest, as per the Deposit Insurance and Credit Guarantee Corporation rules.
Investing in real estate is another popular option that investors have in India. However, this requires quite a bit of capital and such, must be pursued only if you additional money to invest. Real estate can deliver returns in two ways – through rent and through appreciation in the price of the property. However, it is important to note that this investment is considered to be most illiquid.
The aforementioned options are some of the most popular investment options that investors generally pursue in India. As you can see, some of these instruments are linked to equities while others are based on fixed-income. In a diversified portfolio, it is important to have a combination of these to mitigate risk and generate wealth. Remember, instead of blindly following others’ investment strategies, develop your own through research.