- Date : 27/10/2019
- Read: 7 mins
Confused on whether to opt for fixed income investments or high-risk investments? Here’s your answer along with a list of some best investment options
Investment is a tricky word. Some say, “In investing, what is comfortable is rarely profitable”, while others feel that investment is a means to saving and earning out of it is not a priority.
It is a common trend to get into investment with the motive of high returns and low risk. However, there is no investment plan that guarantees the dream combination of high returns and low risk. All the investment options in India follow the basic principle i.e. higher the return, higher the risk and lower the return, lower the risk. One should choose the option according to their priorities and risk-taking appetite.
However, there are myriads of investment options which can be divided into financial assets and non- financial assets. Financial assets are further divided into market-linked products and fixed income products. Market-linked products include investment plans that are linked with the market forces of demand and supply i.e. stocks and mutual funds. While fixed income products are independent of the market and include options like Public Provident Fund, Bank Fixed Deposits. Now, coming to the other part of the spectrum which is non- financial assets, it basically refers to the avenues of gold and real estate.
When it comes to the creation of long-term wealth, there are varied types of investment plans to suit every individual’s need. Some of the most rewarding of them are:
Related: Novice or expert, there’s an investment strategy for you
1. Mutual funds:
Mutual funds are the best option for someone who wants to balance risk and return as it doesn’t involve the high risk of equity shares as well as the lower risk of FD’s. Though it’s a market-linked product it balances the return risk ratio by providing an expert fund manager who invests our funds. Mutual funds are also further categorised into equity mutual funds and debt mutual funds. The current market trend for equity mutual funds’ 1-, 3-, 5-year market return is 15 %, 15% and 20% respectively. The same for the debt mutual funds is 6.5 %, 8%, 7.5%.
Related: 6 Reasons why you should invest in mutual funds
2. Equity shares:
This option refers to the direct purchase of equity shares from the market. It involves huge risk and thus needs a lot of research and risk taking capability. However, it proves to be the best investment idea if executed properly in the long term. It is a volatile asset class with a high risk of loss in capital. Also, there are certain ways of controlling that by using the option of stop-loss, choosing the right stock, planning the entry and exit and diversifying the investments.
3. Public Provident Fund:
Public Provident Fund is the safest investment option for obvious reasons.
- It is a facility provided by the government
- The interest earned is tax-free
- There is a compounding of interest
The interest rate of PPF from the year 2012-2018 ranges between 7.60%- 8.80%.
Thus, people who are looking for stability in saving should opt for PPF.
Related: Comparison of PPF and life insurance: Which comes first?
4. Bank Fixed Deposit:
This option is the most favourable and safe for the lower risk and lower return supporters. Every deposit in the bank can be insured up to Rs. 1Lakh maximum. The interest is payable monthly, quarterly or annually depending on the bank’s guidelines.
There are two types of FD’s namely cumulative and non-cumulative. In the cumulative option, the interest is further reinvested in FD and then paid at maturity of the same. While in the non-cumulative option, the interest is paid according to the terms of underwriting.
The interest rates of vary from 6.5% to 7% for FD of a year. The time period for investing in FD’s range between 7days to 10 years.
5. National Pension System:
This investment plan is incorporated by the government to provide pension solutions. It involves investing in funds into various channels such as equity bonds, government securities etc. However, the investment decisions have to be sorted by choosing one among the two options of Auto and Active. Auto refers to investing individuals funds automatically in investment channels while in Active, an individual can decide the channels he or she wants the fund to be invested in.
The time period of the scheme varies for different people as it matures only at the age of 60. Though the interest accumulated under the scheme is tax-free, if one opts for a regular pension then it is taxed as their income. However, if one opts for lump sum payment then 40% of it is tax exempt.
Related: What is National Pension System and how it works?
6. Senior Citizen’s Saving Scheme:
This scheme can be availed by anyone above the age of 60 through bank or post office. It has a time period of five years which may also be extended by 3 more years after maturity. The interest earned is taxable and the rate of interest is 8.3 % per annum. Senior citizens can open more than one account and the upper limit for investing is Rs. 15 lakhs.
7. Post office saving schemes:
This is another safe option which is most suitable for individuals with requirements of a regular monthly income. The interest rate is 7.6 % per annum.
This scheme can also be availed by anyone as the minimum eligibility age is 10 years. The maximum investment limit for a single account is Rs. 4.5 lakhs while that for a joint account is Rs. 9 Lakhs. The investors also have the option of converting a single account into a joint account.
Related: Why should you invest in the Post Office monthly income scheme?
8. RBI taxable bonds:
These bonds are issued by the government and are taxable as the name suggests. They earn interest up to 7.75 % and have a tenure of 7 years. A Certificate of Holding is given to investor as proof of investment. The bonds are issued in demat form only and are credited to investor’s Bond Ledger Account.
9. Real estate:
Real estate is one of the most preferred investment options in India. It doesn’t include the house that one resides in. It refers to extra properties other than the house which is consumed.
The returns in real estate investment come in the form of rentals as well as an appreciation of capital. Both of them vary according to the location of the investment. Also, the limitation of investing in real estate is that it is not liquid.
However, it is a good earning option with less risk and that’s why it is the most common investment option in India.
Related: Planning to invest in real estate? Here are few things you must know
10. Gold:
When it comes to India, people buy gold not just as an investment but also as a prized possession that they are extremely proud of. Buying gold as jewellery and coins come under this category. Investing in gold is a safe option however one has to make efforts to ensure its protection.
Another way of investing in gold is through Gold ETF’s which refers stocks that can be bought and sold at National Stock Exchange and Bombay Stock Exchange by keeping gold as an underlying asset. It is a safer and cost-effective way of investing in gold. Gold is an amazing investment option because of the continuous appreciation in its value.
Conclusion:
Safety and Risk are two opposite sides of a spectrum and though one can choose a specific side, it is always better to balance both of them and stay in the middle. Thus, one can invest in both fixed income products as well as market-linked products on the basis of their priority.
Investment is a tricky word. Some say, “In investing, what is comfortable is rarely profitable”, while others feel that investment is a means to saving and earning out of it is not a priority.
It is a common trend to get into investment with the motive of high returns and low risk. However, there is no investment plan that guarantees the dream combination of high returns and low risk. All the investment options in India follow the basic principle i.e. higher the return, higher the risk and lower the return, lower the risk. One should choose the option according to their priorities and risk-taking appetite.
However, there are myriads of investment options which can be divided into financial assets and non- financial assets. Financial assets are further divided into market-linked products and fixed income products. Market-linked products include investment plans that are linked with the market forces of demand and supply i.e. stocks and mutual funds. While fixed income products are independent of the market and include options like Public Provident Fund, Bank Fixed Deposits. Now, coming to the other part of the spectrum which is non- financial assets, it basically refers to the avenues of gold and real estate.
When it comes to the creation of long-term wealth, there are varied types of investment plans to suit every individual’s need. Some of the most rewarding of them are:
Related: Novice or expert, there’s an investment strategy for you
1. Mutual funds:
Mutual funds are the best option for someone who wants to balance risk and return as it doesn’t involve the high risk of equity shares as well as the lower risk of FD’s. Though it’s a market-linked product it balances the return risk ratio by providing an expert fund manager who invests our funds. Mutual funds are also further categorised into equity mutual funds and debt mutual funds. The current market trend for equity mutual funds’ 1-, 3-, 5-year market return is 15 %, 15% and 20% respectively. The same for the debt mutual funds is 6.5 %, 8%, 7.5%.
Related: 6 Reasons why you should invest in mutual funds
2. Equity shares:
This option refers to the direct purchase of equity shares from the market. It involves huge risk and thus needs a lot of research and risk taking capability. However, it proves to be the best investment idea if executed properly in the long term. It is a volatile asset class with a high risk of loss in capital. Also, there are certain ways of controlling that by using the option of stop-loss, choosing the right stock, planning the entry and exit and diversifying the investments.
3. Public Provident Fund:
Public Provident Fund is the safest investment option for obvious reasons.
- It is a facility provided by the government
- The interest earned is tax-free
- There is a compounding of interest
The interest rate of PPF from the year 2012-2018 ranges between 7.60%- 8.80%.
Thus, people who are looking for stability in saving should opt for PPF.
Related: Comparison of PPF and life insurance: Which comes first?
4. Bank Fixed Deposit:
This option is the most favourable and safe for the lower risk and lower return supporters. Every deposit in the bank can be insured up to Rs. 1Lakh maximum. The interest is payable monthly, quarterly or annually depending on the bank’s guidelines.
There are two types of FD’s namely cumulative and non-cumulative. In the cumulative option, the interest is further reinvested in FD and then paid at maturity of the same. While in the non-cumulative option, the interest is paid according to the terms of underwriting.
The interest rates of vary from 6.5% to 7% for FD of a year. The time period for investing in FD’s range between 7days to 10 years.
5. National Pension System:
This investment plan is incorporated by the government to provide pension solutions. It involves investing in funds into various channels such as equity bonds, government securities etc. However, the investment decisions have to be sorted by choosing one among the two options of Auto and Active. Auto refers to investing individuals funds automatically in investment channels while in Active, an individual can decide the channels he or she wants the fund to be invested in.
The time period of the scheme varies for different people as it matures only at the age of 60. Though the interest accumulated under the scheme is tax-free, if one opts for a regular pension then it is taxed as their income. However, if one opts for lump sum payment then 40% of it is tax exempt.
Related: What is National Pension System and how it works?
6. Senior Citizen’s Saving Scheme:
This scheme can be availed by anyone above the age of 60 through bank or post office. It has a time period of five years which may also be extended by 3 more years after maturity. The interest earned is taxable and the rate of interest is 8.3 % per annum. Senior citizens can open more than one account and the upper limit for investing is Rs. 15 lakhs.
7. Post office saving schemes:
This is another safe option which is most suitable for individuals with requirements of a regular monthly income. The interest rate is 7.6 % per annum.
This scheme can also be availed by anyone as the minimum eligibility age is 10 years. The maximum investment limit for a single account is Rs. 4.5 lakhs while that for a joint account is Rs. 9 Lakhs. The investors also have the option of converting a single account into a joint account.
Related: Why should you invest in the Post Office monthly income scheme?
8. RBI taxable bonds:
These bonds are issued by the government and are taxable as the name suggests. They earn interest up to 7.75 % and have a tenure of 7 years. A Certificate of Holding is given to investor as proof of investment. The bonds are issued in demat form only and are credited to investor’s Bond Ledger Account.
9. Real estate:
Real estate is one of the most preferred investment options in India. It doesn’t include the house that one resides in. It refers to extra properties other than the house which is consumed.
The returns in real estate investment come in the form of rentals as well as an appreciation of capital. Both of them vary according to the location of the investment. Also, the limitation of investing in real estate is that it is not liquid.
However, it is a good earning option with less risk and that’s why it is the most common investment option in India.
Related: Planning to invest in real estate? Here are few things you must know
10. Gold:
When it comes to India, people buy gold not just as an investment but also as a prized possession that they are extremely proud of. Buying gold as jewellery and coins come under this category. Investing in gold is a safe option however one has to make efforts to ensure its protection.
Another way of investing in gold is through Gold ETF’s which refers stocks that can be bought and sold at National Stock Exchange and Bombay Stock Exchange by keeping gold as an underlying asset. It is a safer and cost-effective way of investing in gold. Gold is an amazing investment option because of the continuous appreciation in its value.
Conclusion:
Safety and Risk are two opposite sides of a spectrum and though one can choose a specific side, it is always better to balance both of them and stay in the middle. Thus, one can invest in both fixed income products as well as market-linked products on the basis of their priority.
