Know your investing options. All you need to know
Earlier we discussed the cookie jar investment method. In this article, we will discuss more investing options.
Every investor wants to put their money into the best investment alternatives to get the best returns. Some people invest for financial security, while others meet their investment objectives.
Your investing alternatives are dependent on your risk tolerance, investment horizon, financial goals, and liquidity requirements.
In reality, risks and returns are precisely proportionate. That means the greater the risk, the greater the likelihood of returns will be. There are primarily two kinds of investment opportunities in the country.
That is financial and non-financial assets. We can further split financial assets into market-linked assets such as mutual funds, stocks, and ETFs. Some fixed-income products are bank FDs, PPFs, and Bank RDs.
Gold investments, real estate, Treasury bills, and other non-financial assets are also examples.
Let us now see which of these different investment options are suitable for India’s various categories of investors.
Investment options for housewives
Housewives are often left behind in the race to make investments. However, there are many options in which a housewife can put her savings to grow her money.
Some of the best options are investments in direct equity (if they have a relative level of experience) and mutual funds. By investing in mutual funds, they can reap the benefits of professional management of their money and diversification of investment.
Investment in ETFs, bonds, and even PPF are viable options to grow their savings over time steadily.
Investment options for salaried people
Salaried people often struggle with managing their expenses. As a salaried employee in India, you will have various investment opportunities to invest and increase your hard-earned money wisely.
Different instruments are available for investing and ranging from traditional investment options like fixed deposits, recurring deposits, national pension schemes, and ULIPs to modern investment options such as investing in shares, cryptocurrencies, etc.
Investments in stocks and cryptocurrencies can provide returns as high as 10 to 15% per annum. At the same time, safer investment options include mutual investment in mutual funds like equity mutual funds and debt mutual funds.
Most risk-free investment options are bank fixed deposits, government bonds, etc. Salaried people have great potential to create wealth if they budget their expenses and investments.
Investment options for senior citizens
In old age, the thirst for returns is not as high as in youth. So, senior citizens usually need investment alternatives that mainly protect their money rather than growing it.
So, the need is for safe investment options. For elderly people over the age of 60, the Senior Citizens’ Savings Scheme. It is one of the risk-free tax-saving investing choices available in the country.
It is one of the most significant investment ideas for seniors because they get a steady income in the form of a competitive interest rate of 8.6% per annum, making it a highly profitable investment option.
Another viable option is the Pradhan Mantri Vaya Vandana Yojana. It is for elderly adults of age 60 and up and provides them with a guaranteed return of 7.4% p.a.; pension income is payable monthly, quarterly, semiannually, or yearly depending upon the option selected.
Some other instruments include the Post Office Monthly Income Scheme and National Pension Scheme.
Low-risk investment options
Investments with low risk are always popular because they do not exhibit unnecessary volatility, so investors have less worry about the undertaking.
Low-risk investment options include Fixed Deposits, National Savings Certificates, Public Provident Fund, National Pension Schemes, and Gold. All these investment options are primarily fixed-income type investments – guaranteeing a particular level of return.
And gold has historically risen in value through tough times and often proves to be a hedge against inflationary pressure in the economy.
Investment options for students
As a student, you usually do not have too much money, but the biggest thing you have is time – which you can use to your advantage. Also, as a young investor, you have the option to take a significantly higher risk in terms of your investment options.
Students can invest even fundamental amounts through Systematic Investment Plans (SIPs) every month in mutual funds, index funds, and ETFs. Acquiring knowledge about bond investment will also be beneficial.
Since students have a higher risk appetite, they can also mobilize a small part of their investment amounts into cryptocurrencies after thorough research. Since there is less expendable money, choosing free brokers or low-cost brokers is essential.
Using simple rules of spending, students can save and invest small amounts over a long period and thus, grow their wealth.
Investing Options – Summarised
Direct equity investment, out of all the investment options covered here, delivers the best combination of stock appreciation and dividends.
When a long-time horizon (10 years or more) is taken into account, equity markets can be somewhat unpredictable in the short run, but they provide greater inflation-adjusted returns.
You can diversify your portfolio by purchasing stocks from companies in different industries, allowing you to account for economic growth in other sectors.
Equity is the riskiest asset class due to the unpredictability of global markets and the probability of sectoral instability. When markets crash during difficult economic circumstances, there is always the risk of significant capital wipe-out.
Equity Mutual Funds
Mutual funds that invest in equities are known as equity mutual funds. Instead of buying individual stocks in a specific industry, you can buy a mutual fund that encompasses that industry’s growth. These are less hazardous due to their diversified nature.
An equities mutual fund invests more than 65 percent of its assets in the stock market (according to SEBI rules). An equity mutual fund can be active or passive.
Fund management’s expertise also influences these mutual funds’ performance.
Debt Mutual Funds
Debt mutual funds, as the name implies, invest most of their assets in debt instruments. These funds are appropriate for investors with a moderate risk appetite and desire for consistent returns.
Government bonds, corporate bonds, treasury bills, and other money market instruments are also in the portfolio of debt mutual funds. Low risk does not imply that there is no risk.
Credit risk and interest rate risk are two risks that you should be aware of before investing in debt mutual funds.
Fixed Deposits (FD)
A bank FD is safer than practically every other investment choice. With a high level of safety comes a poor rate of return.
FDs are a method to maintain your money where it is (returns are often so low that they don’t even keep up with inflation), not a strategy to increase it.
Depositors have protected up to a maximum of Rs 5 lakh apiece in the event of a bank failure (under the Deposit Insurance and Credit guarantee corporation).
Bonds: Bonds are fixed-income securities representing a loan a borrower advanced to the investor. When governments or even listed companies want to raise money in the form of debt, they issue bonds to the public.
You can purchase these bonds in the bond market. Bonds offer fixed interest payments to the bondholders (a variable interest payment system is also there).
Bond prices and interest rates move in the opposite direction. At the time of maturity, the total principal has to is to be returned. There are different types of bonds, like government, corporate, and municipality bonds.
The risk of investment in bonds also arises from the possibility of potential inflation outstripping the rate of interest on the bonds.
Furthermore, when you buy bonds that are not well rated, there remains a chance of default, wherein you might lose out on what you lent out.
National Pension Scheme (NPS)
This investment vehicle is for people over 60. PMVVY offers a 7.4% annual guarantee.
Pension income, payable monthly, quarterly, bi-annually, or annually, with pension sums ranging from Rs 1000 to Rs 9250, is available. With a 10-year duration, the maximum investment amount is Rs 15 lakh.
The senior citizen, or their nominee in the event of the senior citizen’s death, receives the maturity amount.
Public Provident Fund (PPF)
PPF is a tax-free (interest) investment that lasts for 15 years. The government reviews the interest on PPF accounts every quarter.
A PPF account can also be opened with a monthly contribution of Rs 500. PPF is a remarkably safe investment because the interest received is covered by a national guarantee.
Gold is often known to be a safe haven for investors. In your portfolio, gold will operate as a hedge.
In the past, gold has proven to be a winner when the economy has been in the doldrums. Gold is an attractive investment in the long run because of its rising price.
Digital gold, sovereign gold bonds, gold ETFs, and physical gold are options for purchasing gold. It’s also a highly liquid asset to own.