September 16, 2022

Investment options for self-employed parents.

Investment options for self-employed parent

Investing and saving is crucial for self-employed parents as they need to be vigilant in their efforts to provide a secure financial cushion for their children.

A self-employed individual is self-dependent and thus responsible for the well-being of their business. 

Whatever the economic health of self-employed parents, they need to create a continuous culture of investing in the right assets for future financial stability and growth. 

There are several investment options for self-employed parents that will ensure desired wealth creation and keep their financial health safe and sound.

Both short-term and long-term investments are important as the former will help in asset creation or a child’s education in the early years and the latter in post-retirement or higher education of children. 

Investment options for self-employed

1. Fixed deposits

Fixed deposits are good investment options offered by banks, NBFCs, and post offices at minimum risk.  A fixed sum is deposited as a one-time investment for a fixed tenure at a fixed interest rate.

The banks are offering a current interest rate between 5% to 7.5%

Investors can choose a normal FD which is taxable or a tax-saving fixed deposit, which saves taxes up to 1.5 lakhs under Section 80C of the Income Tax Act 1961

2. Mutual funds

Mutual funds are one of the best investment options for self-employed parents as they are structured and professionally managed. The investor does not have to spend time on research.

Instead, several investors pool their money, and the fund manager reinvests this amount in several instruments like debt, equity or liquid assets, etc.

The investor has the option of investing a lump sum amount in mutual funds or starting a SIP (systematic investment plan) if they want to opt for periodic investments. 

A trustworthy app like Edufund gives access to 4000+ direct mutual funds to investors. The associated financial experts, with the help of a SIP calculator and scientific fund tracker, suggest the best funds and ensure better returns in the safest possible environment.

It is also possible to invest in international mutual funds through the app and receive returns in dollars. 

3. Real estate

Real estate is a good investment option as the value is bound to increase and yield a good return with time.

Purchase the factory or office space that you are using instead of renting because it is feasible to pay EMI rather than the rent.

The self-employed individual can use the property to raise capital or for mortgages when needed. The aim of investing in real estate should not just be buying property instead getting a resale value if required.

Additional read: Investment strategies in Volatile market

4. Government schemes

The Government of India offers safe investment options with fixed returns under some of the government schemes. 

  • PPF – PPF or the Personal Provident Fund, is a saving scheme where the investor invests annually or monthly for 15 years. It offers fixed returns and tax benefits to the investor.
  • PMJJBY –Pradhan Mantri Jeevan Jyoti Bima Yojana is a life insurance scheme available to investors at a low cost.
  • NPS – The National Pension Scheme is a safe and secure post-office scheme where investors deposit a fixed amount for a fixed interval. 
  • Sovereign gold bond schemes – This government scheme is both a safe and high earner where the investor can invest in gold without owning the gold personally. 

5. Shares and equities

Shares and equities are investment options for self-employed parents who are ready to take a substantial risk with their investments.

It is advisable to be careful in investments and take risks only on a predetermined permissible amount. Choose the shares and equities that will yield safe and highest possible returns. 

Investment options for self-employed parents

6. US stocks and ETFs

Self-employed parents can invest in US stocks and ETFs from India to create wealth.

The Edufund App is a reliable means to create wealth because it allows investors to choose from 1400+ US ETFs and become a part of global companies like Google, Netflix, Apple, and Amazon.

The simple and transparent app also helps in fractional investing, where investors can buy top shares that will yield a higher percentage of returns in dollars at zero brokerage. 

7. Commodities

Commodities in financial terms refer to oil, gas, silver, gold, grains, etc. investors interested in commodities have to invest in a futuristic price of the product.

As the commodity market is inversely related to the stock market, it is often used by investors as a hedge against inflation and also against stock market risk. 

Conclusion

Choosing the right investment options for self-employed parents at the right age is a necessity as they do not have the luxury of a pension to manage expenses during later years.

A well-defined financial plan and a diversified portfolio will prove a blessing as it provides significant accessibility and flexibility to tap into the savings when needed.

Consult an expert advisor to get the right plan
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    5 top investments for risk-averse investors

    All investments are associated with risks. Yet, the risk is not uniform, and it's essential to be aware of the different levels of risks linked with all types of investment instruments. This is why the first thing to consider before investing is how much of a risk appetite has – how much risk one is willing to take. Want to know the best investment options for risk-averse investors but still generate good returns? Continue reading this article to know more! What is risk averse? Risk-averse refers to an investor who chooses to preserve the capital over and above its potential to generate returns that are higher than the average. Risk can refer to many factors – volatility, currency, market, credit rating, etc. Risk-averse can also refer to a conservative investor. Low risk symbolizes stability in investments. A low-risk investment generates guaranteed reasonable returns, if not outstanding, above benchmark returns. But chances are near zero that the principal investment amount will be lost. Whereas a high-risk investment option may gain or lose money over time. Risk-averse investors are unwilling to accept market volatility. They prefer their investments to be highly liquid - readily available to be withdrawn. Such investors usually include old investors or retired individuals who depend on their savings for their daily expenses. Additional read: Taxation in mutual funds Is FD a good option for risk-averse investors? One should constantly adjust their returns against the current inflation rate. The current Fixed Deposit interest rates are 5-7% p.a. on average. But the current inflation rates are around 6-8% p.a. Give these figures a thought. The price you pay for your everyday goods and services is rising at 6-8%, whereas your FD investments are growing at only 5-7%. FDs do not increase the value of your money over time. In fact, you actually lose money or its purchasing power over time. Do you think FDs are the safest investment option? Banks defaulting on payments is rare but definitely possible. The Deposit Insurance and Credit Guarantee Corporation (DICGC) guarantees Rs. 5 lakhs per person per bank if the bank defaults. Let's not forget the liquidity part of this instrument. Fixed deposits can have a lock-in ranging from 3-5 years. Banks penalize the investors for withdrawing money before the lock-in is over. This penalty is in the form of a reduction of interest rate by a certain percentage. What are the best investment options for risk-averse investors? The market is filled with many investment options for investors with varying risk appetites. Let's look at some of the best investment options for risk-averse investors: 1. Short-term bond fund: The best alternative for investors who do not want exposure to FDs or volatile instruments. Short-term bond funds – bond funds with low maturity and a high potential to offer better returns. Debt Funds with longer maturity are subjected to interest rate risk. But short-term bonds have a lower interest rate risk as their maturity period is much lower. 2. Municipal and Corporate Bonds: State and local governments and companies usually raise money by issuing bonds to the public. Bonds offer lower risk than stocks. When a company is winding up, the bondholders are given first preference in the payment and settlement order. 3. Other debt funds: Other debt funds include banking and PSU Funds, ultra-short duration funds, Dynamic Bonds, etc. You could always invest a lump sum in these debt-based mutual funds and opt for a Systematic Withdrawal Plan (SWP). This would ensure that along with the returns being generated on your investments, you would also get a monthly income from these investments. This investment option is one of the best options for older people who want a monthly income. 4. Liquid funds: Invest in top-rated liquid funds to avoid loss of capital with a higher degree of safety for your primary investment. Also, when the market moves up, your investment performs better and generates higher returns in line with the market. 5. Dividend growth stocks: Stocks are not as safe as cash, savings, or other debt-based instruments. But they are safer than options and futures. Dividend-paying stocks are considered safer than high-growth ones as they minimize volatility, if not eliminate it. You don't depend on the value of the stock as you get a dividend as a regular income on your investment. Apart from debt-based investments, you could also apply a staggered investment approach in equity-based mutual funds for a long-time horizon. A periodically rebalanced portfolio helps you minimize your portfolio volatility and ensures efficient capture of up-market and down-market movements even with equity exposure.  Take the help of an Investment Advisor who will guide you through goal-based planning and help you choose your investments that are most suitable to your goals and objectives and your risk appetite. Consult an expert advisor to get the right plan for you TALK TO AN EXPERT
    5 types of mutual funds

    5 types of mutual funds

    Investing in mutual funds for your child’s education is always advisable. First of all, it is a less stressful option than investing in direct equity stocks because that requires you to have in-depth knowledge of market trends and fluctuations. Secondly, with mutual funds, there are a variety of schemes you can opt for depending on a range of factors. These factors could include the time period for which you can invest before liquidating, the amount of money you can invest, the amount you require to secure the education fund, the level of risk you can take, and so on.  When it comes to building an education fund, here are the top 5 types of mutual funds you can choose from. 1. Large-cap mutual funds The defining characteristic of large-cap equity funds is the fact that these funds invest in the top 100 Indian companies that have the highest market value. Large-cap mutual funds can bring in impressive returns if you remain invested for a long period. If you are a person who wants to avoid taking very high risks with your investments and has decided on investing early for your child’s education, this is the way to go. The average returns rate has historically beaten that of Fixed Deposits and similar investment alternatives. 2. Mid-cap mutual funds Mid-cap funds invest in Indian companies that come in the next best 250 in terms of market value. These funds are for you if you are ready to take on a higher level of risk. Justifiably, the return rates also tend to get higher. One way to satiate the risk appetite of mid-cap equity funds is to let them season for at least 7-10 years. If your child is in primary or middle school, investing in such a scheme will generate a wholesome amount of wealth by the time they are ready to pursue a college education.   3. Equity-linked saving schemes  Among the various perks of investing in mutual funds is the tax deduction benefit. Equity Linked Saving Schemes are devoted to enabling investors to save taxes, as the name also indicates.  The only catch here is that it has a compulsory lock-in period of at least 3 years. The aim here is to keep you invested longer to counter the risk level. If you can spare that amount of time, then ELSS is definitely a go-to. An added benefit is the historically high level of returns.   4. Low-risk options  There is this whole myth surrounding mutual funds that they only come with a high-risk factor. On the contrary, a debt fund is also a kind of mutual fund that comes with low risk, so much so that it remains undisturbed by market fluctuations.  Debt funds are still a better option than Fixed Deposits because they can generate a higher percentage of returns. So, if you are not in favor of taking high risks, debt funds are a go-to.  5. Hybrid mutual funds  If you are confused about your investment options or even hesitant about risking too much, the answer to your problems is a hybrid mutual fund. This kind of fund is a mixture of equity as well as debt.  Hybrid mutual funds bring in the best of both worlds. They tend to generate good returns at low risk. FAQs What are the different types of mutual funds? Large-cap mutual funds Mid-cap mutual funds Equity-linked saving schemes Low-risk options Hybrid mutual funds Which type of MF is best? The best type of mutual fund is the Hybrid mutual fund. Which MF gives highest return? Equity linked mutual funds are considered the mutual funds with the highest returns. Conclusion There will be miscellaneous financial goals you will be required to set if you are a family person. One among these might be to straighten up the roadmap to your child’s academic and career aspirations. The first step is calculating your expected expenses with the help of an education cost calculator. The calculator will help you draw your investment map to fulfill your child's aspirations. The earlier you invest, the more prepared you will be to make critical decisions as the moment arrives. DisclaimerMutual funds are subject to market risks. The previous performance of a fund is no guarantee of future success. Please reach out to an expert to know more about the schemes before investing.
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