1. Direct equity
Investing in stocks might not be everyone's cup of tea as it's a volatile asset class, and there is no guarantee of returns. Further, it isn't easy to pick the right stock; timing your entry and exit is also not easy. The only silver lining is that equity has been able to deliver higher than inflation-adjusted returns over long periods compared to all other asset classes.
At the same time, the risk of losing a considerable portion or even all of your capital is high unless one opts for a stop-loss method to curtail losses. In stop-loss, one places an advance order to sell a stock at a specific price. To reduce the risk to a certain extent, you could diversify across sectors and market capitalizations. To directly invest in equity, one needs to open a Demat account.
2. Equity mutual funds
Equity mutual fund schemes predominantly invest in equity stocks. According to India's Securities and Exchange Board (Sebi), Mutual Fund Regulations, an equity mutual fund scheme must invest at least 65 percent of its assets in equity and equity-related instruments. An equity fund can be actively managed or passively managed.
In an actively traded fund, the returns are mainly dependent on a fund manager's ability to generate returns. Index funds and exchange-traded funds (ETFs) are passively managed, and these track the underlying index. Equity schemes are categorized according to market capitalization or the sectors in which they invest. They are also organized by domestic (investing in stocks of only Indian companies) or international (investing in stocks of overseas companies). Read more about equity mutual funds.
3. Debt mutual funds
Debt mutual fund schemes are suitable for investors who want steady returns. They are less volatile and, hence, considered less risky compared to equity funds. Debt mutual funds primarily invest in fixed-interest generating securities like corporate bonds, government securities, treasury bills, commercial paper, and other money market instruments.
However, these mutual funds are not risk-free. They carry risks such as interest rate risk and credit risk. Therefore, investors should study the related risks before investing.
4. National Pension System
The National Pension System (NPS) is a long-term retirement-focused investment product managed by the Pension Fund Regulatory and Development Authority (PFRDA). The minimum annual (April-March) contribution for an NPS Tier-1 account to remain active has been reduced from Rs 6,000 to Rs 1,000. It is a mix of equity, fixed deposits, corporate bonds, liquid funds, and government funds. You can decide how much of your money can be invested in equities through NPS based on your risk appetite.
5. Public Provident Fund (PPF)
Since PPF has a long tenure of 15 years, compounding tax-free interest is enormous, especially in the later years. Further, since the interest earned and a sovereign guarantee backs the principal invested, it makes it a safe investment. Remember, the interest rate on PPF is reviewed every quarter by the government.
6. Bank fixed deposit (FD)
A bank fixed deposit is considered a comparatively safer (than equity or mutual funds) choice for investing in India. Under the deposit insurance and credit guarantee corporation (DICGC) rules, each depositor in a bank is insured up to a maximum of Rs 5 lakh with effect from February 4, 2020, for both principal and interest amounts.
Earlier, the coverage was maximum of Rs 1 lakh for both principal and interest amounts. One may opt for monthly, quarterly, half-yearly, yearly, or cumulative interest options as per the need. The interest rate earned is added to one's income and is taxed as per one's income slab.
7. Senior Citizens Saving Scheme (SCSS)
Probably the first choice of most retirees, the Senior Citizens' Saving Scheme is a must-have in their investment portfolios. As the name suggests, only senior citizens or early retirees can invest in this scheme. SCSS can be availed from a post office or a bank by anyone above 60.
SCSS has a five-year tenure, which can be further extended by three years once the scheme matures. The upper investment limit is Rs 15 lakh, and one may open more than one account. The interest rate on SCSS is payable quarterly and is fully taxable. Remember, the interest rate on the scheme is subject to review and revision every quarter.
However, once the investment is made in the scheme, the interest rate will remain the same till the maturity of the system. Senior citizens can claim a deduction of up to Rs 50,000 in a financial year under section 80TTB on the interest earned from SCSS.
8. Pradhan Mantri Vaya Vandana Yojana (PMVVY)
PMVVY is for senior citizens aged 60 years and above to provide an assured return of 7.4 percent per annum. The scheme offers pension income payable monthly, quarterly, half-yearly, or yearly as opted. The minimum pension amount is Rs 1,000 per month and a maximum of Rs 9,250 per month. The maximum amount that can be invested in the scheme is Rs 15 lakh. The tenure of the project is ten years. The system is available till March 31, 2023. At maturity, the investment amount is repaid to the senior citizen. In the event of the death of a senior citizen, the money will be paid to the nominee.
9. Real Estate
The house that you live in is for self-consumption and should never be considered as an investment. If you do not intend to live in it, the second property you buy can be your investment.
The property's location is the single most crucial factor that will determine the value of your property and the rental that it can earn. Investments in real estate deliver returns in two ways - capital appreciation and rentals. However, unlike other asset classes, real estate is highly illiquid. The significant additional risk is getting the necessary regulatory approvals, which has primarily been addressed after the coming of the real estate regulator.
10. Gold
Possessing gold in the form of jewelry has its concerns, such as safety and high cost. Then there are the 'making charges,' which typically range between 6-14 percent of the price of gold (and may go as high as 25 percent in case of unique designs). For those who would want to buy gold coins, there's still an option.
Many banks sell gold coins nowadays. An alternate way of owning gold is via paper gold. Investment in paper gold is more cost-effective and can be done through gold ETFs. Such investment (buying and selling) happens on a stock exchange (NSE or BSE) with gold as the underlying asset. Investing in Sovereign Gold Bonds is another option to own paper-gold. An investor can also invest via gold mutual funds.
What you should do
Some of the above investments are fixed-income, while others are financial market-linked. Fixed income and market-linked assets have a role to play in the process of wealth creation. Market-linked investments offer the potential of high returns but also carry high risks. Fixed income investments help in preserving the accumulated wealth to meet the desired goal. For long-term purposes, it is essential to make the best use of both worlds. Have a judicious mix of investments keeping risk, taxation, and time horizon in mind.
You must be logged in to post a comment.