Investment is an essential part of wealth creation, which helps you to defeat inflation to meet your financial goals for businesses and also stabilize your future financially. Instead of keeping money idle in your bank accounts, you can invest in various routes such as stocks, equities, mutual funds, fixed deposits, or more.
There are two buckets that fall into investment products and are financial & non-financial assets.
Financial assets can be divided into market-linked products (such as stocks and mutual funds) and fixed income products (such as public provident funds, bank fixed deposits).
Non-financial assets – this mode includes physical gold, real estate, etc. which is the choice of many Indians.
Despite your risk appetite, it is important to choose the right investment instrument to increase your savings. This blog will help you plan where to invest, take a look at the top 10 investment instruments chosen by investors in India.
1. Mutual Funds: These are collective investment vehicles managed by a fund manager who deposits people’s money and invests in shares and bonds of various companies and creates returns. With a low initial investment facility, mutual funds are volatile investment avenues that are best suited for medium-risk investors. Mutual funds in india are classified into three types-
Equity funds: Which invests mostly in equity shares, depends on the market movements and offers the highest return as compared to other types of mutual funds.
Debt Mutual funds: Which invest mostly in fixed-income instruments for example government bonds. As it is not much affected by market movements that is why returns are very much predictable by debt funds.
Balanced or Hybrid funds: Which invest in both equity and debt funds. They more likely aimed to benefit the investors and reduce the risks.
Flexibility in entering and taking exit, Liquidity of money at a time of crisis, tax savings instrument under section 80C of the income tax Act, 1961, low cost investment & most importantly regulated by the Securities and Exchange Board of India (SEBI) and Reserve Bank of India(RBI). These were the key benefits of mutual funds which in turn makes it easy to invest in mutual funds for small investors.
2. Recurring Deposits: Recurring Deposits (RD) are term deposits offered by Indian Banks, which allow customers to make regular deposits and earn good returns. This instrument offers the flexibility of investment by allowing the investors to choose the tenure on their own. Individuals can open an RD account with their respective banks and deposit a fixed amount every month. In RD Interest earned is paid at the time of maturity along with the invested amount.
Any individual, Any minor who is above 10 years of age (if he or she provides proof of the name, Any minor who is below or equal to 10 years of age under the guardianship of natural or legal guardian, Any corporate, company, proprietorship or commercial organisation, Any government organisation is eligible to open a recurring deposit account. Though disadvantage is that partial and mid-term withdrawal is not allowed but you are allowed to get premature closure with charges.
Few points you would like to know about RD before investing in it-
Rate of interest applicable – 5% to 8%
Minimum Amount you can invest – Rs. 10
Investment tenure – 6 months to 10 years
3. Bank Fixed Deposit (FD): For investors looking for attractive returns with the lowest risk, a fixed deposit (or FD) is the best and safest investment route. By investing in fixed deposits, you can get assured returns at fixed time intervals. This investment avenue is one of the most preferred options in India, due to its convenience and flexibility. Even investors with a high-risk appetite choose to invest in FDs to diversify their investments and stabilize their portfolios because fixed deposits give assurity of guaranteed returns on no risk of loss of principle.
More likely FD helps you to get a loan against it when you need funds. Few points you would like to know about RD before investing in it-
Rate of interest applicable – 2% to 8%
Minimum Amount you can invest – Rs. 1000 to 10,000
Investment tenure – 7 days to 10 years
4. Stocks: As equity investments that represent a share of ownership in a company or entity, stocks are the best investment route for long-term investors. These can be traded in a market called ‘Stock Market’, where all trades are done electronically. Doing investment in Stocks is a quite crucial decision for any investor, as we already said that it is a good option for long term investment and beneficial but it also carries cons.
It is easy to buy and sell stocks, helps to make money in 2 ways short term & long term, best option to stay ahead of inflation, takes part in economic growth and making advantage out of it. Though disadvantage is it brings high risk, You also have to monitor the stock market itself as you could lose your entire investment due to rise and fall in price second-by-second, you will get paid last if any crisis happens.
We would just like to suggest that research each and every fact to determine how profitable it will be before you buy any stock. You must read financial statements carefully and follow the developments of your investments in the news & find out how to gain profit as an individual investor.
5. Real Estate: One of the fastest-growing sectors in the country, the real estate sector holds great potential in sectors such as hospitality, commercial, housing, manufacturing, and retail, etc. Retail investments are undoubtedly considered a safe investment in India with high returns. The risk involved in it is very low, while the chances of property prices increasing are very high. However, it is to be noted that it might be difficult to sell the property quickly in case of urgent monetary requirements.
6. Gold: Possessing gold in the form of jewelry has its own concerns such as safety and high cost. Then there are the ‘making charges’, which typically range between 6-14 percent of the cost of gold (and may go as high as 25 percent in case of special designs). For those who would want to buy gold coins, there’s still an option.
Many banks sell gold coins now-a-days. 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(exchange-traded fund). 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.
7. Public Provident Fund: It is one of the most common and reliable investment schemes in India. It pays an annual interest rate and requires a minimum investment amount of Rs 500 per year. It has a life of 15 years with a partial clearance of the corpus at various points. It is covered under Section 80C of the Income Tax Act, 1961. A tax deduction of up to Rs 1,50,000 a year can be claimed, and this saves up to Rs 46,800 in taxes. This option also pays a high and steady rate of interest as prescribed by the government from time to time. Current interest rate on PPF is 7.1% compounded annually.
8. RBI Bonds:- The Reserve Bank of India (RBI) issued 8% Savings (taxable) Bonds until the year 2003. Subsequently, it was replaced with 7.75% savings (taxable) Bonds. These bonds come with a tenor of seven years. Investors can obtain the bond in Demat form and issue it to the Bond Ledger Account (BLA). The investors are given a certificate of holding as proof of investment. Since the apex of the nation is issuing these bonds, they are considered a safe investment option.
9. Direct equity: Direct equity investment is about long term growth. When someone buys a stock, he becomes a part-owner of that company. In this way, the company becomes eligible to share both the profit and loss made. Investors prefer equity because no other investment option promises long-term growth as 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, not only is it difficult to pick the right stock, timing your entry and exit is also not easy. The only silver lining is that over long periods, equity has been able to deliver higher than inflation-adjusted returns compared to all other asset classes.
10. Initial Public Offer (IPO): Initial public offering is the process by which a private company can become public by selling its stock to the general public. The company that offers its shares, known as ‘issuers’, does it with the help of investment banks. The entire IPO process is regulated by the ‘Securities and Exchange Board of India (SEBI)’. It means it is scam free and protects investors interest. The best part of investing in an IPO is that the money gets blocked only for 7 to 15 days. In case, you withdraw from the IPO before closing of the IPO then the amount is immediately unblocked. Prudent investment in a good company coming out with IPO can fetch returns as high as 20-25% over a period of time.
Process of IPO includes-
- Hire an investment bank
Register with SEC – It declares the business plan of company and how the Company is going to utilise the funds it will raise from the IPO
Draft the Red Herring document – contains the probable price estimate per share & the first page of the document contains a warning which states that this is not a final prospectus.
Go on a road show – this road show marketing agenda is to present facts & figures IPO to the potential investors.
IPO is priced – company needs to decide they want to do IPO on fixed price or on bid basis.
Available to the public – Plan dates to make IPO available to the public online or offline. SEBI has fixed the period of availability of an IPO to the public, which is usually 5 working days.
Going through with the IPO – once the price is finalized, the company will decide how many shares every investor will receive. After the allotment of securities/share the market can start trading in it.
These investment instruments definitely help you choose the right path for investment. Most investors want to invest in such a way that they get high returns as soon as possible without the risk of losing the principal money. This is why many people are always on the lookout for top investment plans where they can double their money in a few months or years with little or no risk.
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