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Types of Investments in India

Sukanya Mukherjee -

We all work hard for money – to make ends meet for our daily life, for our dream home, our favourite vehicle, or just to afford some luxurious dreams. But, the money we earn can earn us more money if put in the right place at the right time. It can be done through what everyone already knows and calls investment.

The main idea behind investing your money is to get maximum profits from it over a period of time. However, it is not just about maximum returns as it also involves risk, the horizon for the investment you are looking at, and your need for liquidity.

Why Should You Invest?

Investments are more of a balancing act where you must take a lot of factors into consideration. There are many benefits of investing, such as increasing your wealth, saving for your retirement, reaching your financial goals, high returns on your funds and supporting your family’s dreams.

Types of Investments: Where Should You Park Your Money For Profits?

Before we get a gist of how to find the right investment option for you, let’s go over the many types of investments in India.

1. Fixed Deposits

FDs or Fixed Deposits are the most basic and safest choice of investment in India. For this reason, it is also a crowd favourite. At the time of investment, you can put your money in a banking institution for a specific time that is pre-defined at the time of depositing the amount. Each bank offers a specific rate of interest for the said time period, and these rates change as per the economy of the country and RBI rules. There are different types of FDs, some of which are tax saving as well.

2. Mutual Funds

Another popular investment option, with moderate risk, are mutual funds. Though they have been here for a while, they have gained immense popularity in the past few years. Mutual funds  collect funds from many investors and invest them on their behalf to get maximum returns. There are two basic types of mutual funds– Debt and Equity. Equity mutual funds invest money in stocks and other equity-related instruments whereas, debt funds invest money in bonds and papers. There are other mutual funds like balanced funds and hybrid mutual funds that invest your money in equity and debt funds based on different factors. Mutual funds are popular because they offer high returns, you can withdraw from them anytime you wish to, and are investment options that are based on your convenience. Some mutual funds also offer tax-saving benefits.

3. Stocks

Stocks are the most famous form of investment in India. In this form of investment, you invest money to buy the shares of a company after which you become a part of the company’s growth. Stocks are offered by public listed companies and are great long-term investments. However, you should note that investing in stocks is not the same as trading on the stock market, which has a high risk associated with it.

4. Recurring Deposits

Similar to Fixed Deposits(FDs), Recurring Deposits or RDs allow investors to put in a specific amount of money every month for a predefined time. RDs are offered by all banking institutions and also postal services. Recurring Deposits, like FDs, offer guaranteed returns but can be redeemed after the term of the deposit has been completed for max returns.

5. Public Provident Fund(PPF)

Public Provident Fund(PPF) is a long-term investment option that offers tax-saving benefits. Your money, in this case, is locked-in for a period of 15-years after which you can either redeem it or re-begin for the next 15-years. The rate of PPF is decided by the Government of India every quarter and the corpus that is withdrawn at the end of the 15-year period is tax-free.

6. National Pension System

Another excellent investment option for your retirement, the National Pension System(NPS) offers a tax-saving investment option. In this case, the money invested by the investor is locked-in till he/she reaches retirement. Compared to PPF and EPF(Employee Provident Fund), NPS offers higher returns. However, the money received at the time of retirement is not tax-free and you must use it to buy an annuity that will give you a regular pension.

7. Employee Provident Fund

EPF or Employee Provident Fund is a very popular savings scheme in India that has been introduced under the Government of India. This saving scheme is a kind of investment particularly aimed at the salaried class of the country. EPF is partly contributed by the employee and the other half by the employer. This is a tax-saving investment and has many other benefits such as it contributes to your retirement corpus, serves as an emergency corpus and allows an easy premature withdrawal too.

8. Real Estate

This is a common investment in India. People invest their money in real estate at the running market rate and then wait to sell it at a profit, that is,  when the real estate market in the area is at an all-time high. However, one must never consider the home for personal use as an investment as the objective of buying a home is not for making profits.

9. Gold

Again a common type of investment in India, buying gold and other precious commodities like silver, artworks, etc. However, compared to other types of investments in India, parking your money in commodities is not advisable as they are at risk of physical damage, risky to store and the actual price you get by selling these investments reduces at the time of sale.

10. Senior Citizen’s Saving Schemes (SCSS)

These schemes are tax-free in nature and are for individuals above the age of 60 years as it offers them a regular income source. This scheme provides attractive interest rates of around 8.6 %, which is higher than many other safe investment options like bank FDs and RDs. Individuals can invest up to INR 15 lakhs in these schemes. The tenure for SCSS is 5 years, one can extend it for another 3 years.

11. Unit Linked Insurance Plan (ULIP)

This is considered to be one of the best investment options in India today since these plans offer dual benefits of insurance and investment. Also, they provide tax benefits, but have a 3-year or 5-year lock-in period. ULIP schemes also allow investors to pick the type of investment based on their risk appetite and get a tax-free maturity amount.

How To Choose the Right Investment Plan for You?

While choosing the right investment plan, these three factors play an important role:

  • Age: Younger investors have few responsibilities and a long horizon to invest their funds. They can park their money in many long-term investments, and have more working life ahead of them for investing more.
  • Goals: Goals can either be short or long-term. This helps decide if you should invest in a risky or low-risk investment option.
  • Profile: The investors’ own profile plays a crucial role in deciding the type of investment option they should put their money in.

Best Investment Tips

Before you invest your money in any of the above-mentioned investment options, you must consult with your financial advisor.

Here are some useful tips to keep in mind when you begin investing:

  • Identify and know your risk-taking ability and appetite. The kind of investment will depend a lot on this factor.
  • There are plenty of investment calculators online that can give you a rough estimate of your investments.
  • Have clear short-term and long-term financial goals as this will help you pick the right investment options.
  • Never put all your money in one mode of investment. Have a diversified portfolio that has a good balance of high and low-risk investment options.
  • Have a retirement plan in place.
  • Monitor your finances and investments periodically to ensure they are in-line with your goals.

Wrapping Up!

Earning money and storing it as is never got anyone anywhere. However, if you wish to see the maximum potential of your hard-earned money, put your money to work for you. Always be careful about where you park your money. If you are finding it difficult to understand where to invest or the types of investments that are best for you, hire a financial advisor or planner who can help you through it all.

Also Read:

1) Types of Series Funding
2) How To Raise Funds For Your Business?
3) How are the mutual funds taxed in India?
4) What Is Seed Funding And How Does It Work?