Hello everyone. In the last blog, we shared with you the idea about how one can make a basic financial plan for self. To make a financial plan successful, the most important aspect to understand is how to invest your money in the market. There are tons of investment options available. And having so many options lead to a lot of confusion too. Choosing to Invest money in the right tool has always been the biggest challenge amongst common individuals. And these challenges create a lot of discomforts when a common man decides to invest money to get good returns.
Today we are going to discuss how one can invest his/her money in the market for the best returns. It is always advisable that an induvial must invest at least 20% of their monthly income. Choosing to invest seems to be a difficult option at an earlier stage. However, it provides various long-term benefits at a later stage of life. The higher the investment, the better the results.
Investment options available in the market
There are various investment options available in the market like Equity stocks, Mutual Funds, Gold, Real Estate, NPS, etc. One can choose amongst all these options depending upon their risk profiling and goals.
Goals play a very important role in deciding where an individual should invest. Always remember that investment is all about “Where to invest”, “How to invest” and “why to invest”. If you are a common individual who is willing to invest money in the market, then your goals must be clear. Even if you don’t have any specific goals at a current stage, consider investing for meeting financial requirements at a later stage of life. This way, deciding where to invest money becomes much easier. We will discuss more this at a later stage in the blog with the help of examples.
List of Various investment options available in the market
1 Fixed Deposit
2 Recurring Deposit
3 Equity (Stocks and Mutual Funds)
4 National Pension Scheme (NPS)
5 GOLD (Sovereign gold bond)
6 Real estate
Let’s discuss the above-mentioned investment options in detail. These will surely help you in growing your money at a good pace.
Fixed Deposit (FD)
Fixed deposit or FD is considered one of the safest, stable, and risk-free investment options available in the market. The whole idea behind investing money in FD is to ensure maximum return from various FD schemes. The fund security and hassle-free renewal process is also something that attracts various investors. The returns are almost guaranteed and there is hardly any depreciation on the principal amount which makes it one of the best short-term investment options.
Even though FD is a good short-term/medium-term investment option. It is to be noted that the average rate of inflation is almost 6% annually. The rate of return on FD investment is hardly 5-6% per annum which is almost equal to the average rate of inflation per year. Hence it is always advisable that FD must be preferred by an individual for only those goals which are fixed in nature.
For example– If Mr. A is willing to invest money for his daughter’s marriage which will be organized within the next 5 years. He must consider investing his funds in an investment tool that guarantees fixed and secured returns. Since the goal of the daughter’s marriage is a fixed goal, he must consider investing in FD since it is the most secure/reliable investment option and the returns will be guaranteed. On the contrary, if Mr. A invests his money into Equity, instead of FD then there is always a possibility of the market going down and he might suffer major losses. And since the daughter’s marriage is a fixed goal, a much safer investment option must be chosen.
The recurring deposit also known as RD is yet another safe and reliable investment option available in the market. This is considered as one of the best short-term investment options which yield more return on investment as compared to the savings account and almost similar return if compare with FD. One can easily opt for the RD option through their bank application or net banking. A fixed amount is deducted from the account of the beneficiary every month for the selected tenure and further, post the completion of the maturity period the amount is credited into the account of the beneficiary along with interest.
RD is considered as one of the best options as anyone can opt for the same instantly through internet banking. Investing the money is hassle-free and quick. And one can even liquidate their money in between the investment cycle in case of an emergency.
Surely one of the best investment options for people looking to save their money and earn good interest in the short term.
For example– Mr. B has a LIC policy and health insurance premium to pay at the end of every year. The estimated amount is said to be INR 36,000. It is very difficult for him to pay this amount in one go hence he decides to set aside INR 3000 every month so that he can pay the respective amount easily when required. Here, instead of keeping the money in a savings account, Mr. B can opt for an RD facility available through his bank. This way his money will be safer and he would be able to generate very few but better returns as compared to his savings account.
Surely a better option.
Equity (Stocks and Mutual Funds)
Equity is one of the most interesting investment options available in the market. To all those people who are will to invest their money for the higher rate of return, this is considered as one of the most preferred options. Though we must agree that equity is not everyone’s cup of tea, we can’t deny that youngsters have shown great interest in direct equities and equity mutual funds as the preferred mode of investment.
The market can be volatile at times and lack of proper knowledge may also lead to losses. However, investors can exercise their rights by using options such as stop loss and can diversify their portfolios in various sectors to generate good average returns. In long term, equity is considered as one of the most profitable investment options if one chooses to invest wisely and with proper knowledge.
All you need is a Demat account and you are ready to go.
For example, Mr. L got a new job as an executive in a big corporate firm and he is getting a handsome package. After getting advice from his financial planner, he decides to invest his money in the market. Here, he must consider investing at least 50% of his savings inequity as he is young and doesn’t have any big fixed goals. Also, this is to be considered that he will slowly and gradually learn more about the market and will ensure good returns by investing in the market for the long term. Also, if he, at some point makes a loss due to any market violation, he can always cover it up at a later stage by making calculated decisions.
National Pension Scheme (NPS)
NPS or National Pension Scheme (NPS) is a voluntary and long-term investment plan for retirement benefits. This works under the Pension Fund Regulatory & Development Authority (PFRDA) and Central Government. The scheme is available for all those people who are willing to invest their money for long-term retirement benefits with a low-risk appetite. The average rate of return generated by NPS in the past few years is said to be approximately 8%-10% per annum. An individual is free to choose/change their fund manager if they are not happy with the performance of their funds
Since this is a long-term investment plan, even investing a small amount of money works like charm when compounding does its magic. The money invested in NPS is tax-exempt under section 80(c) up to INR 1.5 lakhs per annum. An additional tax exception of INR 50K can be considered under section 80CCD(1B) as an NPS tax benefit.
The withdrawal is usually done at the age of 60 post-retirement. A total of 60% of the corpus is transferred to the beneficiary at the time of retirement which is now tax-free. Also, the rest 40% is paid to the respective person in the form of pension every month.
It is also advisable that an NPS must be continued till the age of 60. However, if you have been investing for at least three years, you may withdraw up to 25% of your investment for certain purposes such as buying/building a house, child marriage or education, and emergency medical expenses. A withdrawal can be done up to three times at a gap of 5 years each.
For example- If Mr. D has not given a thought about any specific future goals for now yet he wants a secure retirement. He must consider investing his money in NPS as the best mode of investment. Say he is 35 years old now and continues to invest INR 1 lakh per annum for the next 25 years. He will have an estimated corpus of INR 1 crores approximately at an average rate of return of @10% at the time of retirement. He will enjoy tax-free benefits worth INR 60 Lakhs(60% of the investment value) and will continue to enjoy a regular pension for several years which will be 40% of his total investment.
Isn’t it awesome?
GOLD (Sovereign gold bond)
Gold is yet another favorite investment option, especially amongst Indian investors. No wonder why Indian households got almost 11% of the global stock of gold. Amazing to see such figures yet aren’t they deceiving?
Gold is a good investment yet it depends on what form of gold do you invest your money in. Investing in physical goals is the most preferred option yet it is to be noted that it consists of various making changes, taxes, and additional costs which makes it a negative investment unless you are will to use that form of gold for ornamental usage.
It must be noted that if one is willing to invest in gold then the way to go is SVG (Sovereign gold bond). This form is considered the best form of gold to invest in as the purchase is done at the actual market price and there are no hidden charges. Also, SVG yields a fixed return of 2% per annum irrespective of the market changes. Plus, the value of gold has appreciated at a good rate in the past, making it one of the best and safest long-term investments.
So next time you are willing to invest in gold, opt for a sovereign gold bond
Real estate is another form of investment available in the market. Here, investors can invest their money by buying/ acquiring property and lending it on rent for regular income. Also, the value of this fixed asset is always expected to be appreciated except in exceptional circumstances.
However, this is to be noted that real estate demands a huge amount of investment, and the average rate of return is also said to be less as compared to other instruments. The maintenance charges and other fixed charges are also recurring in nature. One must also consider various factors like location and average market value before purchasing any real estate property for investment as this requires a huge amount of money and one should not want to put a wrong foot while making such big decisions.
Recently, many businesses have come up with new real estate investment ideas where individuals can invest their money by buying parts of a property which makes it convenient for small investors who can’t buy a big lot of property. This revolution has attracted various new investors towards the real estate market and people have started investing their share of money in the same.
What do you think about it?
Last, but not least and my favorite mode of investment in cryptocurrency. These are virtual currencies that work on blockchain technology. The better the technology, the faster will be the transaction speed, and the better the speed, the higher will be the preference.
Today the valuation of cryptocurrencies is estimated to be in trillions of dollars in the international market. People are opting for cryptos as a mode of investment since it has given astonishing returns of more than 1000% or even more in the last 5-7 years. The biggest of them being bitcoin which is currently valued at approx. 40,000 USD.
The best and craziest part about cryptos is that the entire system is decentralized and buyers/sellers are directly connected through various modes of trade.
Cryptos have also seen a lot of ups and downs in the past due to the government’s intervention considering the decentralized system and no transaction control. However, cryptos have always kicked back strong and showed their true potential by coming back at the top every time. Those who invested their money in cryptos for a long period are now millionaires which shows its true potential.
However, it is to be noted that the decentralized system also exposes people to the risk of losing their money entirely since there is no legal control over these assets. Cryptos could be or could not be a big bubble and this depends upon the investor to investor.
If you are willing to take higher risks for higher returns, consider investing at least 5%-10% of your savings in cryptos which you can afford to lose. The changing trend and improving technology are already suggesting that cryptos will become one of the biggest systems in the world and that it will be able to substitute if not replace the biggest financial institutions of the world.
What do you think, is crypto boon or bane?
Conclusion– Invest Money To Get Good Return
Finally, it can be concluded that the market is full of opportunities. If one is willing to invest his/her money then there are tons of options available. One can choose to invest money in the market depending upon their risk profiling. Age factor must also be considered while choosing the investment instrument.
Money sitting ideal in the bank account will only get devalued due to inflation hence everyone must attain basic investment knowledge and consider investing enough to keep their money growing in the correct direction.
Also, if you are not sure about equity then consider investing in debts, SVG, or even NPS but consider investing consistently. Always keep learning about the market and you will surely become a confident investor.
We hope you liked the article, please consider sharing your views on the same and let us know if you have any comments, queries, or suggestions.