We invest our earnings for a variety of reasons. While some invest to meet their children’s educational expenses, others do so to fund their post-retirement life. But the key aim for all is to attain financial stability over the long-term. The typical mindset of most people is that you have to work more to earn more. Unsurprisingly, the money would be of no use if you have no time to enjoy it. Work can’t be cloned. More work leads to extended working hours and less time for you and your family. The key is to invest wisely. And talking of investments, here are the best options that you can follow.
Public Provident Fund (PPF)
Investing in PPFs is perhaps the best and most secure option to generate wealth over the long-term. What more, the returns are entirely tax free. You can open a PPF account in any nationalised or private bank or your nearest post office. The minimum annual investment is ₹500 while the maximum is ₹1,50,000. The money invested in a PPF scheme is locked for 15 years and you earn compound interest on it. You can extend the investment period in a block of five years. The lock-in period is the only negative thing about a PPF account. But you may partially withdraw the amount at the end of the sixth year. You can also take a loan against your PPF balance.
The Public Provident Fund (PPF) will now offer 7.9% but it is still a good option for investors. Given that consumer inflation is down to 3.65%, the real rate of return of the PPF is a healthy 4.25%.
This is quite impressive for an option that offers assured returns. Investors should continue to take advantage of this long-term tax-free product.
People who want a balanced mix of risk and return, usually opt for mutual funds. Investing in the capital market has burgeoned in recent years via mutual funds. The systematic investment plan (SIP) mode of investment has become especially popular and offers much better returns than other methods. It helps build a staggered portfolio over a long-term and is the ideal investment vehicle for small investors. You can, of course, invest in lumpsum. But most people usually don’t have enough money to make a one-time investment. SIP helps in riding market instability because you invest regularly. An SIP can be started with as little as ₹500 every month.
Equity linked savings scheme (ELSS)
If you want to save tax besides growing your money, then ELSS is one of the best options. Invest in top ELSS funds where the return could be anywhere near 12%, whereas PPFs and other tax saving instruments will fetch you up to 8% returns. Investors who can take limited risks but expect to pocket high return over the long-term, should opt for ELSS.
Investing in stocks
If you have age on your side and open to take risks, then the stock market is the best option. But you must do your homework regarding which stock to invest, or take professional help. Invest for a longer duration and in good companies run by a strong management. You need to have a valid demat account to invest in shares.
Company fixed deposits (FDs)
These are much better compared to bank fixed deposits (FDs) because they yield a higher rate of interest. You have to select the investment period carefully because you can’t withdraw the money before maturity. Company FDs carry no insurance benefits and are not monitored by the RBI. Nonetheless they are among the best investment options in India. They have an amount of risk. Investing in good companies with a proven track record will serve your investment goals.
Initial Public Offering (IPO)
IPOs, in a sense, are once in a lifetime opportunities. It happens only once for each company. If an IPO is launched by a reputed company then the stock value is almost certain to rise during listing. You can pocket a decent amount by selling your stocks and can also stay invested for a long term. But there are some risks though, and lack of information is one of them.
If you feel uncomfortable to invest in the equity market and mutual funds, then you can invest in bonds. There are several good bonds in the market that provide a high return on investment. Bonds are regulated by the government. A 10-year bond typically offers 8% interest. Bonds, again, are a long-term investment to build wealth over time.
Unit Linked Insurance Plans (ULIP)
These invest both in equity and debt market. Fluctuation is counted by the net asset value of the ULIP. But it plays a major role in the investment market.
The real estate sector is still one of the most attractive investment options, even after being hit hard by last year’s demonetisation. There are huge prospects in the leading sectors like commercial, housing, manufacturing, hospitality, retail and others. The value of property usually rises every six months and you can invest in a plot of land or flat. Real estate investments carry low risk.
Post office savings
It’s one of the safest investment instruments in India and offers the highest return. The post office monthly income scheme is immensely suitable for retired persons who want a regular income. You can park your provident fund money in a post office with absolutely no risk. But the rate of interest is pretty low.
Bank Fixed Deposit
Like the PPF, bank fixed deposits offer assured returns at the Interest rate of 6.5 to 7.5%. But the interest is fully taxable so the post-tax return for someone in the 30% tax bracket is a meagre 4.55-5.25%. So this option is out of the question. The tax-free bonds issued by PSUs.
Be as simple as you can be; you will be astonished to see how uncomplicated and happy your life will become.
Long Term Investment Strategy
Open a PPF account with a financial goal in mind. Not because it eligible for 80C deductions or for investing Rs. 1.5 lakh each year to get tax-free returns. Remember, a PPF account is suitable only for a goal which 15 full financial years away.
Find out how much you need to invest for the goal, determine the equity:debt asset allocation and stick to it.
Never withdraw from your equity holdings or PPF unless you really have to. The whole idea behind financial planning is to avoid such withdrawals. So ensure your personal finance essentials are taken care of. The same applies to a loan against PPF.