Here is a look at 10 financial investment avenues you can consider when saving for your financial goals:
Stocks
Investing in direct equity can yield returns higher than inflation-adjusted returns of many other assets, provided you remain invested for the long term. However, not everyone finds investing in stocks comfortable. Their volatile nature means returns are uncertain, and accurately timing the entry and exit points as well as selecting the right stocks can be challenging.
One approach to mitigate the risk associated with stock investments involves diversification across various sectors and market capitalizations.
To participate in trading equity shares on the stock exchange, it's essential to have the appropriate accounts in place. These consist of a demat account, a trading account, and a bank account. These three components create the necessary framework that enables investors to engage in share investments.
Equity mutual funds
An equity fund refers to a mutual fund scheme primarily centered on investing in equity stocks. In the Indian context, according to the prevailing SEBI Mutual Fund Regulations, an equity mutual fund scheme is obligated to allocate at least 65% of the scheme's total assets in equities and equity-related instruments. An Equity Fund can be actively managed or passively managed. Passive management is seen in Index funds and ETFs. Equity mutual funds are primarily sorted based on factors like the company's size, the investment approach applied to the holdings within the portfolio, and geographical focus.
The magnitude of an equity fund is determined by its market capitalization, while the investment approach, evident through the fund's stock holdings, is also utilized for categorizing equity mutual funds. Additionally, equity funds are classified based on whether they are domestic (investing solely in Indian company stocks) or international (investing in stocks of foreign companies).
Debt mutual funds
"A debt fund functions as a mutual fund scheme primarily dedicated to investing in fixed income instruments. These instruments encompass Corporate and Government Bonds, corporate debt securities, money market instruments, and more, all of which offer opportunities for capital appreciation. Debt funds are alternately known as Income Funds or Bond Funds.
They serve as a suitable choice for investors seeking regular income while maintaining a cautious attitude toward risk. In comparison to equity funds, debt funds exhibit lower volatility and consequently present a lower level of risk. If you have been saving through conventional fixed income products like Term Deposits and are in search of consistent returns with minimal fluctuations, opting for debt mutual funds might be a preferable route. These funds can aid you in reaching your financial objectives with heightened tax efficiency, leading to improved returns," as stated on the AMFI website.
National Pension System
The Pension Fund Regulatory and Development Authority (PFRDA), established under the PFRDA Act of 2013, supervises the National Pension System (NPS). This system is market-linked with defined contributions. It assigns a unique Permanent Retirement Account Number (PRAN) to each subscriber, managed by the Central Recordkeeping Agency (CRA). NPS offers two accounts: Tier-I, a pension account with limited withdrawals, and Tier-II, a voluntary account with investment flexibility. To use Tier-II, an active Tier-I account is necessary.
Contributions grow within NPS, linked to market performance, until retirement. At retirement, a minimum of 40% must be used to buy an annuity for a lifelong pension from an insurance company. The rest is given as a lump sum.
Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a 15-year plan extendable in 5-year blocks. It's accessible through designated post offices, bank branches, and some banks offer online account opening. Transfers between post office and bank are permitted. Anyone, regardless of age or EPF membership, can open a PPF account. Deposits are capped at 12 times annually, and to earn interest for the entire month, deposit before the 5th. Interest is computed on the lowest monthly balance. Many invest a lump sum at the fiscal year's start. Loans and partial withdrawals are feasible too.
Bank fixed deposit (FD)
A bank fixed deposit is considered a relatively safer investment option in India compared to equity or mutual funds. According to the deposit insurance rules by the DICGC, each bank depositor is now insured up to Rs 5 lakh, effective from February 4, 2020, covering both the principal and interest.
Previously, the coverage was limited to Rs 1 lakh for both the principal and interest. These deposits offer various interest payment frequencies, including monthly, quarterly, half-yearly, yearly, or cumulative options. The interest earned is added to the depositor's income and taxed based on their income bracket.
Senior Citizens' Saving Scheme (SCSS)
The Senior Citizens Savings Scheme (SCSS) is exclusive to older adults and those who retire early. Individuals aged 60 and above can invest in SCSS through a post office or bank.
With a five-year term, SCSS can be extended by three more years after maturity. The scheme offers quarterly interest payments that are fully taxable. Keep in mind that the interest rate is subject to quarterly reviews and potential revisions.
Real Estate
The home you reside in is meant for personal use and should not be regarded as an investment. If you don't plan to live there, a second property can be seen as an investment opportunity.
A property's location is the pivotal factor influencing its value and potential rental income. Real estate investments offer returns through appreciation and rentals. Nevertheless, real estate differs from other assets due to its high illiquidity.
Gold
Owning gold in the form of jewelry poses concerns like security and high expenses. Additionally, there are 'making charges' ranging from 6-14 percent of the gold's cost (and even up to 25 percent for special designs). However, there's an alternative for those interested in gold coins.
An alternative way to possess gold is through paper gold. Investing in paper gold is more cost-efficient and is achievable via gold ETFs. These investments occur on stock exchanges such as NSE and BSE, with gold as the underlying asset. Sovereign Gold Bonds and gold mutual funds are other options for paper gold ownership.
RBI Floating Rate Savings Bond
The interest rate on RBI savings bonds is connected to the National Savings Certificate's rate. The interest on these bonds is 0.35% higher than the NSC rate. If the NSC rate changes, the interest on the RBI savings bonds adjusts accordingly.
Hence, with a 0.35% addition to the current NSC rate, the RBI savings bond rate is 8.05%. Unlike the quarterly NSC review, the bond's rate is revised every six months. The minimum investment starts at Rs 1,000, with no maximum limit. Bonds mature in seven years.
Individual investors aged 60 and above can make early withdrawals, following a minimum lock-in period based on their age. Unlike cumulative NSC interest, these bonds pay interest biannually on January 1 and July 1.
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