Investing is one of the best ways to make your money grow. While you should always keep a healthy amount aside in a secure and reliable savings account, utilizing a portion for investing is a wise financial move.
Whether you’re a student, just joined the workforce, or are in your later years, it’s always a good time to start investing.
Here are some of the best investment plans available in India so you can secure your wealth.
Why Invest Instead of Simply Saving?
India has many options for schemes that can serve as both a savings scheme and an investment scheme, so you can get the best of both worlds.
Savings plans are a good idea to ensure that some of your funds are kept safe, away from being affected by the variability of the stock market. Many savings plans also offer a modest interest rate, so even your savings will be making some money over time.
When it comes to pure investment, the benefit over a savings plan is simple: higher returns. Some investment plans will also have maturity schedules that suit your needs better, rather than the long maturity rate for savings plans (sometimes 10 years or longer).
Since investments tend to be riskier than a simple savings account, it means you are also more likely to get more money faster if all goes well.
Investing wisely can be a great way to pad out your savings while continuing to accrue interest and returns with the money you leave in the investment account.
Investing can be a method for maximizing your money, helping to create a secure financial future for yourself and your family. It can help ensure more funds for future life events like attending university, getting married, buying a house or vehicle, your children’s education and other needs, retirement, and more!
How to Choose the Best Investment Options for You
There are many investing pathways to explore, so it’s important to understand your goals and spending abilities before diving in. Consulting with a broker or financial advisor is a great idea when making money moves.
These are the top factors to keep in mind when you’re thinking of investing.
First Steps
Set goals
Decide what you’re saving and investing for and choose a timeframe and/or monetary value to strive for. When you reach your goal, you can re-evaluate and decide if you want to stay on the same path or modify your methods. Perhaps you open another investment or savings account to suit your new needs as someone with more funds than before.
Decide your risk tolerance
Investing often comes with lots of risk. While you can earn a lot with investments that pay off, you can also lose a lot. Decide how much you’re willing to put at stake as well as how risky you want to be with your investment. You can choose low-risk or risk-free investments for smaller returns or moderate- to high-risk for greater returns.
Building Your Portfolio
Diversify
Avoid setting all your investments in one place. Diversity your portfolio with different types of investments. At first, you may only be able to choose one or two options, but as your wealth grows, be sure to spread your investments over a variety of products to help maximize gains and minimize losses.
Tax Implications
many investment and savings plans will affect your taxes. Be sure to research what tax benefits you may get from specific accounts, as well as if they will require you to file your taxes differently than usual.
Costs and Fees
Some accounts will have associated fees and/or minimum instalment amounts required per month or per annum. Be sure to take these costs into account in your budget.
Consult a Financial Advisor
One of the best things you can do is consult with a professional. They can help you determine the best choices for your goals and situation as well as help you set up your accounts properly.
Maintaining Your Investments
Audit Your Investments
Be sure to check on your investments regularly. If you have an account with a company that manages the investment on your behalf, you can tell them to notify you of certain changes so you’ll always be aware. It’s always a good idea to check on your finances regularly to make sure nothing bad has happened to them.
Be sure to transfer funds into savings if it is part of your financial plan to do so.
Trust the Process
Even when the market fluctuates and negatively impacts your investment, you need to follow your financial plan and make sure that you stick to it. It can be easy to feel like you should sell your stocks in rough times, but sometimes you need to stick it out and wait for the stock’s value to rise again. This is a great topic to discuss with a financial advisor.
Optimal Investment Schemes
Here are the top 10 best investments you should consider for your portfolio.
Public Provident Fund (PPF)
An investment that also works as a type of savings, a PPF is a government-backed fixed-income scheme offering risk-free returns, making it a secure investment choice. It’s accessible at most Indian banks and post offices. It’s available for people of all ages, but minors’ accounts must be managed by guardians until they turn 18. PPF requires a minimum annual investment of INR 500, with a maximum limit of INR 1.5 lakh per year, allowing deposits up to 12 times within a financial year.
The current annual interest rate is 7.10%, subject to quarterly adjustments by the government, typically fluctuating by 0.25% to 0.75%. The scheme matures after 15 years, but partial withdrawals are permitted after five years. PPF also offers tax advantages: investments qualify for tax deductions, and the interest earned is tax-free, making it a beneficial choice for long-term, tax-efficient savings.
Post Office Monthly Income Scheme (POMIS)
The Post Office Monthly Income Scheme (POMIS) is popular for those seeking a steady income stream, especially people like housewives and individuals with passive income. The scheme allows a range of account types, including single, joint (up to three adults), and accounts for minors and individuals of unsound mind. With a minimum investment of INR 1,000, it has a cap of INR 4.50 lakh for single accounts and INR 9 lakh for joint accounts.
The POMIS account matures after five years. Premature closures are possible, with penalties of 2% of the principal if closed between one and three years, and 1% if closed between three and five years. The scheme offers a 6.6% annual interest rate, credited monthly and taxable. Nominees can claim the account balance if the depositor passes away before maturity. Interest can be credited to a savings account or via electronic clearance.
Government Bonds
Previously accessible only through gilt mutual funds, individuals can now purchase government bonds directly. Both state and central governments issue these bonds, known as State Development Loans (SDLs) and G-Secs, respectively. Investors can buy bonds via platforms like the Reserve Bank of India’s e-Kuber app, participating banks, primary dealers, stock exchanges, or broking platforms.
Most government bonds have fixed interest rates, offering half-yearly interest payments over the bond’s term. The maturity length varies, from one year to longer terms. Tax is charged on interest income per the investor’s tax bracket, and any capital gains are also taxed.
National Pension Scheme (NPS)
The National Pension Scheme (NPS) is a government-monitored pension fund designed to help individuals build a retirement corpus through investments in diversified portfolios, including government bonds, corporate debentures, and equities. When the account matures, the accumulated amount is partially available for withdrawal, while the rest is used to purchase a life annuity.
There are two types of NPS accounts: Tier I and Tier II.
The Tier I account is mandatory and open to Indian citizens aged 18-65, with a minimum annual investment of INR 1,000. Withdrawals are restricted until the account holder reaches 60, when they can withdraw up to 60% of the corpus; the remaining 40% must be used to buy a pension plan. Investments of up to INR 2 lakh annually are tax-exempt under Sections 80C and 80CCD.
The Tier II account is voluntary, accessible only to Tier I account holders, and does not require annual contributions or have a lock-in period. However, it doesn’t offer tax benefits, except for government employees holding investments for three years. Returns on both accounts depend on the net asset value (NAV) of pension funds.
Sovereign Gold Bonds (SGBs)
Sovereign Gold Bonds (SGBs) are government securities issued by the Reserve Bank of India, denominated in grams of gold, with a minimum purchase of 1 gram.
The loans are made available multiple times yearly through RBI auctions. You must have a PAN card and can buy these loans via banks, post offices, or stockbrokers. Each unit represents one gram of pure gold at recent market prices, with a maximum purchase limit of 4 kg for individuals and 20 kg for trusts. SGBs offer a 2.5% annual interest, paid biannually, and mature in eight years (early redemption is allowed after five years). Interest is taxed, but maturity gains are tax-free.
Equity Mutual Finds (EMF)
An equity mutual fund pools investors’ money to invest in stocks for higher returns. These funds are accessible via SEBI-authorized platforms and typically require a minimum investment of INR 1,000, with no upper limit. A demat and trading account are generally needed, though growth funds allow investments without a demat account. Investors can freely redeem open-ended funds, but equity-linked savings schemes (ELSS) have a three-year lock-in period. Equity mutual funds often yield high returns, with top-performing funds showing up to 35% annualized over five years. Short-term capital gains are taxed at 15%, while long-term gains over INR 1 lakh incur a 10% tax.
Unit-Linked Insurance Plans (ULIPs)
Invest in a blend of insurance and investment by using part of the premium for coverage while the remainder goes towards equity or debt funds. Available through Indian banks and insurers, ULIPs require proof of income, with premiums starting around INR 1,500 monthly. Tax benefits apply for up to INR 1.5 lakh annually under Section 80C, with additional charges for various services. ULIPs have a five-year lock-in period, and investments can continue long-term, typically around 10 years. Returns vary based on fund performance, and ULIPs are tax-exempt under the EEE category, covering investments, returns, and withdrawals.
Gold Exchange-Traded Funds (EFTs)
Gold ETFs allow investors to own gold without holding it physically by investing in gold units through a demat account. They are available via stock exchanges or as gold funds for those without demat accounts. Investors can start with one unit (1 gram of gold), with no cap on maximum units. Gold ETFs have no lock-in period, and their returns depend on market performance. Taxed per income slab if held under 36 months, with 20% tax and cess after 36 months.
Corporate Bonds
Corporate bonds are low-risk investments issued by companies to raise capital, offering regular interest (coupon) payments and principal repayment at maturity. These bonds are available through financial institutions, banks, and brokerage platforms. Minimum investment amounts vary by issuer, making some bonds accessible to individual investors. Returns come from semi-annual coupon payments and principal repayment at maturity. Maturity periods differ, allowing investors to align bonds with their financial goals. Interest income from corporate bonds is generally taxable, with specific tax treatment depending on bond type and investor tax status.
Initial Public Offerings (IPO)
An Initial Public Offering (IPO) occurs when a private company offers its shares to the public, allowing investors early ownership in its stock market journey. IPOs are available through brokerage firms with a Demat and trading account. Investment amounts vary, starting from as low as INR 100, though larger investments can improve allotment chances. IPO investments lack a lock-in period, allowing for quick sales post-listing. Returns can be high with company growth but come with great risks of market volatility. Gains are taxed based on holding the period and local tax laws.
Investing is a great way to make your money work, but it’s wise to be well-informed about the specific route you plan to pursue when it comes to putting your money into an investment. Be sure to research thoroughly and speak with a financial advisor if needed.
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