A smart investment means high returns, as soon as possible, without the risk of losing the principal amount. Most investors’ lookout for investment plans where the invested money is magnified over a less duration with minimum risk. The safe play would be to go to the Securities and Exchange Board of India (SEBI) registered investment advisor before making an investment.
There are mainly two broad types of investment products:
Financial assets: These can be of two kinds, market-linked products like stocks and mutual funds and fixed income products like Public Provident Fund or bank deposits.
Non-financial assets: These can be in form of gold or real estate. Most Indians make an investment in non-financial assets.
The investment should ideally depend upon the risk profile, financial goals, and product investing in, of the investor. The risk profile of the investor depends upon the level of risk one is ready to take because the reality is, higher the returns, higher the risk.
Let us look at the top investment options that are available in the present market situation:
1. EQUITY MUTUAL FUNDS: It is believed to be one of the best ways to invest in India. Top funds generated nearly 20% of compound annual growth rate (CAGR) in the duration of 10 years. If we talk in numbers, it means investing Rs 1 lakh and gaining returns of more than Rs 6 lakhs. Mutual funds are in a true sense a mass product in wealth creation. Investment of as little as Rs. 500 per month can be a successful investment. The investor should be a both patient and persistent.
2. NATIONAL PENSION SYSTEM (NPS): NPS is one of the safest investment options as it is a government-sponsored scheme. Another eminent feature of NPS is the assurance of a minimum pension amount. The minimum annual (April-March) contribution for NPS Tier 1 account to remain active has been reduced from Rs 6,000 to Rs 1,000.
3. PUBLIC PROVIDENT FUND (PPF): It has a tenure of minimum 15 years. It is a good investment especially for salaried individuals who can keep aside a dedicated amount every month. One can even avail instant personal loan on the PPF if needed and even make an early withdrawal from the 7th year of the PPF’s existence.
4. REAL ESTATE: The returns from the investment from real estate are in two ways: capital appreciation and rentals. Real estate is a highly illiquid investment. Another issue is regulatory approvals.
5. GOLD: This is one of the most invested forms by Indians. However, it has its own problems like safety and high cost. Another issue is the ‘making charges’ of the jewelry which are as high as 14 percent of the cost of gold. A good alternative to this might be gold coins!
Thus, we may say that some investments are fixed while others are market linked. The difference is that while market-linked investments help in navigating the variability and generate a high return, the fixed income investment help in preserving the accumulated wealth. You can/ should have a mix of both kinds of investments keeping your risk profile in mind.