When it comes to investing, it all boils down to the fact that how much profitable the investment channel would be for you. To be precise, your go-to investment vehicle should be the one that would give you higher returns at minimum risk.
However, finding a plan that gives maximum returns at zero risk does not exist in reality. In short, the higher the returns are, the more is the risk involved and vice versa. In a broader perspective, investment avenues can be categorised under two buckets—financial and non-financial assets. Financial assets can be further classified into fixed income products like fixed deposits and provident funds and market-linked products like gold and real estate.
With so many investment options floating in the market, it might get a tad difficult to choose the right plan. To make it easier for you, here are some popular investment options that can help you grow your money substantially.
1. Mutual Funds
Investing in mutual funds can be a great addition to your investment portfolio. A mutual fund is formed by collecting funds from various investors. The money is then invested in securities such as corporate bonds, stocks, and company shares. Mutual funds are managed by professional money managers.
- It’s easier to exit a mutual fund, especially when the market is doing good to earn better returns.
- The fund is taken care by an expert fund manager, so you don’t have to break your head doing all the research.
- Tax efficient under Section 80C of the Income Tax Act, 1961, provided you are investing in Equity-linked Saving Schemes (ELSS).
- Higher returns than other investment avenues like fixed deposit.
- Total fund management cost incurred can be overwhelming at times.
- Mutual fund investment is subject to market risk, which means if the market collapses, your investment may also go down the drain.
- There are many mutual funds that come with lock-in periods and exiting those may cost you a significant lot.
2. Fixed Deposits
Ideal for salaried, risk-averse investors, fixed deposits (FDs) let you earn a fixed sum over a fixed period. You can invest an amount as low as Rs.5,000 for a certain tenure and earn interest over it. After maturity, you will receive the principal amount along with the interest earned.
- The principal amount and the interest are protected under Deposit Insurance and Credit Guarantee Corporation (up to Rs.1 lakh).
- Tenures of up to 10 years.
- You can opt for monthly, quarterly, half-yearly, yearly, or cumulative interest.
- Special rates for senior citizens.
- Low returns compared to other investment avenues like mutual funds.
- Premature withdrawals would lead to penalty and lower interest pay out.
- Interest earned is taxable.
3. Public Provident Fund (PPF)
A popular avenue for salaried individuals, PPF is one of the safest options to put your money to work. It comes with a tenure of 15 years, so the returns are considerably good.
- Long tenure of 15 years.
- One of the safest investment options.
- Deposits made in a PPF account quality for income tax deduction under Section 80C.
- The interest rate is quite low compared to other avenues.
- NRIs cannot opt for PPF.
- Lock-in period of 15 years (partial withdrawals can be made after completion of 6 years).
4. Direct Equity Investments
Investing in stocks can give you the highest returns, however, as mentioned earlier, there are a lot of risks involved too. Tailored for risk-takers who want to stay invested for a longer period of time, equity investments can give you higher returns than all other asset classes.
- Better returns than all other asset classes.
- When you buy a stock of a company, you become part-owners of that company.
- If the company is doing well, you get to enjoy the share of profits.
- Riskier than all other asset classes.
- No guaranteed returns.
- Stock markets are volatile, and you may end up losing all your money if the market collapses.
- Trading can be done only through stockbrokers.
So, next time you plan to invest, make sure to consider these investment channels. Some are risky, some are not, but what matters the most is how you are planning to invest. One tip would be to diversify your investments to reduce the volatility of your portfolio. Other than the already mentioned investment vehicles, you can also put your money in gold or real estate, the former being a safer option. Plan properly so that you don’t lose out on better returns.