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Most of us realize with time that financial security is not about just having a job that pays the bills. Beyond earning money, we need to save and beyond saving we need to find ways to make the savings grow. The ideal way to make your savings grow is to invest. This is where the key question – “where and how to invest money” arises.
Read on to learn the different options where you can invest your money and how to choose your investment option wisely so that you can grow your wealth in the long term.
How to Choose Where to Invest Your Money
Many investors try to figure out the ideal option to invest their money based on just one consideration – high returns. But this can be a very short-sighted way to select a suitable investment. There are a number of other factors in addition to potential returns that you should consider as well:
- Risk Tolerance – How much risk you are willing to take
- Investment horizon – How long you are willing to stay invested
- Financial goals – Whether the goal is to grow wealth, build an emergency fund, save taxes, etc.
- Liquidity – How easy or difficult it is to sell your investment if you need to
However, the above list is not exhaustive because each individual investor has unique needs that can impact the choice of where to invest money to achieve financial goals. This is why, different groups of investors tend to choose different investment options ranging from tax saver fixed deposits to Equity Mutual Funds to try and achieve their unique financial goals.
Different Options Where You Can Invest Money
Amidst various investment plans, deciding where should I invest my money, and which one is the best can be challenging and a little tough without any prior understanding. Here are a few key investment options you can choose from:
1. Fixed Deposits and Recurring Deposits
In India, fixed deposits and recurring deposits are popular routes to invest money due to the assured returns and relative safety of these investments. While the returns from these investments is comparable, these serve different investment goals. Fixed deposits require relatively large lump sum that accrue interest and grow the investor’s wealth in the long term. Recurring deposits are more suitable for investors who are seeking an investment where they can invest money regularly to develop a habit of saving and grow their wealth at the same time.
2. Public Provident Fund
The Public Provident Fund, is a government-back long-term scheme, where one can invest money to get guaranteed returns and save taxes at the same time. PPF account can be opened with leading banks or the post office where you can invest money in small amounts or as a lump sum. PPF is a EEE investment, so, the investment made, returns earned and the maturity amount are all tax-free.
3. Unit Linked Insurance Plans
Financial security is not just about having a secondary source of income, ensuring you are adequately secured against various risks is also important. This can be achieved by purchasing insurance. In case an investor is looking for an option where to invest money to get the dual benefit of wealth creation and insurance, then Unit Linked Insurance Plans (ULIPs) is the correct choice. Apart from these benefits, ULIPs also provide tax deduction benefits on investments made.
4. Mutual Funds
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Mutual Funds are considered a good way to invest money in Equity and Debt markets without directly trading in stocks and bonds. While returns from mutual funds are not guaranteed, these investments can help long-term term wealth creation by providing inflation-beating returns. Depending on whether you are seeking a short-term or long-term investment where to invest money, you can choose from a wide variety of Equity, Debt and Hybrid Mutual Funds.
The above options are by no means the only options where you can invest money in India. The list is almost unending starting with government schemes that have assured returns like NSC and Sukanya Samriddhi Yojana to insurance plans like Child Education Plan and Retirement Plans. All you need to do is figure out the appropriate place where to invest money and as long as you meet the eligibility criteria you are free to make the investment of your choice.
Mutual Funds are considered a good way to invest money in Equity and Debt markets without directly trading in stocks and bonds. While returns from mutual funds are not guaranteed, these investments can help long-term term wealth creation by providing inflation-beating returns. Depending on whether you are seeking a short-term or long-term investment where to invest money, you can choose from a wide variety of Equity, Debt and Hybrid Mutual Funds.
The above options are by no means the only options where you can invest money in India. The list is almost unending starting with government schemes that have assured returns like NSC and Sukanya Samriddhi Yojana to insurance plans like Child Education Plan and Retirement Plans. All you need to do is figure out the appropriate place where to invest money and as long as you meet the eligibility criteria you are free to make the investment of your choice.
Top 5 Reasons to Invest Your Money
The key goal of any investment is wealth creation i.e. grow one’s wealth over time. But, that’s not the only reason why we seek answer to the question where we should invest our money. There are a few other benefits that you can get from your investments. Here is a short list of 5 key reasons to make investments:
· Secure and fulfilled long-term goals
There is a lot of potential for long-term gains if you pick the right place where to invest money. This ensures that you make your money work for you and act as a source of secondary income for the future. However, since each investor has unique needs, the choice of investment will vary from one investor to another.
· Diversification of Assets
In addition to emphasizing money management and asking yourself - where should I invest my money to create a secondary income, investing your money in different assets can be a terrific strategy to diversify your assets. Diversification ensures that your investment portfolio contains multiple asset classes so that it is minimally impacted by changing market conditions.
· Tackling Inflation
Choosing investments that grow your wealth by generating inflation-beating returns is a wise way of settling the debate regarding where to invest money. If your investments outperform the rate of inflation, the money you have invested will grow over time. This way investment can be an excellent method to offset the rising cost of living and improve your financial preparedness for the future.
· Generating Additional Income
We work in order to earn money. But investing your money wisely allows you to earn money without doing any additional work. This is because, by investing your money wisely, you can make your savings work for you and help create additional income without any additional work. While there are multiple options using which you can invest money to generate passive income, you need to choose one that suits your unique requirements. However, do keep in mind, most of the times, such income might be taxable as per your income tax slab rate or other applicable taxation rules.
· Achieve Your Financial Goals
While spending less than you earn can help you achieve various financial goals, investing can grow your wealth faster so that you reach your goals quicker. This hold true whether you are trying to achieve a short-term or a long-term goal. So wisely choosing where to invest money makes it easier to reach your financial goals.
· Tax Savings
Some investments like Public Provident Fund, Unit Linked Insurance Plans, Voluntary Provident Fund, tax saver FDs, etc. allow you to save taxes. Such investments provide a dual benefit – the growth of your wealth as well as reduced income tax liability under Section 80C of the Income Tax Act.
· Achieve Your Financial Goals
While spending less than you earn can help you achieve various financial goals, investing can grow your wealth faster so that you reach your goals quicker. This hold true whether you are trying to achieve a short-term or a long-term goal. So wisely choosing where to invest money makes it easier to reach your financial goals.
· Tax Savings
Some investments like Public Provident Fund, Unit Linked Insurance Plans, Voluntary Provident Fund, tax saver FDs, etc. allow you to save taxes. Such investments provide a dual benefit – the growth of your wealth as well as reduced income tax liability under Section 80C of the Income Tax Act.
FAQs
Q1. Why should I diversify investments when I am choosing where to invest money?
At any given point of time you might be pursuing multiple financial goals such as buying a house, saving for a new car, creating an emergency fund and so on. Each of these goals features different time horizons, hence your risk tolerance level for each investment will be different. That’s why you cannot rely on a single type of investment to reach all your goals. This is reason why you need to diversify your investments.
Q2. What is the best investment for young investors?
If you are new to investments, it might be a good idea to start with something simple like a recurring deposit. This can be a starting point to ensure you develop a habit of saving regularly. However, if you are able to tolerate a higher level of risk in order to get potentially higher long-term returns, you should consider investing in Equity Mutual Funds via a Systematic Investment Plan (SIP).
Q3. What should I keep in mind before investing?
You should be aware of your existing financial condition and the amount you can set aside each month or on a regular basis for investing before you choose where to invest your money. Additionally, make sure you set aside an adequate amount as an emergency fund so that you have adequate financial protection in place before you start making investments.
Q4. Once I get a fair idea on investment, what to do next?
Setting your objectives, including why you are investing and how you intend to spend your funds, is necessary after you are aware of your investment cap. Your goals could include any arrangement of the following:
- Safeguarding your family
- Education of your kids
- Retirement preparation
- Controlling and enhancing your riches
Q5. When should I start investing?
The simple answer is to start today, if you haven’t started already. The earlier in life you start making investments, the greater will be the time you can stay invested. By staying invested longer, you can benefit from the power of compounding to the fullest and grow your wealth in the long term.
Sources:
https://www.thestatesman.com/business/top-investment-options-india-compare-choose-suits-best-1503085951.html
https://mint.intuit.com/blog/investments/benefits-of-investing/
https://www.franklintempletonindia.com/investor-education/new-to-investing/article/importance-avenues-of-investing-money/importance-avenues-of-investing-money
https://www.outlookindia.com/business/5-ways-for-young-investors-to-start-investing--news-46704
https://economictimes.indiatimes.com/markets/expert-view/3-things-to-consider-before-you-start-to-invest/articleshow/90891661.cms
https://economictimes.indiatimes.com/wealth/invest/10-questions-to-ask-yourself-before-investing-in-any-financial-product/articleshow/84290870.cms
https://www.axisbank.com/progress-with-us/invest/top-reasons-to-start-investing-at-an-early-age
ARN No : Sept22/Bg/13
