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Types of Investment in India

Know in detail about different types of Investment in India

#Investments
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Over the years, the Indian financial market has evolved. With this evolvement, financially savvy investors in the country have been given a plethora of short-term investment plans and long-term investment options to consider. Let’s check the various types of investments available in India.

Top 10 Types of Investment 2020

Following are the types of investment available in India:

  • Fixed Deposits
  • Mutual Funds
  • Public Provident Fund (PPF)
  • National Pension System (NPS)
  • Unit Linked Insurance Plan (ULIP)
  • Recurring Deposit
  • Real Estate
  • Direct Equity
  • Bullion
  • Senior Citizens’ Savings Scheme
     

Let’s discuss the types of investments available in detail below:

1. Fixed Deposits (FD)

Fixed deposits (FDs) are financial instruments offered by banks and financial institutions. These deposits allow investors to earn interest at a higher rate than what’s offered on regular savings bank accounts. By investing in FDs, you can either opt to have your interest paid out to you periodically or to have it reinvested. There are also tax-saving fixed deposits where you need to remain invested for a period of 5 years in order to claim tax benefits u/s 80 C of the Income Tax Act, 1961.
 

Types of Investments Max Life Insurance

Investment tips for Fixed Deposits:

  • Premature withdrawals from your FDs will incur a penalty
  • Hence, it is advisable to choose a suitable deposit tenure after keenly evaluating your future financial goals

  • While FDs are generally assumed to be risk-free instruments, in certain circumstances, they carry with them an amount of risk.  In the event that a bank fails financially, you are insured an amount of Rs.5 lakh per bank per depositor. By splitting your investment across different banks, you can effectively safeguard a good chunk of your finances
     

2. Mutual Funds

Mutual funds (MFs) invest in market-linked instruments such as stocks, bonds, or a mix of both equity and debt instruments. You can choose between equity funds, debt funds, and balanced funds depending on your financial goals and requirements. Furthermore, you can also invest small amounts periodically in MFs using a Systematic Investment Plan (SIP).

Investment tips for Mutual Funds

  • Review your risk preferences before investing. Invest in equity mutual funds if you have a higher risk appetite; for conservative investors, debt schemes are ideal

  • Understand the prevalent taxation system before investing. You can invest in tax-saving mutual funds such as the ELSS (Equity Linked Savings Scheme) to help maximize your returns

  • Understand the various charges you may incur while investing in a particular fund. This is commonly known as the expense ratio

3. Public Provident Fund (PPF)

Considered to be one of the safest types of investment in India, Public Provident Fund (PPF) is an instrument backed by the government. You can invest in PPF by opening an account with any bank or post office. While opening the account, the minimum investment amount is as low as Rs.100 in some of the banks (can vary for every bank). Thereafter, the annual limits for PPF deposits range from a minimum of Rs.500 to a maximum of Rs.1.5 lakh. The amount invested in your PPF account comes with a lock-in period of 15 years and is eligible for tax deductions under section 80C of the Income Tax Act, 1961.

Investment Tips for PPF

  • PPF interest is calculated on the basis of the minimum balance in one’s PPF account between the 5th of the month and the month end. Thus, you should make it a practice to invest before the 5th of every month

  • Investing in a PPF through a bank that provides the facility of online transfers is a must. This spells convenience and efficiency for investors and helps facilitate regular contributions
     

4. National Pension System (NPS)

The National Pension System (NPS) is another investment plan backed by the government of India. It’s a product that focuses on saving for the long term, making it the perfect addition to your retirement investment plan. The amount you park in this scheme is invested in a variety of other investment vehicles like equity, deposits, government securities, corporate bonds, and other funds. You can remain invested till you reach the age of 60.

Investment Tips for NPS

  • Make the most of your NPS investment by claiming the applicable tax benefits

NPS Investment plan Max Life Insurance

The National Pension System (NPS) is another investment plan backed by the government of India. It’s a product that focuses on saving for the long term, making it the perfect addition to your retirement investment plan. The amount you park in this scheme is invested in a variety of other investment vehicles like equity, deposits, government securities, corporate bonds, and other funds. You can remain invested till you reach the age of 60.

Investment Tips for NPS

  • Make the most of your NPS investment by claiming the applicable tax benefits. NPS contributions qualify for deduction under sections 80CCD (1), 80CCD (1B), and 80CCD (2)

  • You can choose from two different investment choices, i.e. active choice or auto choice. In an auto choice investment, the proportion of investment in different asset classes is predetermined. In active choice, you can determine the asset allocation, as per your preferences. If you are financially adept, you can go for the active choice option. If one doesn’t possess the required financial literacy, auto choice would prove ideal

NPS Investment plan Max Life Insurance

  • NPS contributions qualify for deduction under sections 80CCD (1), 80CCD (1B), and 80CCD (2)
  • You can choose from two different investment choices, i.e. active choice or auto choice. In an auto choice investment, the proportion of investment in different asset classes is predetermined. In active choice, you can determine the asset allocation, as per your preferences. If you are financially adept, you can go for the active choice option. If one doesn’t possess the required financial literacy, auto choice would prove ideal

5. Unit Linked Insurance Plans (ULIP)

Unit Linked Insurance Plans (ULIPs) are among types of investments that come with tax benefits as well. It’s an instrument that offers you the advantage of investment combined with insurance. The premium you pay to remain invested is divided into two portions. One part goes towards providing you a protective life cover, while the other is invested in market-linked instruments or funds. ULIPs also provide deductions under Income Tax Act 1961 as per prevailing tax laws, since the premium paid is deductible, and the maturity benefits and long-term capital gains are tax-free.

Also Read: How to Save Tax with ULIP?

Investment Tips for ULIPs

  • Make note of the charges you may incur upon investing in this type of investment. These may include premium allocation charges, administrative charges, fund management charges, mortality charges and more. Invest in a ULIP from an insurer provider that levies a minimum amount of charges

  • Opt for a ULIP that provides an optimum amount of flexibility. You should pick a plan that offers flexibility in terms of premium payments, customizable plans with different fund options and the ability to easily redirect your premiums and switch funds, according to market movements and evolving risk appetite

  • ULIPs also offers flexibility to opt for an asset allocation strategy depending on the risk appetite and goal in mind. Policyholder can opt for a fixed proportion to be maintained in equity and debt throughout the policy term [1]
     

6. Recurring Deposits

Recurring deposits (RDs) are easily one of the best ways to save up for short-term goals. These are term deposits offered for regular savings into their account. One of the most beneficial features of RDs is that they allow you to save up smaller amounts at regular periodic intervals, so you don’t need to worry about making a huge, lump sum outlay. To invest in a recurring deposit, you need to open an account with a bank or a post office and deposit a fixed amount each month. The interest on your deposit continues to accumulate, and you can choose to either have it reinvested or to have it paid out to you on a monthly, quarterly, semi-annual, or annual basis.

Investment Tips for RDs

  • You can prematurely withdraw your funds from an RD. You will, however, be liable to pay penalty charges. Opt for a financial institution that levies low penalty charges, so as to minimize your financial outgo should you need to withdraw funds

  • You can also avail of a loan or overdraft facility with your RD as collateral. Up to 80-90% of RD value can be disbursed as a loan
     

7. Real Estate

Investing in real estate involves purchasing residential or commercial properties to allow your capital to appreciate or to generate regular rental income. This way, you get to enjoy a steady stream of income in the form of rent. Another strategy is to purchase real estate units, hold them, and then sell them at a later point in time for a higher price, thus earning a significant return on your initial investment.  

Investment in Real Estate Tips

  • If you’re looking to score a higher rate of appreciation, make simple improvements and upgrades to your real estate investment. This can go a long way in increasing the market value of your property

  • Understand the additional costs you may have to incur on your real estate purchase. These may include annual maintenance and upkeep outgo, taxation, utility expenses and more
     

8. Direct Equity

Investments in equity markets provide avenue for wealth creation over a long period of time. It takes a great deal of research and prudence to identify the right companies to invest in You also need to time your entry and exit prudently, and it involves continuous monitoring of investments. Capital appreciation happens over long period of time and is dependent upon market volatility. The good news is that in the long run, direct equity has been shown to deliver greater inflation-adjusted returns when compared with many other classes of assets.

Investment Tips for Direct Equity

  • Comprehensive research of sectors and companies to invest in.

  • Make use of a reliable and secure platform for trading. Use an intermediary who provides comprehensive services like market insights, stock research

  • Diversify your investments into shares of companies with robust fundamentals. This ensures that you weather the ups and downs of the market with ease
     

9. Bullion

Bullion essentially includes precious metals like gold and silver. One can invest in Sovereign Gold bonds provided by Government. These bonds also give annual interest which is not available for investors holding precious metals in physical form. You can invest in bullion by purchasing these precious metals in their physical form. For instance, you could buy gold or silver in the form of bars or coins. Alternatively, you could also invest in Gold ETF, which are units representing physical gold. They can be bought in paper form or dematerialized form. Much like real estate, you can hold bullion until its value rises, and then sell it for a greater price, thereby making a profit. You could also continue to hold it for the long term and sell it in case you’re in need of emergency funds, since bullion is highly liquid.

Investment Tips for Bullion

  • When determining which precious metal to invest in, pay particular attention to volatility. For instance, silver is considered to be more volatile than gold, so those investing in silver should exercise due caution.

  • When determining whether to opt for coins or bars, take into account liquidity and ease of trading. Coins are easier to trade and more liquid as opposed to bars, which are, in turn, generally suited to high-end investors.
     

10. Senior Citizens’ Savings Scheme

Senior Citizens’ Savings Scheme (SCSS) is one of the types of investments backed by the Government of India. Indian residents over 60 years of age can open an SCSS account and invest in this scheme for a block of 5 years. Thereafter, the investment can be extended by another 3 years, if needed. You can deposit up to Rs.15 lakh in your SCSS account in multiples of Rs.1,000 only. Deposits up to Rs.1 lakh can be made in cash. However, deposits over Rs.1 lakh need to be made using a demand draft or cheque. Investments in SCSS also qualify for deduction under section 80C, up to a limit of Rs.1.5 lakh.

Investment Tips for SCSS

  • While investors do have the option of premature withdrawal, they must bear in mind that a penalty charge ranging from 1-1.5% of the deposit will be levied

  • While the SCSS provides a high rate of interest as compared to other fixed income instruments, this interest rate may be subject to change based on a quarterly review. Investors must keep track of this rate of interest

Things to Bear in Mind While Investing

If you are a beginner to investing your money, some sound financial advice may be just what you need to help you get started with planning your investment policy.

Here are some investment tips that will prove useful -

  • Identify your tolerance for risk. In other words, this is your risk appetite. The kinds of investments you choose will depend greatly on your risk tolerance

  • Use an investment calculator to get a rough estimate of how the instruments you’re planning to invest in will yield returns after their term is up. There are many investment calculators available for free online

  • Chart out your short-term and long-term financial goals, and pick investments that align with those objectives

  • Diversify your investment portfolio, so it has a balanced mix of high-risk and low-risk investments

  • Ensure that you have a retirement investment plan in place, because it’s important to save for your golden years

  • Review your investments periodically to verify if they continue to remain aligned with your personal goals

Conclusion

With this comprehensive guide to getting started with different types of investments in India, you can begin the process of charting out your financial plan. By investing your earnings prudently, you can ensure that your hard-earned money is parked in investments that help you meet your short-term and long-term financial goals.

Investment planning or financial planning is also a great way to plan for retirement, so you can finally exit the rat race and take some time to do what you’ve always wanted to do in your golden years, whether it’s something as simple as learning a new skill or something as grand as traveling the world.

Please consult your financial advisor before investing.

[1]https://www.financialexpress.com/money/insurance/looking-to-buy-ulips-know-these-investment-strategies-to-maximise-gains/1449397/

ARN:- June/Bg/25

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