Investment is an act of putting your money into an asset now with the expectation that it will fetch you a profit at some future date when it is disposed of. When you buy any item today, you expect it to generate income tomorrow. In other words, you purchase an asset today for the express purpose of its cost appreciation in future. Today’s investment is tomorrow’s wealth builder. You have to devise a strategy to reap the best harvest with your money. A good strategy will build your wealth quicker, and an ordinary one will slow down your wealth building that much more. The bigger cause of your wealth building over time will need to adopt superior investment strategies.
Importance of Investment
Since investment is a tool to build your future wealth, it is important that you start at a time which will give you ample scope to nurse it to your specific needs. Your financial planning considering your objectives and goals, your risk appetite and the capacity to sustain your investments are issues that you need to factor in. When you are in your twenties and more or less taken a directional step in your professional life, it is the best time to contemplate a strategy to give shape to your investment dreams. You must also be planning to start a family when it is best to ponder over what your destination ought to be. With no dearth of opportunities in India, it is you who will have to analyze and choose the best path to enable you to fulfill your financial aims.
Study the Mechanics of Financial Planning
The general perception amongst most of the earning population is to stash some money for emergencies. While that is an important strategy, it is not enough as you are not working towards wealth creation, which is the prime goal for investment. You must understand the difference between savings and investment. You lock your money in the most traditional measures that you know:
- Save in a piggy bank.
- Maintain a hefty balance in your savings bank account.
- Put your money in term or fixed deposits in a bank.
While all these permit you to access liquid money, because of the inherent low returns in them, your wealth creation is illogically slow. Having to factor in the effects of inflation, you will realize that the returns from your safety first strategy will fetch you meager positive growth at best and a negative return at the worst. Your investment, therefore, ought to be such that it turns lucrative and gives you a positive net-of-inflation return with plans and options galore in India. Having got to the crux of the elementary mechanics at play, the best choice for you will be to balance your money into a fine blend of savings and investment options.
Factors that Affect Investment
If you want to implement the investment strategies that bear fruit, you have to outdo the factors that inhibit your investment. You aim to keep generating inflation negating returns with minimum risk to your capital. You need to cope with the three primary factors when you invest.
- Investment risk.
- Return on investment (ROI).
- Self involvement in investment.
As a conscientious investor, you must indulge in the following:
- Risk Management : You must assess the risk measure of your investment. Depending on your risk appetite, you have to choose the instrument you want to invest in.
- Return on Investment : You must work out the projected return your investment is likely to generate. It is not as simple unless you pick up the requisite skills.
- Active Self Involvement : Merely depending on your fund manager and looking out to safe instruments to fulfill your desires of handsome return may not be sufficient. Be a part of your investment and note the movements. You will have to resort to course correction in order to match your expectations.
Devise an Investment Strategy
An important part of your financial planning involves your ability to forecast your future expenses and what you wish to do with them. How will you set your goals? It is naïve to believe that it will be accurate; nevertheless, an analysis will put you on firm ground. The projections can broadly be made on the following elementary premises:
- Short-term goals:
- Buying gadgets for your house.
- Furnishing your house.
- Taking a vacation.
- Mid-term goals:
- Down payment for a house.
- Education of Children.
- Marriage of children.
- Health issues.
- Long-term goals:
- Planning for retirement.
- Financial independence.
The projections may not be exhaustive, but it certainly is indicative. The process of your wealth building begins with the clarity of your goals in your mind. Once you have crossed this bridge, you are in a position to weigh the possible investment options available to you in India, which to a large extent will satisfy your specific needs. You may consider the following 12 best options currently on the investment horizon.
12 Popular Investment Options
Stocks or equities establish your share of ownership of a company. They are traded in the exchanges and therefore are the most volatile of instruments, yet they are also likely to provide you with the best returns on investment. It comes with high risk perception, and its performance is dependent on the market forces at play. You may consider investing in these instruments with the help of a broker who will advise you against a small fee. Alternatively, you can trade online in an app or a web-based platform. Choosing the right and investing wisely could be your key to successful wealth creation.
2. Investing in Gold:
The metal that is most sought after in an Indian household is gold. Because of its rapid cost appreciation, it is one of the most lucrative forms of investment. Good investment options are offered by Gold Bars, Gold Deposit Scheme, Gold Mutual Funds and Gold ETF that provide growth in a short period. Purchase of some gold during religious celebrations is deemed to be auspicious. Banks also sell gold coins now in different sizes of the highest purity to suit your needs.
Sometimes the Government or large corporate houses express their intent to undertake large projects. The fund requirement is met by them by floatation of bonds for a specific time period and purpose. You can become a lender by purchasing such bonds and expect fixed but reasonably good returns on your investment. It is relatively safe and low-risk instrument to invest. Trading in bond is not easy, but you can opt for the Mutual Fund route by acquiring debt instruments or in the secondary market.
4. Mutual Funds:
Investment in Mutual Funds in India presently has turned out to be lucrative. The array of fund offers with different risk perceptions and potential, to woo the investor in you. The reach and the variety of these Mutual Funds work to your advantage and may help add strength to the wealth creation objective. You have the choice of lump-sum investment or small installments through the SIP route to enable you to reap the dividends by investing. By the sheer size, variety, and flexibility of offers in this sector, you can be a part of one of the best investment options available.
Raw materials used in commerce to make other products are called commodities. They can be in the form of agricultural products, energy like natural gas and crude oil and metals. A futures contract is the mode to invest in commodities. So you can consider these investment options. Choosing wisely is the key to investments here as you may either gain or lose heavily. It is best invest a small part of your money in the commodity market with a diversified portfolio.
6. Real Estate:
One sector that is attractive to invest in is the real estate. Real estate provides a good investment option that will help you to earn a steady income with long-term financial security. In the long run, its value is reputed to increase exponentially. Coupled with tax benefits, it helps you to counter inflation. You may access a generous amount of loan to buy a property and even mortgage your property to meet your emergency financial needs.
7. Initial Public Offering (IPO):
A good investment option for you is to invest in IPO. It is launched by a private company at the beginning to become a public company. An IPO is a public offering through which you can buy shares of a company. Buying them at launch is of great advantage as on listing, the prices shoot up providing you with handsome appreciation in value of your investment. You can also sell them at a later date to earn good profits.
8. Corporate Fixed Deposits:
The Fixed Deposit garnered by commercial firms pays interest higher than the bank FDs, but come with an element of risk. They are neither covered by any insurance nor approved by the Reserve Bank of India. The risk factor is high when you opt to invest in these Fixed Deposits despite the offer of higher rates of interest. If your risk appetite is high, this could be an investment option for you.
9. Bank Fixed Deposits:
Investing your money in term deposits in Banks is a great and safe way to earn reasonable interest on your investment. The investment option offered by banks are varied and with different tenures extending from 7 days to a maximum of 10 years. Your money in the form of fixed Deposit in the bank is fully safe and secure as it is covered by adequate insurance. In case of need, you are entitled to avail of a loan against your deposit. Your interest earning is somewhat shrunk by the imposition of tax on your interest earning if it exceeds Rs.10000 in a financial year.
10. Life Insurance Schemes
Buying a life insurance policy is crucial to your financial planning, not so much fully for the returns but the for the life coverage and financial security it provides to the family even in your absence. However, with a wide choice of products at your disposal, you are now in a position to maximize your returns over and above the life cover. ULIP offers a rare blend of life cover and investment. You get the option to invest in shares, bonds or mutual funds apart from risk cover for your life. Term plan is a low premium high sum assured scheme. Endowment plans help to fulfill your future objectives like education of your ward, their marriage, wealth creation, retirement, etc.
11. Post Office Savings Schemes:
This is among the safest investment options in India. Your investment choice could be a Monthly Income Scheme (MIS) account with a minimum initial amount of Rs 1500 or in like multiples for a period of 5 years. The interest is paid monthly for the full term. There are other savings schemes like Time Deposit (TD), NSC (for tax saving purpose) and Kisan Vikas Patra to choose from. The returns in these instruments are handsome and being a government-sponsored investment option, it is fully secured and one of the most popular modes of investment. As a bonus, you get tax savings on your investment in these schemes.
12. Provident Fund:
Provident fund is a valued investment instrument in India. A fixed percentage is deducted from your salary every month, and a like amount is contributed by your employer. This amount is paid with accrued interest upon your superannuation. A voluntary scheme on similar lines called Public Provident Fund (PPF) was launched by the government of India in 1968, and its popularity keeps growing. It is a 15-year scheme extendable by another five years. You can invest a minimum of Rs.500 and maximum Rs.1.5 lakhs in a year. Presently PPF attracts an interest of 8.6% effective from October 2018. The investment in all types of provident funds is tax exempt under Section 80C of the Income Tax Act, 1961. The tax concessions continue with the maturity payments also under Exempt-Exempt-Exempt format, making it one of the most popular investment options in India.
Investments are meant to create wealth for you over some time. But they also serve another purpose of making your life comfortable post-retirement with an amount of financial freedom. Wise choice of investment options amongst the plethora of opportunities available in India provides you with ample benefits and allows you to leave a healthy legacy not only for you to enjoy, but also to your successors.
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