Thinking of the best way to save money for the future? This is a common question that crops up in the mind of every individual, irrespective of his/her financial position and professional profile. Now, the question is, how to invest for the future when there are so many options to choose from? This is where the problem of plenty arises. There are literally tons of savings and investment channels that you can consider for accumulating a future corpus for your retirement, meeting goals like children’s education/weddings, buying a house/car and so on.
While choosing any avenue for investment, you should always be clear about syncing your own risk profile with the risks associated with the investment in question. Some investments will automatically carry higher risks, particularly when it comes to investing money for beginners but they will have the possibilities of higher returns that beat inflation too. Some investments will have lower risk levels and hence lower returns as well.
Different ways to invest for the future
There are several investment options available for you to consider. Here’s taking a look at the same:
- Equity (Direct) – Stock market investments are not for everyone as you well know. The volatility of the market and the risk attached to these investments often deters investors since returns are not guaranteed. It is also tough to choose a suitable stock along with timing the entry or exit. However, over longer durations, equity has offered returns which are higher than inflation in comparison to almost all other asset classes. Simultaneously, there is the risk of losing all your money or a sizable chunk of it, in case of losses. Diversification of stock market investments is recommended for cutting losses and spreading the risk.
- Equity Mutual Funds– These are mutual funds which majorly purchase equity stocks in the market. Based on the SEBI (Securities and Exchange Board of India) regulations, these schemes should deploy a minimum of 65% of their assets into equity and equity linked market instruments. These funds may be either passively or actively managed. Equity schemes will be classified on the basis of factors like business sectors being invested in or the market capitalization.
- Debt Mutual Funds– These funds offer steady returns with comparatively lower risk levels. However, the returns may be lower in comparison to equity funds as well. Yet, these funds are safer options and are preferred by investors since they invest in securities that generate fixed income, such as treasury bills, government securities, corporate bonds, commercial papers and so on. There are nominal credit and interest rate linked risks while investing.
- NPS- The National Pension System is one of the most effective investment avenues for the long haul. This is a safe investment product where the minimum annual contribution threshold now stands at Rs. 1,000. This is a mixture of corporate bonds, equity, liquid funds, FDs (fixed deposits) and government funds among other types. You can choose on the basis of your risk appetite, as to the amount of money that will be invested in equities via NPS.
- PPF- The Public Provident Fund is another safe and long-term investment option for investors. You have a lock-in period of 15 years although partial withdrawals are allowed at specific intervals. The compounding of your money reaps you rich returns while the principal and interest are backed by the Government guarantee. Interest rates are reviewed for PPF on a quarterly basis by the Government.
- FDs- Fixed Deposits are arguably the most preferred investment avenues in the country and are safer than most investment channels. Under the DICGC (deposit insurance and credit guarantee corporation) regulations, every depositor will have insurance for his/her funds up to a maximum of Rs. 5 lakh. This rule has been made effective from the 4th of February, 2020. The rate of interest earned will be taxable since it will be added to your income.
- SCSS- Senior Citizens’ Saving Scheme- Another great option for retirees, SCSS (Senior Citizens’ Saving Scheme) can be availed by investors who are above the age of 60 from their bank or post office. It has a 5-year duration which may be increased by another 3 years post maturity. The maximum limit for investment is Rs. 15 lakh and more than one account can be opened. Interest rates are payable on a quarterly basis and are taxable as well. Senior citizens are eligible for deductions up to Rs. 50,000 in a financial year under the Section 80TTB for the interest earned on SCSS.
- Pradhan Mantri Vaya Vandana Yojana – PMVVY scheme caters to senior citizens above the age of 60 and gives them assured annual returns. It ensures pension income which is payable on a quarterly, monthly, half-yearly or yearly basis as chosen. Minimum amounts hover at Rs. 1,000 every month with a maximum of Rs. 9,250 every month. Rs. 15 lakh is the maximum investment that can be made into this scheme which has a tenor of 10 years.
- Real Estate– Real estate has always been a preferred asset class for investors owing to its ability to ensure superior returns over a period of time. Property values apart, the possibilities of earning rental income are also tremendous, if the location is good. This makes for a good investment by all means.
- Gold- Another favorite investment option for Indian investors, gold has always held its own over the years. Gold has its own allure and may appreciate considerably in value with the passage of time. Many banking institutions sell gold coins while there are several gold investment schemes available as well, including owning gold via paper gold ownership. This is a more cost-effective means of investment via gold ETFs. These investments take place on stock exchanges like the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) with gold being the key underlying asset. Investments in sovereign gold bonds are another option for paper gold ownership.
Many of these investments are fixed-income generating assets while some are non-income generating but have the potential to earn superlative returns in the long run. What you should aim for is a balanced portfolio comprising of equity and debt mutual fund investments, PPF, NPS, bank FDs and of course, real estate or gold, depending upon your needs.