Investment - Best Investments Plans in India

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Investment is one of the best ways to fulfil your family’s and your personal aspirations by maximizing your income. It involves allocation of small amounts of money over a period of time to gain profit and grow your money. However, investments are subject to market risks and depends majorly on multiple economic factors.

Types of investment in India

The Indian market has a diverse range of investment options that can be broadly classified into short-term investments and long-term investments. Short-term investments generally provide a considerable amount of returns within a period of 1-3 years. Here’s a list of some short-term investments:

Bank Fixed Deposits (FD)

These are one of the safest investment choices; they have low risk attached and offer guaranteed returns. They have lower return rates (varies across banks) but 5-year FDs offer tax benefits u/s 80C of the Income Tax (IT) Act. The tenure of FDs can vary from as little as 7 days to 10 years.

Equity-Linked Savings Scheme (ELSS)

It is a flexible investment option provided by mutual funds and known for offering good returns. The tenure (lock-in period) for this scheme is 3 years. However, to fetch better returns, it is advisable to stay invested even post that. Along with tax deduction benefits u/s 80C IT Act, an ELSS also boosts your income by investing in the equity market.

Short-term Debt Mutual Funds

They have a steady rate of returns (variable between 6.5% and 8%), primarily due to fixed-interest mutual investments in corporate bonds, government securities, treasury bills, and commercial papers. They are less volatile and less risky in comparison to equity funds. The tenure of debt fund varies from around 3 months to 1 year.

Gold/Silver

Precious metals are a safe and instantly redeemable investment option, but have a risk factor of market rise and drop attached to it. Avenues include jewellery, gold coins, gold ETFs, and Sovereign gold bonds.

Unlike short-term investments, long-term investments protect you from the volatility of markets, the risks in returns, and offer better tax benefits. Some preferred long-term investment options are:

Unit Linked Insurance Plan (ULIP^)

This is a long-term investment plan with a return rate ranging between 9% and 16%. It offers tax benefits* under Section 80C and 10(10D) of the IT Act and the dual benefit of insurance and investment. ULIPs have a maturity period of 5-10 years.

Public Provident Fund (PPF)

They have a long tenure of almost 15 years. The rate of interest changes each year, the current rate being 7.9% pa. PPF offers tax benefits u/s 80C of the Income Tax Act. Moreover, it is considered as a safe investment option, as it is backed by the Government.

National Pension Scheme (NPS)

This is a long-term investment plan focused on retirement and is a mix of equity, fixed deposits, corporate bonds, liquid funds and government funds, among others. It has a return rate that varies between 8.5%-11% and also offers tax advantages u/s 80C, 80CCC, and 80CCD of the IT Act.

Traditional savings plan

These are insurance plans that offer dual benefits of investments and insurance. You are not only covered financially but also given an opportunity to save. You can either get a fixed amount when the policy ends or you choose to receive it in instalments throughout the policy period. The tenure of such plans varies from 10 to more than 20 years.

Money-Back Plan

These are also dual-benefit plans that offer growth of money and insurance. However, in these plans; the person insured gets an assured sum at regular intervals, instead of receiving a lump sum at the end of the term. These plans are best suited for individuals who are risk-averse and who prefer to invest through insurance and receive the benefits of liquidity periodically. The average tenure/maturity period for this plan is around 20 years.

Immediate Annuity plan

This is a good investment plan if you already have a lumpsum amount available to invest and are looking for a regulat payment for lifetime. There are multiple type of annuity plans available in the market from which you can choose as per how you wish to get back your regular payments.

Why are long-term investments important?

Long term investments offer an array of advantages. Firstly, the amount of interest (return-rate) you receive at the end of a term is substantially more than short-term investments. They are more tax-efficient and keep you safe from the volatility of the market. You also get to pick a preferable time for availing a return.

Long term investments align well with big financial goals, like funding a child's education or marriage, paying sums for a house, or saving up for retirement. However, every long-term investment option must be chosen carefully. You must understand the risk factors attached to an investment plan before making a decision.

Investments as per life stages

Knowing what type of investment is suitable for each stage of your life is crucial for financial security, stability, and a good lifestyle. Here is a list of suitable investments tallied with statistically important life phases.

First job: ELSS, Equity, and term insurance.
Marriage: Health insurance for self and family.
Birth of a child, buying a house, child education: ULIPs, savings plan.
Retirement: Money back plans, Unit linked retirement plans, Immediate annuity plans.

Frequently Asked Questions

What is the best investment for beginners?

As a beginner, it is advisable to stick to investments that are easy to understand and gives multiple benefits. One such investment option for beginners is Unit linked insurance plans. These plans provide dual benefits of growth of money and life cover to secure investments made for family and loved ones. Another option is to invest in a Term plan with critical illness benefit, as these plans provide security to your investments at an affordable premium and also gives you tax benefits* under multiple income tax sections like 80C, 80D and 10(10D).

What are the safe investments?

All investments carry some amount of risk. So, instead of looking for safe investments, you must consider options that come with an array of benefits. This approach helps you balance risk and returns. Take ULIPs for example. While they are subject to market risks, you can save tax, get growth of your money and also secure your loved ones with them.

What are the risks involved in investments?

Like every other profit-oriented endeavour, there are certain risks attached to investments as well. The most prominent risks involved in investments are market volatility, liquidity risk, credit risk, inflation, horizon, and longevity risk.

Which is better – short term investment or long-term investment?

The type of investment depends on the financial goal in the picture. If you have a child's education to fund or a house loan to pay, then a long-term investment would be suitable. But if you are planning a vacation or saving for marriage, then a short-term investment makes more sense.

How to secure your investments?

Any investment that you do comes with its own risk which depends on multiple economic factors. However, you can secure it by diversifying your investments across equity, debts, government bonds and corporate bonds. You can also diversify your investments by investing in multiple sectors. This will ensure that you have a balanced investments with lesser risks. Also, review your portfolio from time to time, keep a tab on your taxes and spending and most importantly, keep some savings ready for a financial emergency.

Another way to secure your investment is by getting a term plan or insurance. This is important if you have planned your investments for your family or loved ones like – bought a house on loan, invested for a house, car, children’s education, future travel aspirations etc. Such insurance plans provide financial protection and a significant amount of life cover at affordable premium rates. This ensures that in case of an unfortunate event, your family will have the required money to continue the investments which you have planned for them.

Where should I put my retirement money?

Retirement is a golden phase and can be spent in stability if you have proper financial backing. How you invest for it, ultimately decides your lifestyle post-retirement. Some retirement plans are Easy Retirement and Immediate Annuity plan. These cover all the expenses which are expected once you retire, grant flexibility in payouts, and give tax benefits. Apart from this, the plans will also give you monthly income post your retirement.

Disclaimer

^ Amount equal to total of mortality charges and policy administration charges deducted in the policy will be added back to the fund value at maturity, provided all due premiums have been received. This amount will be allocated among the funds in the same proportion as the value of total units held in each fund at the time of allocation. This shall exclude any extra mortality charges and taxes levied on the charges deducted as per prevailing tax laws. Return of Mortality Charges and Policy Administration Charges is not applicable for Whole Life option.

* Tax benefits under the policy are subject to conditions under Sec. 80C, 80D,10(10D) and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.