Why Should You Invest?
Working as a salaried employee, a business person or a professional helps you earn an income to lead a comfortable life. And after taking care of all your immediate needs, you are most likely left with some disposable income too. What do you do with this disposable income? Do you splurge on some luxuries? Do you hold it as cash or leave it in your bank? Or do you deploy it suitably to earn you a decent return? This is where answering the question ‘how to invest money’ comes in.
Investing your money is as important as earning an income. Investing prudently helps you secure your life financially by achieving your financial goals for the present and the future. Investing helps you to generate a parallel stream of income, create more wealth, and earn returns to beat inflation. It ensures that you lead a comfortable life even after retirement, when your regular income stops.
Types of Investments in India
Today’s India is a beehive of financial activity, offering different types of investment opportunities covering a wide spectrum of investment avenues. You can simply keep cash at home or opt to invest in
- Insurance plans
- Mutual funds
- Fixed deposits, PPF and small savings accounts
- Real estate
- Stock market
- Derivatives and foreign exchange
- New class of assets
Each of these investment avenues has its own characteristics and it is up to you to decide where to invest money and utilize these avenues in a way that they can help you to achieve your financial goals. While you do this, remember to keep in mind your need for liquidity, wealth creation, parallel sources of income, safety of capital and life insurance.
Investing Money for Beginners
While the list of investment avenues described above is fairly exhaustive, all of these may not be suitable for those of you who are new to investing. Investing money for beginners is tricky if you are not conversant with the nuances of investment avenues. It might make sense to limit your investments to insurance linked financial instruments, mutual funds and fixed deposits, PPF and small savings accounts.
Best Ways to Invest Your Money
These instruments are excellent for young beginners with a steady source of income. You can go for pure protection plans like term insurance that provide financial cover to your family in case you suffer an unfortunate premature death. Or you can go for plans that combine savings with insurance, such as Unit Linked Insurance Plans (ULIPs). Other insurance plans include health plans, critical illness plans and accidental insurance plans.
Mutual funds are a very popular investment avenue amongst beginners. Mutual funds offer you the advantage of investing indirectly into stock markets through the expertise of professional managers. Being busy with your job, profession or business, you might not get the time to follow the stock market and make any direct investments. This is where mutual funds come into play. You have a number of choices such as equity mutual funds, debt mutual funds, balanced funds and other such instruments. You also have plans that offer dividend income or growth options. You can make a choice based on your financial goals and risk taking abilities.
Mutual funds provide ample opportunities to take care of liquidity, income, growth and safety.
Fixed deposits, Provident Fund (PF) and small savings
Fixed deposits, Provident Fund (PF) and small savings accounts are safe instruments providing moderate returns. These offer better liquidity and safety. If you are a salaried person, you can opt for voluntary PF in addition to the employee PF. Small saving schemes are also good for beginners to earn a decent income.
Various investment avenues offer tax benefits*. It is important for you to evaluate the tradeoff between tax benefits and returns when investing
Investing money in India is not that difficult if you follow the tips to invest money outlined above. Remember that the prudent way is to understand investments and start early.
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*Tax benefits are subject to conditions under Section 80C, 80D, 80CCC, 10(10A), (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.