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 the question ‘how to invest money’ comes in.
Investing your money is as important as earning an income. Prudent investments help 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.
What are the types of investments in India?
If you are thinking about investing, it is necessary to understand the types of investment plans available in India. They could vary basis the risk of investment offered by the plans – low-risk, medium-risk and high-risk. Let us understand this in detail below:
1. Low-risk investments
These are investment instruments that provide you with fixed returns. The returns are free from market volatility. As an investor, you will know the amount you will get back from the plan at the time of purchase of the plan. If you have a low risk appetite or want to invest for your non-negotiable goals, such as your child’s education, you may consider investing in these plans.
Some low-risk investment plans in India include Endowment Insurance plans, Fixed Deposits (FD), National Savings Certificate (NSC) and Sukanya Samriddhi Yojana (SSY) for the girl child, among others.
2. Medium-risk investments
These investment plans offer some risk but can provide higher returns to investors as compared to low-risk investment plans. Such investment instruments are best-suited if you have medium-risk appetite and are looking for decent returns on your investments. Although the returns are not guaranteed, you can calculate the estimated returns they can get.
Some medium-risk investment instruments include ULIPs with balanced funds and index funds, among others.
3. High-risk investments
These investment plans involve a high risk but can also provide very good returns in the long term. Examples of high-risk investment plans include equity stocks and equity-based mutual funds, among others. These instruments are highly prone to market volatility and their returns can fluctuate a lot.
As an investor, you should invest in high-risk investment instruments only if you have a high risk appetite. Also, it is important to have a good knowledge of the market and its functioning before considering investing in these instruments.
Some investment plans like ICICI Pru Signature provide you with an option to invest in high-risk equity funds, low-risk debt funds or balanced funds, basis your risk appetite. You may also switch between funds any number of times without any additional cost`. The plan also provides you with a life cover^ that secures your loved ones financially in case of an unfortunate event.
Where to Invest Money?
Today’s India is a beehive of financial activity, offering different types of investment opportunities covering a broad spectrum of investment avenues. You can simply keep cash at home or opt to invest in:
- Insurance plans
- Mutual funds
- Fixed deposits, Public Provident Fund (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 utilise these avenues to achieve your financial goals. While you do this, keep in mind your need for liquidity, wealth creation, parallel sources of income, the safety of capital and life insurance.
Investing money for beginners
The list of investment avenues described above is relatively exhaustive. However, all of these may not be suitable for those 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 of your unfortunate premature death. The other option is to 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 trendy 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 have the time to follow the stock market and make any direct investments. This is where mutual funds come into play. You have several 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 suitable for beginners to earn a decent income.
Various investment avenues offer tax benefits*. It is essential 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.
^Life Cover is the benefit payable on death of the life assured during the policy term
`Only available under Fixed Portfolio Strategy
ICICI Pru Signature (UIN: 105L177V06)
ICICI Pru iProtect Smart (UIN: )