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Different assets have different risk profiles based on the market situation, inflation and economy. Some options have high risk but also have the potential to generate higher inflation returns. Most investors want to invest in stocks with sky-high returns but with less risk profile.
There are two types of asset in investment products:-
a) Financial asset – These are like market-linked products such as stock and mutual funds.
b) Non-financial asset- These are into physical gold and real estate assets.
Here is a look at the top 10 investment avenues Indians look at while saving for their financial goals:-
1. Direct equity
Investing in stocks might not be everyone’s cup of tea as it’s a volatile asset class and there is no guarantee of returns. Further, not only is it difficult to pick the right stock, timing your entry and exit is also not easy. The only silver lining is that over long periods, equity has been able to deliver higher than inflation-adjusted returns compared to all other asset classes.
2. Equity mutual funds
Equity mutual fund schemes predominantly invest in equity stocks. As per current, the Securities and Exchange Board of India (Sebi) Mutual Fund Regulations, an equity mutual fund scheme must invest at least 65 per cent of its assets in equity and equity-related instruments. An equity fund can be actively managed or passively managed.
3. Debt mutual funds
Debt mutual fund schemes are suitable for investors who want steady returns. They are less volatile and, hence, considered less risky compared to equity funds. Debt mutual funds primarily invest in fixed-interest generating securities like corporate bonds, government securities, treasury bills, commercial paper and other money market instruments.
4. National Pension System (NPS)
The National Pension System is a long term retirement-focused investment product managed by the Pension Fund Regulatory and Development Authority (PFRDA). The minimum annual (April-March) contribution for an NPS Tier-1 account to remain active has been reduced from Rs 6,000 to Rs 1,000. It is a mix of equity, fixed deposits, corporate bonds, liquid funds and government funds, among others. Based on your risk appetite, you can decide how much of your money can be invested in equities through NPS. Read more about NPS.
5. Public Provident Fund (PPF)
The Public Provident Fund is one product a lot of people turn to. Since the PPF has a long tenure of 15 years, the impact of compounding of tax-free interest is huge, especially in the later years. Further, since the interest earned and the principal invested is backed by sovereign guarantee, it makes it a safe investment. Remember, the interest rate on PPF is reviewed every quarter by the government.
6. Bank fixed deposit (FD)
A bank fixed deposit is considered a comparatively safer (than equity or mutual funds) choice for investing in India. Under the deposit insurance and credit guarantee corporation (DICGC) rules, each depositor in a bank is insured up to a maximum of Rs 5 lakh with effect from February 4, 2020, for both principal and interest amount.
7. Senior Citizens’ Saving Scheme (SCSS)
Probably the first choice of most retirees, the Senior Citizens’ Saving Scheme is a must-have in their investment portfolios. As the name suggests, only senior citizens or early retirees can invest in this scheme. SCSS can be availed from a post office or a bank by anyone above 60.
8. Pradhan Mantri Vaya Vandana Yojana (PMVVY)
PMVVY is for senior citizens aged 60 years and above to provide them with an assured return of 7.4 per cent per annum. The scheme offers pension income payable monthly, quarterly, half-yearly or yearly as opted. The minimum pension amount is Rs 1,000 per month and maximum of Rs 9,250 per month. The maximum amount that can be invested in the scheme Rs 15 lakh. The tenure of the scheme is 10 years. The scheme is available till March 31, 2023. At maturity, the investment amount is repaid to the senior citizen. In the event of the death of a senior citizen, the money will be paid to the nominee.
9. Real Estate
The house that you live in is for self-consumption and should never be considered as an investment. If you do not intend to live in it, the second property you buy can be your investment.
Possessing gold in the form of jewellery has its own concerns such as safety and high cost. Then there’s the ‘making charges’, which typically range between 6-14 per cent of the cost of gold (and may go as high as 25 per cent in case of special designs). For those who would want to buy gold coins, there’s still an option. Many banks sell gold coins now-a-days. An alternate way of owning gold is via paper gold. Investment in paper gold is more cost-effective and can be done through gold ETFs. Such investment (buying and selling) happens on a stock exchange (NSE or BSE) with gold as the underlying asset. Investing in Sovereign Gold Bonds is another option to own paper-gold. An investor can also invest via gold mutual funds.