Updated: Apr 8, 2021
An active living life requires great planning especially considering the future. Though for a Good Health, it is equally essential to have a happy family and financial planning in place. In India, Investors has a number of investment options to choose for securing their capital for near future. While in todays time, Investing should be considered seriously considering the ups and downs in life and the risks associated with it. For having an active living,
Below are certain traditional investments that have been used across generations, while some are relatively new options that have become popular in recent years which can be used to multiply your money value as well as can be used as Tax saving Instruments.
Stocks – Stocks, also known as company shares, are probably one of the famous investment vehicle in India. Buying a company’s stock, means buying ownership in that company which allows you to participate in the company’s growth. Stocks are offered by companies that are publicly listed on stock exchanges and can be bought by any investor. In India, BSE (Also known as Bombay Stock Exchange) and NSE (National Stock Exchange) are the stock exchanges where the stocks are listed.
Stocks are ideal long-term investments but investing in stocks should not be equated to trading in the stock market, which is a speculative activity. While investing in stocks one needs to look at the company history, past performance, growth and future outlook before putting their monies into it.
Stocks come under the Equity category which provide a higher multiplier to your monies in a short span. However with growth comes the risk associated as well. In a downslide market, the downward trajectory is fast paced as well. Hence one should keep themselves informed time to time of the stock performance and look for right time to enter and exit.
To have a secure investment in stocks, one should have a mix of Large Caps, Mid Caps and Small Caps in their portfolio.
Mutual Funds - Mutual funds are one of the market instruments which have gained a lot of traction over the last few years although they have been around for the past few decades. Mutual Funds are investment vehicles that pool in money of many investors and invest it in a way to earn optimum returns.
There are different kinds of mutual funds which invest in different securities. Equity mutual funds give maximum returns out of the various kinds of mutual funds as they primarily invest in stocks and equity-related instruments, while debt mutual funds invest in bonds and papers. There are also hybrid mutual funds that invest in a mix bag of equity as well as debt.
Mutual funds provide us with a flexibility to begin and stop investing as per your convenience however there are certain mutual funds which have a capping of few years. Mutual Funds also provide you with an option to switch over from one fund to another within the same parent group. Mutual funds can be redeemed at any point of time, however it is suggested to keep it for a long term period considering the multiplier effect it gives over time.
For an ideal investment, one should balance the portfolio with a mix bag of Equity and Debt Funds to avoid loss of gains in-case of market movements. One can invest in mutual fund in SIP mode or can invest in Lumpsum as well.
Fixed Deposits - Fixed deposits are investment vehicles that should be considered for a specific and pre-defined time period only. Fixed Deposits offer capital protection as well as guaranteed returns. FD are still an ideal form for conservative investors who intends to stay away from any kinds of risks.
Fixed deposits are offered by banks for different time periods. The rate of interest varies as per economic conditions and are decided by the banks themselves. Banks generally provide loans or overdraft facility against the Fixed deposits although FD’s are a typically locked-in investment. There is also a tax-saving variant of fixed deposit, which comes with a lock-in of 5 years.
There are many who question Hybrid Mutual Fund versus Fixed Deposits as both of them have similar growth to which the answer lies in the need for this investment. If someone is in immediate requirement, then Hybrid Funds work better as Fixed Deposits give returns only once the lock in period is over.
Recurring Deposits - A recurring deposit (RD) is another fixed tenure investment that allows investors to put in a specific amount every month for a pre-defined period of time. RDs are offered by banks and post offices for which the interest rates are defined by the institution offering it. An RD allows the investor to invest a small amount every month to build a corpus over a defined time period. RDs offer capital protection as well as guaranteed returns which can be used as a tool for lumpsum annual payments/investments at a later period.
Recurring Deposits are beneficial for those who intend to part side a fix sum of money every month for payouts after a certain period.
ULIPS - ULIP also known as Unit Linked Insurance Plan is another kind of product offered by Insurance companies that is essentially a combination of Insurance and Investment Vehicles. A portion of the premium paid is used to provide insurance coverage while the balance is used in investing in equity and debt instruments.
ULIP have different options to choose depending on the investment mix and hold certain number of units which have an NAV associated with it. NAV is the value on which the rate of return for the ULIP is determined and is declared daily.
Since ULIP (Unit Linked Insurance Plan) returns are directly linked to market performance and the investment risk in investment portfolio is borne entirely by the policy holder, one needs to thoroughly understand the risks involved and one’s own risk absorption capacity before deciding to invest in ULIPs. Investing in ULIPs is eligible for tax benefit up to a maximum of Rs 1.5 lacs under Section 80C of the Income Tax Act.
Public Provident Fund - The Public Provident Fund (PPF) is a long-term tax-saving investment vehicle that comes with a lock-in period of 15 years. Investments made in PPF can be used to earn a tax break. The PPF rate is decided by the Government of India every quarter. The corpus withdrawn at the end of the 15-year period is completely tax-free in the hands of the investor. PPF also allows loans and partial withdrawals after certain conditions have been met.
Employee Provident Fund - The Employee Provident Fund (EPF) is another retirement-oriented investment vehicle that earns a tax break under Section 80C. EPF deductions are typically a part of an earner’s monthly salary and the same amount is matched by the employer as well. Upon maturity, the withdrawn corpus from EPF is also entirely tax-free. EPF rates are also decided by the Government of India every quarter.
National Pension System - The National Pension System (NPS) is a relatively new tax-saving investment option. Investors in the NPS stay locked-in till retirement and can earn higher returns than PPF or EPF since the NPS offers plan options that invest in equities as well. The maturity corpus from the NPS is not entirely tax-free and a part of it has to be used to purchase an annuity that will give the investor a regular pension. While up to 60% of the maturity corpus can be withdrawn as a lump sum on maturity, the balance is compulsorily annuitized, i.e., balance is used to fund the annuity (pension) after retirement. NPS gives the subscriber the flexibility to choose the Fund Manager, Investment Option, Annuity Service Provider, etc. by which it gives you the control over your investments.
Subscribers for NPS scheme have the option to open two types of NPS Accounts under the same Permanent Retirement Account Number (PRAN) which are called tiers in NPS:
· Tier I: Contributions done to this account are eligible for additional tax deduction benefit of up to Rs. 50,000/- under section 80CCD (1B), which are over and above Rs.1,50,000/- u/s 80C. Withdrawals are restricted and subject to terms and conditions.
· Tier II: Subscribers can invest an additional amount in Tier II NPS Account. Subscriber is free to withdraw his entire accrued corpus under Tier II at any point of time. In case subscriber has not contributed even the initial contribution towards Tier II a/c, it will be automatically deactivated as per process. No tax benefits are available in this account.
There are many other instrument vehicles as well which form a part of investment. To have an ideal portfolio we suggest to have opinions of your family members as well as Portfolio Managers and have a set goal in mind to put your monies in any investing instrument.
We look forward to your reviews on the above article and shall be interested in knowing any other specific investment choices you have made that have given great returns.
By - 360activeliving