Investments in India: Why Investing is Important & Where to Invest?

Investments are an important decision in every investor’s life. Investing in the right place at the right time is essential for the achievement of both long-term and short-term goals. It is a way of accumulating and saving an amount for emergency purposes. Investment forces you in keeping aside a fixed amount regularly. The process instils a financial discipline in investors. You can either invest in the stock market or the equity market.

Investments in India: Why Investing is Important & Where to Invest- Importance

Inflation is the increase in the price amount charged on the services and materials. It lowers the worth of money and decreases your power to purchase. When the inflation rate is higher, your purchasing power reduces and you tend to buy fewer things. If you want to stay unaffected by the inflation rate, you have to earn more money to be able to purchase goods in the future. To make your money grow, you will have to earn returns. To earn good returns, you will have to invest in the right place. Thus, investments are essential to tackle inflation. Where you choose to invest depends upon your requirement and risk tolerance. Whether you invest in the stock market or mutual funds depends on various factors such as risk tolerance, fund performance, investment strategy, etc.

Types of Investments in India

There are various investment options you can choose from. You only need to determine your risk profile and requirements to select any particular investment type. Investments can be broadly classified into two: Active and Passive.

Active investment option requires a dynamic change of assets in the investment portfolio. This depends on the economic developments and market. You must have enough knowledge about the investments and time to indulge in this type of investment. One of the best examples of active investments is equity investments.

The passive investment option does not require you to be continuously invested. There is only a certain duration of involvement required. Passive investments are ideal for investors who do not have time to stay invested and manage their investments.  

Therefore, you can choose to adopt any one of these strategies as per your requirements, goals, and risk tolerance.

There are many investment options available in India that you can choose from. Mentioned below are the 7 most popular options in India. :

1. Direct Equity- Direct Equity means investing in stocks. You get partial ownership of the company when you buy its stocks. This way you make a direct investment in the development and growth of the company. You only require enough knowledge and time to get benefits from the investment. Stocks are a good investment vehicle for long-term goals. You must be ready to assume the risks associated with this investment option.

2. Mutual Funds- Mutual funds have gained popularity among the masses of the country. Different fund houses offer various fund schemes having their investment strategies and approaches. The fund is managed by a fund manager of the mutual fund company. Mutual funds can be divided into debt, hybrid, and equity funds. These are flexible investment options that an investor can choose as per their requirements. Good returns are not promised as it solely depends on the market's ups and downs. 

3. Fixed Deposits- Fixed deposits are one such investment option that is offered by financial institutions and banks. On depositing an amount in the bank for a fixed term, you earn an added interest as per the pre-decided rate. Unlike other investment options, fixed deposits offer guaranteed returns and capital protection. It is a good option for conservative investors. Though you have to compromise on the returns as they stay the same. 

4. Recurring Deposits- Recurring deposits are fixed amounts that you deposit every month for a pre-decided time and get the returns under the fixed interest rate. Most post office branches and banks offer RDs. The rate of interest can be changed by the institution offering it. 

5. Public Provident Fund- It is a tax-saving investment option under which an amount is locked-in for 15 years. It is a long-term investment that is offered by the Indian Government. the rate of interest is decided by the government every quarter of the year. 

6. Employee Provident Fund- It is a retirement-oriented investment option that offers relaxation from paying tax to the salaried individuals as per Section 80C of the IT Act of India. The return corpus of both EPF and PPF are tax-free. The EPF reaches maturity only after the retirement of the salaried individual.  

7. National Pension System- It is a new investment option that is tax-free. NPS offers higher returns as they also invest in equities. Though the return corpus is not tax-free, it can give the investor a stable pension if a part of the NPS is utilized for purchasing an annuity. 

New investors can find it difficult to choose one investment vehicle according to their requirements. Therefore, you must make a decision based on certain parameters to avoid any financial loss.

Factors to Consider while Selecting the Right Scheme

1. Age of the investor- for new investors, it is advised to invest in equity-funds and not fixed deposits. This is because young investors have lesser responsibilities and a long way to go on the professional front. Older investors must opt for FDs as it is a safer option.

2. Setting goals- Goals can be either long or short-term. You must always determine your goal before investing your money into anything. Every individual has a different goal and requirement in life. Therefore, you must recognize yours and act accordingly.

3. Profile- You are well-aware of your capabilities more than anyone. You must understand your financial position before making any investment.

Lastly, do not indulge in any investment without having a clear knowledge about it. Make adequate research about the investment vehicle you are thinking of selecting and then finalize it.

 

Disclaimer: No Asian Age journalist was involved in creating this content. The group also takes no responsibility for this content.