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Best Investment Options For A Salaried Person In India

by tavaga

The entire world is struggling with soaring inflation. The working-class account for a major part of the total Indian population & the increasing cost of living is taking a toll on their savings and income, making it difficult to put aside money each month for future goals such as education or retirement.

It is possible to plan and invest to make even the little savings go a long way. Investing offers both present and future financial stability. It enables you to build your money while outperforming inflation. You also profit from the power of compounding. There are many investment options and one must just carefully pick the right one that suits their needs best.

Knowing the best investment plan allows you to develop a respectable financial corpus that will assist you during these difficult times.

How to Allocate Funds

In this dynamic world, it is essential to keep your funds in diversified accounts rather than putting all your money in one investment option. You can invest in a wide variety of options ranging from high risk (Equities) to low risk (Government bonds) options

Your fund allocation will depend on your risk appetite, financial goal & time horizon.

You can diversify your fund allocation by investing a proportionate amount towards different asset classes.

If you want safer & steadier returns, Debt & Saving schemes are always there! These options are safer but provide low interests which in turn doesn’t maximise our wealth.  

Public Provident Fund (PPF)

PPF is the most popular investment plan among the middle class. In a PPF scheme, you get the benefits of floating rates & also gain from the power of compounding over the long term. It is a haven instrument for conservative investors who want assured returns & aggressive investors can use it for diversification. 

The strategy provides tax-free returns. Furthermore, PPF is tax-deductible under Section 80C of the Income Tax Act. However, It has a 15-year lock-in term. The best part is you can begin your investing journey with as little as Rs.100.

5 year FD rates (2017-2022)
SOURCE: TAVAGA RESEARCH; POST OFFICE

GOVERNMENT BONDS

Government bonds are less risky than other investments such as shares since the returns are guaranteed by the government. There are certain market risks, but you can eliminate them by simply keeping the bonds until maturity.

You receive a fixed amount via interest payments which are annually or semi-annually. Interest can be fixed or fluctuating. If you have a low-risk appetite and want a secure, risk-free investment, GOI Bonds are a great choice. 

SIP IN MUTUAL FUNDS

A Mutual Fund plan is a kind of financial instrument that is created by pooling money from several investors. Mutual fund firms engage in securities such as corporate shares, bonds, stocks, loans, and other assets through AMCs. 

Mutual funds invest their funds in a variety of securities hence, it is diversified & therefore a safer option. Some other advantages of mutual funds are professional management, liquidity, and economies of scale. The products are often managed by a fund manager hence, there is no direct risk to the investor.

Best mutual funds(2022) - 1&3 year returns
SOURCE: MONEY CONTROL; TAVAGA RESEARCH

 A Systematic Investment Plan (or SIP) is a type of mutual fund investment that allows you to invest over time. You must invest a set amount of money regularly, such as monthly, quarterly, or semi-annually. Investing with SIP helps you to ride out the highs & lows of the market without bothering about timing the markets that we do while investing lumpsum. Investing consistently through SIP helps you reap the gains from compounding & it is very convenient as you can start your SIP with as little as Rs.500!

EXCHANGE TRADED FUNDS (ETFs)

ETFs are passive funds that are similar to mutual funds except that they are cheaper & can be traded on a stock market. They mimic the underlying indices & are used to achieve similar returns. ETFs are cheaper because there is no trailing commission as there is no distributor involved, investors can buy & sell ETFs from their Demat accounts. 

A Nifty 50 ETF, for example, will include underlying equities that are similar to the Nifty 50 index.

NIFTY 50 vs ETF
SOURCE: GOOGLE FINANCE

NIFTY 50 VS Nippon India ETF 

GOLD ETFs

Indians have always seen gold as a haven investment instrument. Although gold might be unpredictable in the short term, it has always held its value over time. It has worked as a hedge against inflation and the depreciation of major currencies over time. 

Gold ETFs are dematerialized units that represent actual gold. Gold ETFs, like stocks, can be traded by investors using a Demat account and a broker. Trading in gold ETFs helps you to invest large amounts & eliminates the problem of storage that comes while investing in actual gold.  

GOLD ETFs Returns
SOURCE: TAVAGA RESEARCH

EQUITIES

Stock markets are the most volatile places & this is what makes them riskier. If you are a high-risk taker & desire massive returns stock markets are the best option for you. 

It is impossible to time the markets, hence investing through SIP mode is advisable. 

You should pick fundamentally strong stocks. You can analyze a company’s present and prospects and valuations by going through its annual reports. Focusing on factors like PE ratio, Return on Equity, management of the company, etc will help you know the intrinsic value of the company & you can know if the current stock price is undervalued or overvalued. 

Historically, stock markets have given high returns in long run,

SOURCE: TAVAGA RESEARCH; NSE

Short-term investment in equities can be dangerous since markets can be extremely volatile, but long-term investing allows you to ride out the highs and lows of the market.   

Different investment options give different returns, equities are riskier but the returns can be phenomenal whereas, PPF or gov bonds are safe but the returns are relatively less.  

CONCLUSION: Each investor is different, as are their goals & risk appetite. Diversify your investments by spreading them across asset types. Do not follow the crowd; instead, invest exclusively in what is best for you. Learn about various financial products before deciding on the best investment.

Planning where to invest requires a lot of research & logic which is not possible for everyone hence, seek the advice of financial advisors. A qualified financial adviser can assist you in achieving your financial goals in the most efficient manner possible. It is advisable to seek the assistance of SEBIregistered financial advisors who are qualified and provide unbiased investment advice.

Disclaimer: This write up is solely for educational purposes.

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