One way to make money is to work: either via employment or through business. Another way to make money is through investments.

An investment is the purchase of an asset with the intention of creating wealth through regular income or by profiting through the sale of an asset. Investment decisions are an important component of financial planning.

Why should you invest money?

Some people rely on saving rather than investing. However, in a dynamic world, savings my not be adequate to guarantee continued financial security. Idle money in lockers or even in a bank account may not serve the purpose. Investments could help beat inflation through capital appreciation. The power of compounding also assists in wealth creation. Investing is further helpful in meeting future goals such as purchasing a house, going on a foreign vacation, or planning your retirement.

Avenues of investing money in India

There are multiple investment options to choose from in India:

1. Fixed Deposits

Fixed deposits are regarded as one of the most popular investments in India. They provide a fixed rate of return for a specific period and considered as a low-risk option.

Banks offer FDs. The interest rate varies from one deposit to another and changes from time to time. Although FDs have a lock-in period, most financial institutions permit loans and overdraft facilities against them.

2. Mutual Funds

Investing in mutual funds is a prudent choice as there are different types of funds to suit the short- and long-term needs of various investors. Before making investment decisions, it is advisable to make use of a mutual fund calculator to understand how it aligns with your financial objectives. 

3. Recurring Deposits

Like FDs, Recurring Deposits (RDs) allow an investor to save a specific sum in periodic instalments. You can deposit a fixed sum every month for a specific period with a bank. Like FDs, RDs are also low-risk and provide guaranteed returns.

4. Public Provident Fund

The PPF is a long-term savings scheme backed by the Government of India with a lock-in period of 15 years. However, PPF investments are eligible for tax deductions and are also relatively safe. The government usually revises the PPF interest rate every quarter. Investors are also eligible for partial withdrawals and loans against the PPF upon meeting certain conditions.

5. Employee Provident Fund

The EPF is a retirement savings scheme specifically for salaried employees. Monthly contributions are made from an employee’s salary, while the employer contributes an equivalent amount to the corpus. EPFs are eligible for a tax deduction under Section 80C of the Income Tax Act, 1961 and the final amount after maturity is tax-free.

6. National Pension Scheme

NPS is a retirement pension scheme introduced by the Government of India. Through regular investments, you can build a corpus that can provide you with a regular pension after retirement. Investors can also withdraw from the fund partially after retirement.

7.Stocks

Stocks refer to purchasing shares in a company, giving the investor ownership stake. It can be profitable when the company grows in future. Investing in stocks for the long-term aids in capital appreciation. Short-term trading, however, can be riskier.

Where to invest money?

There is no one-size-fits-all investment plan. For each investor, the ideal portfolio will depend on several variable factors like age, investment horizon, goals, and risk capacity.

When you are young, your risk-taking capacity could be higher. Therefore, investing in equities and mutual funds can be a good option. Older investors can afford fewer risks and hence, one could invest in safer vehicles like fixed deposits.

Shorter investment horizons reduce risk-taking ability, making low risk instruments a better bet. Longer time horizons allow greater flexibility to invest in equities and wait for returns. The type of goal also plays a role because non-negotiable goals such as education need more cautious investing.

Certain other factors like one’s disposable income, debt profile, and dependent responsibilities can also impact the investor’s investment decisions.

How to invest money?

The first step to investment is to create a plan. Work out distinct investment goals; identify their timelines, and your risk ability. Scout avenues that can help you achieve these goals. Ensure you undertake adequate research before investing. Also, diversify your investments to spread out risks, consider the tax implications of investments and schedule periodic reviews.

Takeaway

Investing is crucial for future financial security. Poor decisions can lead to loss of hard-earned money. Therefore, you need investment knowledge and a judicious strategy. If you are unsure of how to plan your investments, consider enlisting a financial planner.

*This document is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. This document provides general information on performance; financial planning and/or comparisons made are only for illustration purposes. The data/information used/disclosed in this document is only for information purposes and not guaranteeing / indicating any returns in any manner. This material provides general information and comparisons made are only for illustration and informative purposes only. Investments in mutual funds relatively involve higher risks and recipient should consult their legal, tax and financial advisors before investing. Recipient of this information should understand that statements made herein regarding future prospects may or may not be realized or achieved. The AMC, Trustee, their associates, officers or employees or holding companies do not assure or guarantee any return of principal or assurance of income on investments in mutual fund schemes.