Every Salaried Indian comes across a common question? What are the different investments options available and how efficiently I can invest money across different options to meet future expenses. Here in this blog, I am going to share my personal view on different investment options
Here are the different investment options,
Investment Type
|
Initial Investment
|
Returns
|
Risk
|
Commodity Trading
|
Low
|
High
|
High
|
Equity Trading
|
Medium
|
Moderately High
|
High
|
Mutual Fund
|
Medium
|
Medium
|
Medium
|
PPF, NSC, FD, RD
|
High
|
Low
|
Low
|
Of course there are other investments like Real Estate, Gold
Bonds etc, which are not considered here because it needs high initial investments
Commodity Trading:
As name suggests the trading is done on commodities. Multi Commodity Exchange(MCX) is one of the popular exchange in India wherein trading is possible on Crude Oil, Natural Gas, Gold, Silver, Copper, Zinc, Aluminum etc.
Returns : Initial investment is as low as Rs. 5000 and it has a potential to earn Rs.5000 and more in few weeks
Risk: It is one of the High Risk Investment, there is high possibility to lose Initial investment (Capital) based on market movements.
Equity Trading:
Each Company who needs financial support has different approaches to collect the fund, two commonly known ways,
1. Bank Loan
2. Through Shares
Fund which is collected through Bank, Company is liable to repay the loan as per the agreement.
The fund which is collected through Shares, the Company will repay the same as dividend and increase the value of the each share based on the profit of the company. These shares will also be traded in commonly known exchanges in India NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) and one can gain money based on the demand in the market to buy the shares of the company.
Returns: It depends on the company performance and positive news in the market so that value of the share is increased.
Risk: If the company is not doing well and if there are bad news on the market, the value of the share will decrease, which in turn gives negative returns.
Mutual Fund:
Mutual Funds are similar to Equity Trading, instead of an individual buys a share, the money which is invested, is given to Common Pool (called Funds) and further the money in "Common Pool" will be invested by Professional Traders in different investment options like Equity, Bonds, Money Markets etc. A small amount of money is paid as fees to the Professional Traders.
Returns: Professional Traders are commonly called as "Fund Managers" and the returns are depends on decisions from "Fund Manager" and Company performance where the money is invested.
Risk: If the fund has a diversified portfolio, there is less probability to lose the capital. Also, more the years of investment less the risk.
Public Provident Fund:
It is one the commonly known investment option in India because of its EEE advantage,
Investment: The money which is invested is exempted from Tax. (Exempt During Investment)
Interest Earned: The interest earned is also exempted from Tax. (Exempt from Interest Earned)
On Maturity: The amount which is withdrawn on maturity also exempted from Tax. (Exempt on Maturity)
One of the disadvantages on PPF is its investment period. It has a lockin period of 15 years. But if one has a long term goal with minimal risk, then PPF is one of the best option.
Returns: The interest rate is announced every quarter.
Risk: Capital risk is very low, since it is backed by Government of India.
National Savings Certificate:
It is a five years term deposit, the money which is invested will be locked for five years. The interest is calculated year and interest earned will be reinvested next year along with the principal. At the end of the final year i.,e fifth year the interested earned will be taxed.
Investment: The money which is invested is exempted from Tax. (Exempt During Investment)
Interest Earned: The interest earned is also exempted from Tax. (Exempt from Interest Earned)
On Maturity: On fifth year, the interested earned will be taxed and hence the same has to be added in "Income form other sources" and tax has to be paid. (Not Exempt on Maturity)
One of the disadvantages on NSC is the interest earned on Maturity is taxable.
Returns: The interest rate is announced every quarter, but once the interest rate is fixed during investment it is same on the entire tenure of 5 years, even there are changes in every quarters.
Risk: Capital risk is very low.
Fixed Deposit or Term Deposit:
Term Deposit are common among Salaried Indians. Because of its Low Risk and very low lockin period. But the FD has its own disadvantages, it is not EEE, which means It is not exempted from Tax during Investment, Interest Earned and On Maturity.
Returns: The interest rate is announced every quarter, but once the interest rate is fixed during investment it is same on the entire tenure. Also note that TDS(Tax Deduction at Source) will be deducted if the interest earned in a given back account(Through Multiple Term Deposit) more than Rs. 10,000.
Risk: Capital risk is low.
Recurring Deposit:
Recurring Deposit is similar to Term Deposit, Investments are done as Lump Sum in Term Deposit and Investments are done on monthly basis in Recurring Deposit.
Returns: The interest rate is announced every quarter, but once the interest rate is fixed during investment it is same on the entire tenure. Also note that TDS(Tax Deduction at Source) will be deducted if the interest earned in a given back account(Through Multiple Term Deposit) more than Rs. 10,000.
Risk: Capital risk is low.
Based on the different options available, one has to analyze and invest the some percentage of money in different investments options and take informed risk so that in long term one can beat inflation and create wealth.
For Example, lets consider a salaried Indian investing Rs. 10,000 every month for next 20 years, here are the project amount,
Recurring Deposit: (6.9% Interest)
Money Invested : 24,00,000
Maturity Amount : 50,47,943 (TDS is not deducted, maturity amount will be less than projected here)
Mutual Fund: (15% Interest*)
Money Invested : 24,00,000
Maturity Amount : 1,32,92,054
* 15% Interest is an assumption, interest earned might vary based on market.
So, on comparing the results between RD and MF, one has to plan and make
informed investment and create wealth for the future.
In coming weeks, I shall post few more blogs with detailed information on above each investments and so stay tuned.
DISCLAIMER:
I am not Professional Financial Advisor, please discuss with your Financial Advisor before investing.
Risk: It is one of the High Risk Investment, there is high possibility to lose Initial investment (Capital) based on market movements.
Equity Trading:
Each Company who needs financial support has different approaches to collect the fund, two commonly known ways,
1. Bank Loan
2. Through Shares
Fund which is collected through Bank, Company is liable to repay the loan as per the agreement.
The fund which is collected through Shares, the Company will repay the same as dividend and increase the value of the each share based on the profit of the company. These shares will also be traded in commonly known exchanges in India NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) and one can gain money based on the demand in the market to buy the shares of the company.
Returns: It depends on the company performance and positive news in the market so that value of the share is increased.
Risk: If the company is not doing well and if there are bad news on the market, the value of the share will decrease, which in turn gives negative returns.
Mutual Fund:
Mutual Funds are similar to Equity Trading, instead of an individual buys a share, the money which is invested, is given to Common Pool (called Funds) and further the money in "Common Pool" will be invested by Professional Traders in different investment options like Equity, Bonds, Money Markets etc. A small amount of money is paid as fees to the Professional Traders.
Returns: Professional Traders are commonly called as "Fund Managers" and the returns are depends on decisions from "Fund Manager" and Company performance where the money is invested.
Risk: If the fund has a diversified portfolio, there is less probability to lose the capital. Also, more the years of investment less the risk.
Public Provident Fund:
It is one the commonly known investment option in India because of its EEE advantage,
Investment: The money which is invested is exempted from Tax. (Exempt During Investment)
Interest Earned: The interest earned is also exempted from Tax. (Exempt from Interest Earned)
On Maturity: The amount which is withdrawn on maturity also exempted from Tax. (Exempt on Maturity)
One of the disadvantages on PPF is its investment period. It has a lockin period of 15 years. But if one has a long term goal with minimal risk, then PPF is one of the best option.
Returns: The interest rate is announced every quarter.
Risk: Capital risk is very low, since it is backed by Government of India.
National Savings Certificate:
It is a five years term deposit, the money which is invested will be locked for five years. The interest is calculated year and interest earned will be reinvested next year along with the principal. At the end of the final year i.,e fifth year the interested earned will be taxed.
Investment: The money which is invested is exempted from Tax. (Exempt During Investment)
Interest Earned: The interest earned is also exempted from Tax. (Exempt from Interest Earned)
On Maturity: On fifth year, the interested earned will be taxed and hence the same has to be added in "Income form other sources" and tax has to be paid. (Not Exempt on Maturity)
One of the disadvantages on NSC is the interest earned on Maturity is taxable.
Returns: The interest rate is announced every quarter, but once the interest rate is fixed during investment it is same on the entire tenure of 5 years, even there are changes in every quarters.
Risk: Capital risk is very low.
Fixed Deposit or Term Deposit:
Term Deposit are common among Salaried Indians. Because of its Low Risk and very low lockin period. But the FD has its own disadvantages, it is not EEE, which means It is not exempted from Tax during Investment, Interest Earned and On Maturity.
Returns: The interest rate is announced every quarter, but once the interest rate is fixed during investment it is same on the entire tenure. Also note that TDS(Tax Deduction at Source) will be deducted if the interest earned in a given back account(Through Multiple Term Deposit) more than Rs. 10,000.
Risk: Capital risk is low.
Recurring Deposit:
Recurring Deposit is similar to Term Deposit, Investments are done as Lump Sum in Term Deposit and Investments are done on monthly basis in Recurring Deposit.
Returns: The interest rate is announced every quarter, but once the interest rate is fixed during investment it is same on the entire tenure. Also note that TDS(Tax Deduction at Source) will be deducted if the interest earned in a given back account(Through Multiple Term Deposit) more than Rs. 10,000.
Risk: Capital risk is low.
Based on the different options available, one has to analyze and invest the some percentage of money in different investments options and take informed risk so that in long term one can beat inflation and create wealth.
For Example, lets consider a salaried Indian investing Rs. 10,000 every month for next 20 years, here are the project amount,
Recurring Deposit: (6.9% Interest)
Money Invested : 24,00,000
Maturity Amount : 50,47,943 (TDS is not deducted, maturity amount will be less than projected here)
Mutual Fund: (15% Interest*)
Money Invested : 24,00,000
Maturity Amount : 1,32,92,054
* 15% Interest is an assumption, interest earned might vary based on market.
So, on comparing the results between RD and MF, one has to plan and make
informed investment and create wealth for the future.
In coming weeks, I shall post few more blogs with detailed information on above each investments and so stay tuned.
DISCLAIMER:
I am not Professional Financial Advisor, please discuss with your Financial Advisor before investing.
