Thinking of how to invest your salary wisely? Yes, to begin with, investing your salary isn’t something that everyone is usually comfortable with. You must know How much do you invest? Where and how to invest your money? Investing is an essential part of your financial plan to help you achieve your long-term goals. It gives you the opportunity to save for retirement, build a nest egg, and set aside money for a child’s education, etc. Investing can be both enjoyable and profitable with proper research and the right planning.
That being said, not everyone has access to reliable financial advice or enough knowledge about investing as a whole. The first step towards investing your money is establishing an investment strategy that fits your needs and risk tolerance. The second step is identifying which investments fit those criteria – whether through mutual funds, exchange-traded funds (ETFs), individual stocks, gold bonds, and property. Before we jump into where you can invest your salary, let’s understand the importance and a little more about how to invest your money effectively and the best investment options in India.
Why you should invest your money?
The benefits of investing range from earning additional income to providing for your retirement and getting you out of financial difficulties. Whether you are a salaried individual or self-employed, investing your money in a valuable investment tool is essential. By choosing investment early in your career, you are building good savings for your retirement life. In the long run, investing increases your purchasing power and helps you achieve your financial goals.
Where to invest your income?
The instruments you invest in can either be market-linked or non-market-linked, depending on your risk appetite. There is a risk that your capital could be lost if you invest in market-linked investments. Although these investments accrue higher returns, they aren’t always the best. Compared the investment tools shared below and choose the best investment option that suits your goals.
Your risk appetite influences your investment decisions
Volatility and risk are inherent to most investments, and high levels of risk usually yield higher returns. Consequently, investors often make investment decisions based on their risk appetite. Knowing the risk factors play a decisive role in choosing the best investment options.
In this case, the entity or investor does not wish to take on any risk. This level is also known as a risk-averse level. Safe positions are the only way to satisfy hunger. Government savings schemes, fixed deposit schemes, and bonds with fixed income are some of the safest investment options in India.
There is a moderate level of risk, with the decision being based on the risk-to-reward ratio. Here, risks and rewards are positively correlated. In this type, we find investment products like debt, balanced mutual funds, and index funds.
At a risk-loving level, the investor strives to take all kinds of logical risks, which would multiply the investment amount. Investing in stocks and crypto involves a high level of risk.
Best Investment Options in India
While it is always recommended to start investing in your early to mid-20s, there is no downside to starting it a bit later. As long as you invest in the right investment option, you can guarantee that your money is not lost through inflation. The following are some of the best investment options in India that yield high returns. These investment plans can be included in your financial portfolio when planning for the future.
1) Stocks or Shares
By investing in stocks, you are buying shares of ownership in a company Companies or entities can issue shares of stock in exchange for ownership rights. When that company grows or performs well in the market, your shares also become more valuable. This increases the chances of other investors being willing to buy them from you for more than you paid for stocks initially. Thus, if you are selling that shares, you could earn a profit. For long-term investors looking for generous returns, stocks are one of the best investment options in India. It is always possible to lose capital when investing in market-linked instruments.
2) Fixed Deposit (FD)
If you are totally confused about how to invest your money safely for short-term or mid-term goals, FD is the ideal option. Known as one of the safest investment options in India, Fixed Deposits are not affected by market performance, thus assuring security returns. Risk-averse investors can benefit from fixed deposits. In terms of fixed-pay ventures, fixed deposits are incredibly popular. Additionally, issuers offer digital provisions to make investment and its hassle-free management. As a result, FDs are one of the best investment options in India to ensure optimal financial security.
3) Mutual funds
Mutual funds are considered one of the best investment options in India because of their high-profit potential. In mutual funds investment, you will be investing your money in either debt funds, equity, or a mix of asset classes. If you are looking for a long-term investment scheme, mutual funds is the ideal choice. The purpose of mutual funds is to pool people’s money and invest it in stocks and bonds of different companies to create returns. Starting with a small deposit can still result in generous returns. Before investing in mutual funds, you must be aware of the risk side of this investment tool as it is linked to market performance.
4) Senior citizen savings scheme
Those over the age of 60 in India can take advantage of the Senior Citizens’ Saving Scheme (SCSS), which is a tax-saving investing programme that does not involve any significant risk. As a source of reliable monthly income, it ranks among the top investment choices for retirees. The scheme offers a competitive interest rate of 8.6 per cent each year, making it a lucrative financial choice.
5) Public Provident Fund (PPF)
Among all investment options in India, this is one of the most secure long-term investments. You don’t have to pay taxes on it. Generally speaking, PPF accounts can be opened in banks or post offices. A 15-year lock is placed on the invested money.
6) National Pension Scheme (NPS)
Pension alternatives are available through NPS, an investment option backed by the government. Stocks, bonds, government securities, and other investment options are among the options you have available to you. Until the investor reaches age 60, the scheme does not mature, so the length of the lock-in period is determined by their age.
7) Real Estate
There are excellent prospects in the real estate sector of India, which is one of the fastest-growing industries. An essential tool among India’s many investment opportunities is the purchase of a flat or plot. Despite the rising property rates every six months, real estate is regarded as a long-term asset of high returns due to its low risk.
A REIT is an investment company that owns or finances income-producing real estate across a variety of sectors of the market. REITs must meet a number of requirements in order to qualify. There are many benefits to investing in REITs, which are often traded on significant exchanges.
9) Gold Bonds
Though a traditional investment option, Gold is still considered by many as a good investment tool. Gold Bonds issued by government agencies that are denominated in gold grams are called sovereign gold bonds. The Reserve Bank issues the bond on behalf of the government of India as a substitute for holding physical gold. Bonds can be redeemed for cash at maturity if investors pay the issue price in cash.
10) Non-convertible debentures/Corporate Deposits
If you are thinking of how to double your money, investing in a corporate deposit is one option. Compared to bank fixed deposits, corporate and Non-Banking Financial Companies offer greater interest rates in terms of corporate deposits and non-convertible debentures. Based on ICRA ratings and the deposit’s tenure, the rate of return for these deposits ranges from 9 to 10%. The usual time period taken for the investment in this scheme to double is about 8 years. Whereas corporate companies issue corporate deposits, NCDs are issued by businesses including NBFCs
Check these factors before funding in an investment tool
You might have got a basic idea about the best investment options in India. However, before deciding where/how to invest your money, you should research several products on the market and study them carefully. There is also the option of hiring a financial advisor or planner. Before investing, consider these factors, whether you are doing it yourself or seeking advice from an expert.
1) Return on your investment (ROI)
An important parameter is a return on a product, whether it is a guaranteed return product or a market-linked product. Many people tend to forget that you must also account for inflation when calculating your returns.
A significant factor to take into account is cost, as it has a direct effect on return on investment. Products typically have three types of costs: investment, management, and withdrawal. All of these costs must be understood by investors.
3) Time to achieve your goals
It is crucial to pinpoint the ideal time horizon for investing since liquid, income-producing assets are suitable for short-term investing. In contrast, growth assets are appropriate for long-term investing. Since equity works on the principle of compounding, it is always better for creating long-term wealth.
4) Income tax
To determine whether an investment makes sense, you must factor in the tax implications for any investment product you are considering. Various products are tax-exempt, meaning they earn tax-free interest, while other products are taxed, such as capital gains.
When investing, it is also important to consider liquidity, as one should be aware of how easy it is to encash the investment and how much penalty there is for withdrawing early. When one is cash-strapped in times of crisis, liquidity becomes more critical. For instance, real estate is an illiquid asset.
It’s important to understand that investing is not a one-size-fits-all solution. While every investor should have a basic roadmap for investing their income, it’s essential to take the time to actually understand how to invest your salary and the various types of investments available and their associated costs and benefits. Investing aims to generate returns on your money over the long term.