With the economy taking a beating from recession, reducing interest rates and the stock market becoming volatile on fear of further lockdown, identifying the right investment option is becoming a challenge for most of us. Do we park our money in bank FDs/Savings accounts, invest them in stock market/MF or buy policies like SCSS, NPS, etc? This is a dilemma for many investors who are not clear on what kind of approach should be taking to balance out risk and return. This article details Investment Options for different types of Investors in India.
I have divided the article into 3 groups – For Conservative Investors, For Risk Taking Investors and For Investors approaching Retirement. For each group, I have suggested few options giving best returns along basic information about them.
Investment Options for Conservative Investors
The conservative investors can bank on FDs, Post Office Savings Schemes, National Saving Certificates. However, the options are not limited to that; they can also invest in the below options which will give them comparatively better returns in this category.
VPF and PPF
These two fixed- income saving schemes carry the same suffix but their returns are different. Here, are the details of these investment schemes.
- The option is available to – VPF is a step ahead of the Employees provident fund and is available only to the salaried employees who have a separate EPF account with their employer. They can regularly contribute the money over and above the statutory limits. On the other hand, the PPF investment option is available to every investor. Even a minor can open a PPF account coupled with the name of the guardian.
- Returns – The current return on PPF is 7.1% (for Apr-May-June 2021 quarter) and the interest rate on EPF is 8.5% (for FY20-21).
- Contribution amount-Once the investor opens up the PPF account, he has to invest minimum Rs 500 each every financial year while the maximum amount can be Rs 1.5 lakhs annually. For VPF, there is no limit for maximum or minimum investment.
- Withdrawal- PPF allows the investor to make the partial withdrawal of money after five years, depending upon the beginning financial year when the investment was made. The investor can also get a loan against the PPF balance. The VPF can be withdrawn any time if you stay unemployed for more than 2 months or in case of the medical emergency or for the purchase or renovation of a new home.
Sukanya Samriddhi Yojana
The government of India has this scheme to support its campaign Beti Bachao Beti Padao. The scheme helps you to save money for her future education needs and to meet wedding expenses. The parent/guardian can open the account in the post office or in the bank any time, from her birth, till she attains 10 years of age. Here are the details of the scheme
- Minimum Investment– The minimum amount that you need to park in this scheme is Rs 1,000/- and its multiples. Every year you need to invest minimum amount otherwise the account will get inactive.
- Maximum Investment- The maximum amount of investment in a financial year is Rs 1.50 lakh.
- Interest rate- The interest rate offered on this scheme is 7.6% and like PPF, this saving scheme comes under Exempt-Exempt-Exempt tax status.
- Withdrawal– The amount can be withdrawn after the completion of 21 years. When she becomes 18 years of age, she can operate the account by herself.
Investment Options for Risk Taking Investors
These investors normally invest in equity related products like Stock and MF. There are two kinds of investors in the stock market.
These investors are attuned with the latest trends of stock market and do a lot of research. They pay a lot of attention on buying and selling trends. Here are some investment avenues for such investors.
- Invest in IPO- For them, IPO is the best way to earn huge returns and many IPOS have been launched to support their interest like Indigo Paints, Burger King, etc. and yet others are in line like LIC to offer equity investor good returns. These schemes have high growth potential and will help you to churn money and meet long-term financial goals.
- Investment in Blue chip stocks- The investors can invest in blue chip equity stocks and derivatives to meet their goal of wealth creation, child education, retirement or any other long term goal.
- Investment in Large Cap schemes-The large cap mutual funds invest in the companies that have large market capitalization. These schemes provide constant returns to the investor as compared to the investment in small or mid cap companies. The large- cap companies have great track record and follow corporate governance policies stringently. The stocks are less volatile.
These investors are not looking to take big risks. This is because they either don’t have the time or the knowledge to invest correctly. Instead, they want to earn money in a passive and secure way. Following are the best options for such investors.
- Mutual Funds – The best option for a passive investor is Mutual Funds. Mutual Funds are gaining popularity because of the belief that they can offer higher returns than traditional instruments like FDs, ULIPS etc. Thing to remember is that although MF will offer you long- term returns, you should select them depending upon your investment objective and risk suitability. You can invest via:
- ETF-If we look closely, the investors are constantly investing in these schemes because they are backed by the government and are available at low management costs. They are similar to mutual funds and comprise of the basket of investment securities like stocks, commodities, bonds, etc. They are cost-effective and liquid instruments.
Investment Options for Retirement Investors
There was a time when retirement meant the end of income. However, now people are becoming wise and are building the pipeline of income that generates the return even after retirement. Below saving and investment schemes help them meet their monthly expenses and battle against the rising inflation rate.
Senior Citizen Saving scheme
This saving scheme is undertaken by the India’s government and is the first choice for pensioners. It can be taken by the senior citizens who have the age of more than 60 years and above from bank or post office.
- Interest rate– It offers an interest rate of 7.4%. The best part is that the interest rate remains locked in for the tenure. Interest is paid quarterly while the principle is paid at end of tenure.
- Maximum contribution & tenure- The minimum amount that can be invested is Rs 1000/- and the maximum is Rs 15 lakhs. The maximum tenure for investment is 5 years which can be further extended to 3 years.
- Tax benefit-Under the section 80 C, the investors will get tax benefit of upto Rs 1.5 lakh in a year, if they invest in this scheme. Interest generated is taxable.
Post Office Monthly Saving Scheme
It is a five year investment plan offered by the government of India. It can be taken by anyone over 10 years of age.
- Interest rate- The interest rate for this scheme is 6.6%.
- Maximum Contribution & tenure – Minimum investment is 1500/- in the first year and 1000/- in subsequent years. You can deposit a maximum of Rs 4.5 lakhs. Tenure of Post Office scheme is 5 years
- Tax Benefit – Investor cannot avail tax benefit under this scheme; the interest earned is completely taxable. The interest is credited immediately to their linked post office account.
Pradhan Mantri Vayay Vandana Yojana
It is another scheme launched by LIC for the senior citizen who are above 60 years. Under this scheme, the investors get assured pension. It can be quarterly, monthly or yearly.
- Interest rate – the interest rate earned on this scheme is 7.4%.
- Maximum Contribution & tenure- The minimum amount of contribution is 1.5 lakh, which offers the pension of Rs 1000 monthly and the maximum amount is Rs 15 lakh that offers the pension of Rs 10,000 monthly. The lock-in period is 10 years.
- Tax Benefit-This interest generated is subject to tax payment.
Tax Free Bonds
These bonds are issued by government companies like Power Finance Corporation, Rural Electrification and Corporation, Housing and Urban Development Corporation, etc. They are safe and the investor can buy or sell them as per his needs. The interest earned on these bonds can help the senior citizens to meet their monthly expenses. These bonds come with the highest safety ratings and one can buy or sell these bonds on the stock market when needed.
National Pension Scheme
It is a perfect saving plan for retirement. Apart from tax deductions under 80C, additional deductions can be availed under 80CCD. NPS investment can be done by anyone over 18 years of age.
One thing to know in NPS is that from the total corpus (under Tier 1), you can withdraw max 60% on attaining the age of 60 years. The remaining 40% has to be converted into annuities which will give you a monthly pension (taxable).
Atal pension Yojana
This scheme is for workers who work in unorganized sectors like house-helpers, gardeners, etc. Under this scheme, the investor can earn a pension of Rs 1000, 2000, 5000, 4000 depending upon the contribution. In this scheme, the central government contributes 50% of the contribution or Rs 1000 whichever is less for 5 years.
Debt Mutual Funds
These schemes offer steady returns and are less risky than equity mutual funds. These funds invest the amount in fixed interest securities like treasury bills, commercial bills and other money market-related instruments. Debt Mutual Funds generate returns as per the performance of the stock market.
All these schemes are the best ways to save money and earn a high return on investment. It will help you to meet monthly expenses and get regular income even after you retire.