Investment can be optimized, if we understand how to plan it. Usually, investors look for plans where returns are high and quick while the risk of loss is low. In reality, such a product is hard to come by. Risk is directly related to returns. While planning an investment portfolio, you should ask yourself some questions regarding investment goals, the kind of risk you are willing to take, and the principal amount that you are planning to invest on a monthly or yearly basis.
What is Investment?
Investment is the act of using money to buy assets or support businesses, aiming to make a profit in the future. This could be in stocks, fixed deposits, or mutual funds. To invest successfully, it's important to research carefully, think long-term, manage risks, and spread investments across different areas.
Staying updated on market trends and rules is also key. While high-risk investments can lead to big returns, they also come with greater uncertainty.
Types of Investment Options
There are two categories of investment: financial and non-financial assets.
1. Financial assets - Investments in stocks and mutual funds fall under such assets. They are dependent on market fluctuations and their returns may vary.
2. Non-financial assets - Are fixed income products like PPF, bank FDs. These products have a pre-assigned interest rate and will yield the promised amount at the time of maturity.
A good idea is to distribute your investment and take a slice of both financial and non-financial assets. Now, the kind of risk you are willing to take will decide which slice will be bigger in size.
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Top 5 Investment Options from Both Assets
Here are the top 5 investment options that can help diversify your portfolio and maximise returns.
- Debt Mutual Funds
If you are looking for regular income, you can look at debt mutual funds. Debt Mutual Funds, or Fixed-Income Funds, invest in fixed instruments such as government bonds, corporate bonds, money market instruments, etc.
Some of the few advantages of Debt Funds are relatively stable returns, safety, low cost, and relatively high liquidity. Even though they promote high stability, you should study before investing.
2. Equity Mutual Funds
Equity funds, also known as Growth Funds, invest in company stocks and shares. Yes, they offer higher returns over the years. But finding the right stocks is tricky, and timing your entry and exit points is not easy. Equity funds can be active or passive.
In active, a fund manager scans the company's stocks and performance and then decides to invest. In the case of passive, the fund manager will create a portfolio based on a popular market index. To diversify the risk of loss, you should diversify your investments as per market capitalisation, such as large-cap, mid-cap, and small or micro-cap.
3. National Pension Scheme
It is a retirement investment plan designed to deliver a steady return post-retirement through systematic savings during working life. NPS is flexible and allows you to choose from a range of Pension Funds to plan your growth. The scheme is divided into two tiers.
Tier I is a non-withdrawable account where systematic and regular contributions are made. Credits are made according to the portfolio the fund manager has chosen for the subscriber.
Tier II – is a withdrawable account, and withdrawals are allowed when there is an active Tier I account in the subscriber's name. You can withdraw funds when required.
4. Public Provident Fund (PPF)
It is a tax-saving investment option introduced by the government of India. PPF helps to build a retirement corpus and saves annual tax. PPF investments are safe as they are backed by sovereign guarantees. The minimum investment amount in PPF is Rs.5000, and the maximum can go up to Rs.1.5 lakh per annum. The interest rate is 7.1 per annum, and the tenure is for 15 years.
5. Fixed Deposit
FD is an instrument that can be availed through any bank. Fixed Deposit allows you to save a specific corpus for a fixed tenure; the interest is payable quarterly from the date of Deposit or when your FD matures. The interest for a fixed deposit account is higher than that of a savings account.
Factors to Consider When Choosing an Investment
When selecting an investment, it's essential to consider several factors to ensure it aligns with your goals and preferences:
- Financial Goals: Tailor your investments to meet your specific financial objectives.
- Risk Tolerance: Choose investment options that match your comfort level with risk.
- Performance History: While past performance can provide insight, it's not always indicative of future results.
- Lock-in Period: Ensure the investment's lock-in period fits with your liquidity needs.
- Investment Expenses: Take into account any fees, such as management costs, to better understand the potential returns on your investment.
These considerations will help guide your decision-making when exploring the top 5 investment options.
Final Words
While saving is essential for financial stability, it may not always be enough, especially if you start saving for retirement late and can't cover all your future expenses.
Therefore, investing is a smart option. In this blog, we'll guide you in selecting from the top 5 investment options in India to help secure your financial future.
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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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