Why should you spend money?
Working as a salaried worker, in business, or as a professional can help you make enough money to live a comfortable life. And once you’ve taken care of all your immediate needs, you probably still have some money left over. What do you do with all this extra money? Do you splurge on some luxuries? Do you keep it as cash or put it in a bank account? Or do you use it in a way that gives you a good return? The question of “how to invest money” comes into play here.
Putting your money to good use is just as important as making money. When you make smart investments, you can reach your short-term and long-term financial goals and feel more financially secure. Investing helps you make a second source of income, build more wealth, and make enough money to keep up with inflation. It makes sure you can live well even after you retire and your regular income stops.
What kinds of investments can you make in India?
If you want to invest, you need to know about the different types of investment plans available in India. They could be low-risk, medium-risk, or high-risk based on how risky the investments were. Let’s look at this in more depth below:
1. Investments with low risk
These are investments that give you a fixed rate of return. There is no market risk in the returns. When you buy the plan as an investor, you will know how much money you will get back from it. You might want to invest in these plans if you don’t like taking risks or if you want to save for something you can’t change, like your child’s college education.
India has a number of low-risk investment plans, such as Endowment Insurance plans, Fixed Deposits (FD), National Savings Certificates (NSC), and the Sukanya Samriddhi Yojana (SSY) for girls.
2. Medium-risk investments
These investment plans have some risk, but they can give investors better returns than plans with less risk. These kinds of investments are best if you are willing to take on a medium amount of risk and want to get a good return on your money. Even though the returns aren’t guaranteed, you can figure out what they might be.
ULIPs with balanced funds and index funds are two examples of investments with a medium level of risk.
3. Investments with a high risk
These investment plans are very risky, but they can pay off very well in the long run. Stocks and mutual funds that invest in stocks are two examples of high-risk investment plans. These instruments are very sensitive to changes in the market, and their returns can vary a lot.
As an investor, you should only buy high-risk investments if you are willing to take on a lot of risk. Before you think about investing in these instruments, you should also know a lot about the market and how it works.
Some investment plans, like ICICI Pru Signature, let you choose between high-risk equity funds, low-risk debt funds, and balanced funds, depending on how much risk you are willing to take. You can also switch between funds as many times as you want for no extra charge. The plan also gives you a life cover that makes sure your family is taken care of financially if something bad happens to you.
Where to put money to work?
India is a hub of financial activity today, with many different kinds of investment opportunities that cover a wide range. You can just keep the money at home or put it into:
# Insurance plans
# Mutual funds
# Fixed deposits, the Public Provident Fund (PPF), and small savings accounts
# Stock market Real estate Commodities
# Derivatives and foreign exchange
# New type of property
# Each of these ways to invest money is different, and it’s up to you to choose where to put your money and how to use these ways to reach your financial goals. As you do this, keep in mind that you need cash, to build wealth, to have multiple sources of income, to keep your capital safe, and to have life insurance.
Investing money for beginners
The above list of ways to put money to work is pretty complete. But those who are new to investing might not be able to use all of these. Investing money for the first time can be hard if you don’t know the ins and outs of the different ways to invest. It might make sense to only invest in insurance-linked financial instruments, mutual funds, fixed deposits, PPF, and small savings accounts.
The best ways to put your money to work
These instruments are great for young people who are just starting out and have a steady income. You can get pure protection plans, like term insurance, that cover your family financially in case you die too soon. Unit Linked Insurance Plans are one type of plan that lets you save money and get insurance at the same time (ULIPs). There are also plans for health insurance, critical illness insurance, and accident insurance.
Mutual funds are a trendy way for new investors to put their money to work. With mutual funds, you can invest in the stock market indirectly through the skills of professional managers. You might not have time to keep up with the stock market and make direct investments because you are too busy with your job, profession, or business. Mutual funds come into play at this point. You can choose from instruments like equity mutual funds, debt mutual funds, balanced funds, and so on. You can also choose plans that pay dividends or grow your money. You can choose based on how willing you are to take risks and how much money you want to make.
Mutual funds offer a lot of ways to deal with cash flow, income, growth, and safety.
Fixed deposits, the Provident Fund (PF), and small savings
Fixed deposits, Provident Fund (PF), and small savings accounts are all safe investments with moderate returns. These have more money and are safer. If you get paid a salary, you can choose to add voluntary PF to your employee PF. Beginners can also make a good living with small schemes for saving money.
There are tax breaks for investing in different ways. When you invest, you need to think about how tax breaks and returns compare to each other.