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How to Invest Money?

Investing money is an ideal way to build a strong financial foundation and achieve long-term goals and objectives. If you aim to grow your wealth or accumulate funds for after-retirement use, you need to learn how to invest money.

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How to Invest Money?

Best Way to Invest Money

Best Way to Invest Money
December 02, 2024

Table of Content

 

You can choose from a diverse set of investment options, from bonds and stocks to mutual funds and real estate. Each of these comes with different risks, ideal investment periods and potential returns. The most suitable option depends on your risk appetite and financial goals.

Continue reading this blog to gain detailed insights about how to invest, the best way to invest, and other details, and become capable of making smart and informed decisions.

Why is it Important to Invest?

By opting for a long-term investment strategy, you can purchase a new home, send your children to college, earn retirement income, or achieve other big financial goals. Both investing and saving your money enable you to grow your money, but they are not the same things. 

Putting money in a savings account lets you earn interest and maintain the liquidity of money. However, in the majority of cases, their returns are lower than from investments; thus, you need to continue investing a portion of your income to beat inflation. Thus, savings are generally considered beneficial only for short-term financial goals and for providing money during times of emergency.

Moreover, choose a reliable strategy for investing consistently. It will thereby help you to reach long-term goals and grow money over time. Choosing to invest over saving will yield you higher returns and benefit from the power of compounding. It's never too late or early to start to invest, irrespective of the amount you can afford. Contributing consistently to any chosen strategy enables you to work towards your long-term financial goals.

What Are the Different Types of Investments in India?

Want to know the best way to invest money? Consider the different types of investment plans available in India to choose the right plan and pick the right option based on the needs. There are three main kinds of investments based on risk taken: low-risk, medium-risk, and high-risk investments. 

Let’s explore each of these investment plans in detail below:

1. Low-risk investments

Low-risk investment plans are financial instruments that offer you fixed or predictable returns. When you opt for these assets, you have an idea of the amount you will receive from the plan. Being a risk-averse individual or willing to invest in any non-negotiable goals, you can choose this type of investment.

Some examples of low-risk investments in India are fixed deposits (FD), National Savings Certificate (NSC), endowment insurance plans, and Sukanya Samriddhi Yojana (SSY) which is applicable for girl children.

2. Medium risk investments

Medium-risk investment plans pose a higher degree of risk but offer greater returns to investors than low-risk plans. This type of plan will be appropriate for you if you have a moderate risk appetite, i.e., you can take some risks to earn moderate returns. Opting for this plan provides you with decent returns, though they are not guaranteed. 

These plans mostly include ULIPs, index funds, hybrid funds, moderate-risk bonds, and others.

3. High-risk investments

As the name suggests, high-risk investment plans carry high risk but provide the chance of earning higher returns over other types of assets, especially in the long run. Thus, if you are a high-risk appetite individual, continue investing in high-risk investment plans. Make sure to gain a sound knowledge of the market before beginning to invest in your chosen plan. 

Some examples of high-risk investments include equity-based mutual funds, stocks, and alternative investment funds.

Where Should You Invest Your Money?

With uncertain market conditions during the last few years, the majority of investors are considering it beneficial to invest money in long-term investment options. By opting for a long-term plan, you can build wealth and combat inflation. 

Here is a list of the most popular investment ideas where you can consider investing money in India:

  • Mutual funds
  • Stocks
  • ETFs
  • Gold
  • Fixed deposits
  • Bonds
  • Real estate
  • Savings schemes
  • REITs
  • ULIPs
  • Post Office Time Deposit
  • National Savings Scheme (NSC)
  • Cryptocurrencies
  • Kisan Vikas Patra (KVP)

Each of these plans has different features and characteristics, and it's up to you to decide how and where to continue investing to achieve your desired financial goals. While doing this, however, keep in mind the importance of liquidity of money, building wealth, creating multiple sources of income, life insurance, and others.

How to Start Investing Money as a Beginner?

To start investing money as a beginner, here are the factors to follow:

  • Risk Tolerance

    • Before you choose to start investing, you must understand your risk tolerance. Investing in stocks is beneficial, but if you are a risk-averse individual, you might be tempted to sell them during challenging times. Thus, choose investment plans only after considering your risk tolerance and your needs and preferences.

  • Active or Passive

    • Understanding whether you are an active investor or a passive one is an essential step in investing. A passive investor prefers assets such as a diversified mutual fund or an ETF that charges low fees and tracks an index. While on the other hand, an active investor prefers active mutual funds or individual investments.

  • Financial Goals

    • Make sure to decide your short-term and long-term goals and objectives through both investing and saving strategies. Gaining a proper understanding of your financial and investment goals enables you to build a strong financial plan and work towards achieving your desired objectives.

  • Taxes

    • If you begin to invest in any joint or individual account, paying taxes on the interest earned, capital gains, and dividends is a must. These taxes, however, can be ignored by owning investments in retirement schemes exempted from taxes, such as PPF or NSC.

Best Ways to Invest Money

Investing money is a good idea for growing your wealth and achieving your desired financial goals. Be it saving for retirement or owning your dream car, making a smart move in investing is essential. From traditional investments such as bonds, stocks, and real estate to modern methods of investment such as index funds and cryptocurrency, gaining a proper understanding of investment choices is mandatory.

Let’s explore the different ways of investing money in more detail below:

  • Types of Insurance Plans

    • There are various kinds of insurance plans available in India. Earlier, life insurance plans included mostly term plans offering only death benefits. Nowadays, many insurance companies are offering a wide range of insurance products with investment as well as death benefits.

    Choosing the right insurance plan, however, provides you with long-term as well as short-term financial benefits. It's upon you to decide the desired insurance plan with benefits. Insurance plans not only offer good returns on investment but also provide financial protection to you and your family members in case of a sudden demise, accident, illness, or other unfortunate event.

  • Investment in Mutual Funds

    • Investing in a mutual fund is an ideal option for beginners. With mutual funds, you can invest indirectly in the stock market, taking assistance from professional fund managers. This way, you can diversify your investment portfolio and manage your risk appetite.

    The different types of mutual funds available in India are debt, hybrid, growth, and others. Among the wide options of mutual funds, choose the one considering your investment goals and objectives and risk appetite. Both long-term and short-term investment plans are offered to choose from. Moreover, mutual funds provide you benefits of taking care of income, growth, liquidity, and safety requirements.

  • Fixed Deposits, Provident Fund (PF) and Small Savings Accounts

    • Fixed deposits, Provident Funds, and small savings accounts are reliable financial instruments providing attractive returns. These tools offer the safety of your invested capital. If you are a salaried individual, choosing the Employee Provident Fund (EPF) will be ideal, while voluntary PF helps boost long-term savings and provide tax benefits.

    Whereas, if you are a beginner and willing to earn an income to meet your decent standard of living, small savings schemes are a good choice. In fact, beginners aiming to build up a solid financial foundation with guaranteed returns can opt for Post Office savings schemes. 

  • Tax Benefits

    • There are several investment schemes offering tax benefits. These plans include ELSS, PPF, tax savings bonds, and long-term fixed deposits. Users investing in these schemes can avail tax deductions under Section 80C of the Income Tax Act, 1961#. Investing in these schemes is a wise decision to lower your tax burden.

    However, to experience these benefits, investing on a regular basis is mandatory. Let the money grow over time and attain the financial freedom you’ve dreamt of.

  • Gold

    • Gold is considered an auspicious metal in India with its many benefits and uses. It is also a low-risk investment that helps to combat inflation. Thus, gold is considered the oldest and most popular investment option for Indians. The traditional way of investing in gold is through coins, ornaments, and gold bars. At present, alternative options have also emerged, such as gold ETFs, gold deposits, and gold mutual funds.

    Gold investment can save you during times of uncertainty and provides stability and safety during crises such as inflations and recessions. Another benefit is that the financial market trends don't impact the value of gold significantly. A most notable fact is that during the last year, the constant demand for gold has resulted in 30.6% annualised returns on investment since 2023.

  • Real Estate

    • If you are wondering how to invest money, real estate has always been a popular idea in India. While real estate investments require a large amount of investment, they usually yield decent and lump sum returns with moderate risks.

    You can get returns either at the time of selling the real estate or in the form of rent monthly. The returns are reduced by associated charges such as property taxes, registration fees, and others. Besides directly buying properties, you can also invest in Real Estate Investment Trusts (REIT) to avoid the hassles of managing multiple properties.

    Thus, if you are looking for a reliable investment option for long-term objectives, choose the real estate investment.

  • Bonds

    • Bonds offer a fixed income to investors. Low-risk bonds include government or corporate bonds that offer lower rates of interest in comparison with high-risk bonds. There are primarily two types of bonds, namely, government bonds and corporate bonds.

    A government bond is a loan you offer to any government entity that allows you to earn interest on the loan amount over some time, usually one to 30 years. Because of this steady source of income, bonds are called fixed-income securities. Corporate bonds work similarly to government bonds. The only difference that exists is that you grant a loan to a company and not any government entity. That’s why they are considered more risky options.

    In short, just like individuals, companies and government bodies also need investment for growth and development. Thus, bonds are issued to raise funds for their particular company. You can go for bonds if you are looking for a fixed rate of interest and tenure.

  • Stock Market

    • Stocks are a popular choice of investment in India. This investment option is ideal for investors looking to achieve long-term objectives with attractive returns. If you are a risk taker, stocks are suitable options. Before investing, make sure to gain a proper understanding of the market fluctuations. Proper research is mandatory for stock investments.

    There are several types of stocks available in the Indian market, including value stocks, growth stocks, common stocks, preference stocks and others. Considering the parameters such as net profit, market cap, and others, you can filter these stocks at your convenience.

FAQs on How to Invest Money

1. How do I start investing money?

To start investing money, follow the below steps:

  • Begin to invest as early as possible
  • Decide how much you should invest
  • Open an investment account
  • Choose your preferred investment strategy
  • Consider your investment options

2. Is investing good for beginners?

Yes, investing is good for beginners if you have sufficient money and want to grow it over the long term. 

3. What are the different ways to invest money?

The different ways of investing money are as follows:

  • Real estate
  • Mutual funds
  • Insurance plans
  • Fixed deposits such as small savings account and Public Provident Fund (PPF)
  • Stock market
  • Commodities
  • Derivatives and foreign exchange
  • Tax-saving investments

4. What are low-risk investment options?

Fixed deposits and provident funds are low-risk investment options in comparison with other investment options. 

5. What are the tax benefits of investing money?

You can claim tax benefits by investing in the tax saver fixed deposits scheme. Under this scheme, you can avail tax deductions under Section 80C of the Income Tax Act, 1961. Moreover, by investing in these deposit schemes, deduction are available under Section 80C on amount invested in 5-year or more fixed deposit in a schedule bank or post office or National Savings Term Deposit. It enables you to deduct up to Rs. 1,50,000 from your taxable income.

It is to be kept in mind that people who put money into a post office fixed deposit will have to pay taxes on the interest. People younger than 60 who owe taxes must pay taxes on the interest. On the other hand, for people over the age of 60 interest income is exempt from taxation maximum upto Rs 50,000 under Section 80TTB of income Tax Act.

For New tax regime, there is no deduction available on amount invested and interest amount received on Post office FD or National saving term deposit is taxable.

Final Words

Learning how to invest money wisely is a crucial decision and a commitment towards your future. This is possible, though, with proper planning and choosing the right investment plan. Moreover, patience and disciplined investment and saving strategy can enable your wealth to grow over time and eliminate risks over time. 

The key is to begin investing at an early age and maintain consistency in investing to align your investments with your financial goals. This way, you can build up a financial portfolio and attain peace of mind.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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18. Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.

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