What is an Investment?
Investment refers to the process of investing money somewhere with the expectation to earn profit or some better returns in the future and the profit earned from that investment is known as Investment Return. In other words, Investment is termed as an asset that is acquired to save some extra money from the extra part of income or appreciation to obtain future benefits or to gain profit and to build wealth.
For Example: If we invest 1 lac rupees in a share of any organization or company and receives 1 lac 40 thousand rupees in return. So, we can say that in investing 1 lac rupees we received 40 thousand as the Investment Return. To know in brief calculate in Investment Calculator.
There are 4 ways of getting returns in the investment:
- Capital Appreciation.
There are many types of investment in the markets but they all are based on only these 4 ways of “Investment Return” which are mentioned above.
Types of Investment Plans in India
We are going to discuss the Top 10 Investment Plans in India, in which most of the investors show their interest.
- Public Provident Funds: The Public Provident Fund (PPF) is known as the best and secured long-term investment plan in India and the best feature of this plan is that it is tax-free. Public Provident Fund (PPF) is fully guaranteed by the government of India. We can easily open an account in (PPF) from any bank or any Post Office (P.O). We have to deposit £50p to £15,00,000 every year. We can put the total amount altogether or through 12 installments which can be paid monthly. The minimum lock-in period of (PPF) is 15years. We cannot invest in the short term below the time period of 15 years. We can also extend this investment up to 5 years more after its maturity. The interest rate we can get from (PPF) is 8 to 9% per annum.
Advantages of Public Provident Funds (PPF)
The advantage of investing in Public Provident Funds is that it provides Tax exemption. (It is one of the best tax saving instrument) That means we can get the tax exemption in our investment amount rate of interest and the income of maturity. PPF also provides the loan facility to the investors from 3 to 6 years period.
- Investing in Mutual Funds: A Mutual Fund runs on “Asset Management Company”. This company collects money from an individual investor and on the behalf of their investment, the Mutual Fund’s Assets Management Company invests that money in the share-market, debt-market such as bonds, debentures, etc., and distributes the amount of the profit or dividend earned from these investments. For this process, the company works based on commission as an intermediary. Therefore, if one does not know the share market or bonds, etc. Or either he/she does not have time to spend to acquire knowledge about the share-market, debt-market, etc. To overcome this situation, the person would like to prefer the Mutual Funds and hence, the Asset Management Company invest money on the behalf of these people by collecting the money required for their investment according to their investing capability. It is the best starting opportunity for the new person or beginners who are interested to enter in equity and debt market.
- Direct Equity Or Share Purchase: In the case of long-term investment, if you have good knowledge to analyze a stock-share before purchasing it, then the Direct Equity or Share Purchase is a better option for you. It is somewhat risky to invest in Direct Equity or Share Purchase but, if one invests for a long-term period of more than 15 years then surely, you can expect high returns in the future. There are two ways to invest in direct equity or share purchase:
i. Primary Market: When a company introduces its shares in the market for the very first time to the public. It is called Initial Public Offering (IPO). Which is done through the primary market.
ii. Secondary Market: In the Secondary market, one can sell or purchase the shares of those companies which are already listed on the stock exchange. To become a successful investor in direct equity, you should choose the right company. A company with strong fundaments offers good growth opportunities is a good stock to buy for long-term investment and one must invest for the long term. When a stock in the market is trading at an undervalued price (undervalued stocks are during the market crash) and the investment over the long period allows the investor to take advantage of the company’s growth.
- Real-Estate Company: The properties, land, buildings we buy at a point of time and after some time sell them at a high price to earn more profits. The profit one earned from this process is known as “Capital Gain”. In India, Real-Estate Company is on the rapid growth. It has a huge prospect on high sectors. Such as housing, commercial, manufactures, hospitality, retail, etc. As an individual investor, buying a flat or a plot can be the best option for the investment portfolio. In India, Real-Estate is also known as “Money Making Industry” because in Real-Estate investment, one is guaranteed to make returns of annually, 30% to 100% but, before earning a high profit from Real-Estate, an investor should do proper research about it and then buy the property. An investor should make their investment at that place where the chances of the price may rise within 5 to 10 years. The Real-Estate Investment is a short-term as well as a long-term investment plan. If one invests for the short-term period, the return will be lower! But, if you go for a long-term investment such as 5 to 10 years then, surely one can earn more returns or profit. Also, Real Estate has low risks.
- Investing In Gold: Gold is an evergreen investment product because it always contains liquidity. Anyone can invest in the following formats of gold which are:* Gold Deposit Scheme.
* Gold ETF.
* Gold Bar.
* Gold Mutual Fund, etc.
The “Gold Deposit Scheme” was announced in the year 2015 Budget. An investor should deposit to a minimum 200gm at a replacement of “Gold Bond”. In this Gold Bond, an investor can get an interest rate of 3% to 5% respectively, which is tax-free. The lock-in period in investing in gold is 3 to 7 years. There is no “Capital Gain Tax” or “Wealth Tariff” in investing in Gold Bond and according to the preferences of the short amount investor, they can take the Gold Bond in any form such as cash or gold. The top investors and advisors recommend the gold investment because it provides a lower risk. The best way of investing in gold is to purchase physical gold bars or gold coins.
- Post Office Investment: The Post Office Investment Scheme is best for the government employees, salary class, and business class people for the long term period. As it is a government scheme hence, there is low risk and one can get a medium rate of interest. Some popular Post Office Schemes are:
* National Saving Scheme.
* Recurring Deposits.
* Senior Citizen Savings Scheme.
* Sukanya Samriddhi Yojana Scheme.
The National Saving Scheme is a good option with better returns. If in case, you require no risk with long-term investment. Then National Saving Scheme can provide Decent Returns.
- Company Fixed Deposit: As compared to Banks FD, Company Fixed Deposit is in more preferences because it provides a high rate of interest. The investor should carefully select the time period of such Fixed Deposits because you cannot withdraw its amount before the maturity date of FD. It doesn’t work under any insurance sector and these instruments are not controlled by (RBI) Reserve Bank of India. Hence, it is quite risk-taking, as compared to bank fixed deposits. That’s why the interest rate is high in company fixed deposits.
- Investing In Initial Public Offering (IPO): An Initial Public Offering (IPO) is the shares in which a brand new or existing company issues its shares for the first time in the market to raise the capital by which the company or a business grows. The Initial Public Offering market is also known as the primary market. IPO is somewhat different from other average stocks as it provides high risks due to the lack of information to investors about the company issuing the shares. IPO has high risks and high chances of good returns if a company grows in the future. Perhaps, it is a good option for long-term investment. But an investor must study the company, it’s history, and all the important information regarding it before going to invest in an IPO.
- Insurance Plans: The concept of insurance comes from common but shared risk. Insurance is an agreement in which the company holds the guarantee that it will provide compensation for any specific loss, damage, illness, or death and in a replicate of it, an Insurance company charges premiums timely which is very less as compared to the compensation amount. The advantages of an Insurance plan are to provide compensation in case of any loss of life or property and the disadvantages of Insurance plans are less liquidity, it has a long locking period, it also has the pressure of continuous premiums payments and it provides less or moderate returns.
- Investment in Bonds: In investing in bonds, a company take money from loan and provide fixed interest rate to their investors. If one doesn’t want to invest in direct equity or mutual funds then, investing in bonds may be a better option for you. There are many decent long-term loans in the market. It is also known as a fixed-income instrument. It is generally used by the government or companies to raise their money by borrowing it from their investors. There are many types of bonds available in the market. Some of them are listed under:
* Fixed Income Essential.
* Treasury Bonds.
* Municipal Bonds.
* Corporate Bonds.
* Convertible Bonds.
Best Investment Plans in India to Invest in 2021
Check below the list of top investment plans in India, which you’ll take into account investing in saving for your future monetary goals.
|Investment Plans||Type of Plan||Entry Age||Max. Maturity Age||Policy Term||Fund Options|
|Aegon ilnvest||ULIP||7 – 5 years||70 years||10/15/20/25 years||5|
|Aviva iGrowth||Unit-Linked Life Insurance Plan||18-50 years||60 years||10/15/20 years||3|
|Bajaj Future Gain||ULIP||1-60 years||70 years||10-25 years||7|
|Bharti AXA eFuture Invest||ULIP||18-60 years||70 years||10 years||6|
|Bajaj Allianz Fortune Gain||ULIP||1-63 years||70 years||7-30 years||7|
|Bajaj Allianz Retire Rich||Unit-Linked Pension Plan||30-73 years||80 years||7-30 years||3|
|Canara HSBC Smart Monthly Income Plan||ULIP Plan||18-50 years||N/A||5-30 years||7|
|Edelweiss Tokio Guaranteed Income Plan||ULIP Plan||0-60 years||70 years||5-25 years||7|
|Exide Life Wealth Maxima||ULIP Plan||0-65 years||75 years||10, 15-20 years||6|
|Future Generali Easy Invest Online Plan||ULIP||0-60 years||18-70 years||10-20 years||5|
|HDFC Life Click2Invest||ULIP||30 days – 65 years||75 years||5-20 years||8|
|HDFC SL YoungStar Super Premium||Unit-Linked Child Plan||18-55/65 years||65/75 years||10-20 years||4|
|ICICI Pru Smart Life||ULIP||20-54 years||20-64 years||10-25 years||8|
|IDBI Federal Smart Growth Plan||ULIP||30 days -55 years||70 years||10, 15, 20-25 years||6|
|India First Smart Save Plan||ULIP||5-65 years||75 years||10-70 years||4|
|Kotak Invest Maxima||ULIP||0-65 years||75 years||10, 15, 20, 25-30 years||5|
|PNB Metlife Money Back Plan||Money Back Plan||13-55 years||65 years||10 years||N/A|
|SBI Life-Smart Scholar||Unit-Linked Child Plan||18-57 years, 0-17 years (for child)||65 years||8-25 years||7|
|SBI eWealth||ULIP||18-50 years||60 years||10-30 years||4|
|TATA AIA Wealth Maxima||ULIP||30 days – 60 years||100 years||100 minus age at entry||11|
Why One Should Plan For Investment?
Investment is an important asset for one who is acquiring benefits or returns from its savings or to become wealthy in the long-term period. The other aim of doing investment is Inflation. This is the main or you can say an important thing to invest your money to meet the future needs. There are many other basic reasons to invest money which are explained below:
- The investment helps you to increase your money. Many investment methods like deposits or bonds, stocks, etc. offer you long-term returns on your money. The returns you get helps you to become wealthy over some time.
- Investment also helps you to save some money for your retirement. Many of us, who are working usually savings our money for their retirement. But, if you put your savings into an investment portfolio, then you will get high returns from these investments apart from your savings after your retirement.
- An investment vehicle can also help you to reach your financial goals as you will be earning more money at a faster period of time, over the long term.
- The investment enables you to start or expand a business. In investment, many investors support and contribute to the entrepreneurs to create new jobs and products. The investors like the process of establishing a new business and help them to build into successful entities. This helps to provide a strong return on their investment.
- Investment can reduce your taxable income. By investing into a retirement fund pre-tax dollars, one can generate its loss by applying this loss against any gains from other investments which can help you to reduce the amount of your taxable income.
- The investment you do depends on your personal risk- tolerance. The more you take the risk, the more will be the chance of earning greater returns. As because sometimes you can also bear losses in investment as it is all depend on the market risks.
What an investor should check before investing its money in any Investment Plan?
Investment is an asset that carries better returns and benefits but also contains low-risk and high-risk depend on the nature of the company or the investment. Many investments also depend on the market value. If the value of share prices goes high, you can earn more profit and in the decreased value of the shares in the market then you may have to bear some risks. It’s all based on the capacity of your risk tolerance. The higher the risk you can take, the higher will be the benefits you can earn. So, before investing your money in any investment plans, you must check the following points which are described below:
- Check the Product market – One should check the product of the company that if the company’s product has that much potential to provide better growth and services to the company at a certain period of time. It is not a big deal to provide one-time profit for the company but, for the investors, the consistency of the company matters.
- Profit Margin – An investor must check the sales margin of the company. Whether the sales margin is good and converting into profit or not. So, while analyzing the company’s profit an investor must check its sales margin as well. One should check the previous 5-10 years profit margin of the company to analyze its future growth.
- Short-term or long-term business – An investor must check whether the company is looking for short-term or long-term business. Some companies focused on earning more and more profit in a short period of time whether other companies focused on earning goodwill in the long run such as providing discounts to the regular customers or developing good relations with its suppliers, etc.
- Is the Company Loyal? – An investor must also check whether the management of the company is honest or not. Many companies gain profit for themselves and their family only in different ways while on the other hand, the shareholders will have to bear losses. Hence, before investing in any company one must check whether the management of the respective company is following the ethics or not.
- Annual Report of the Company – One can find the details of the company from its annual report. An investor can search according to the size of the company how effective is the (R&D) Research and development of the company. One can compare the (R&D) figure of the company from its sale or different companies of the same industry to evaluate its growth.
- Company – Employees Relationship- An investor must look at what kind of relation the company has with its labor? Whether the company has good relations with its labor or not. An investor should understand the concept that a company can increase productivity by providing better treatment to its labor.
- As similar to the above-mentioned point, an investor must also check the relationship between the company and its executives. As executives play an important role regarding judgment, teamwork, and decision making. If the executive of the company is leaving the company or not performing their duties properly then it will be a problematic situation for the company. Perhaps, a company has a good executive climate, provides better salaries according to the industry standard, and the promotion is based on the executive’s work performance, etc. Facilitates a better growth of the company.
Frequently Asked Questions
Q1. List some advantages in investing in the Initial Public Offering.
Ans. Advantages of investing in Initial Public Offering (IPO) are as under:
- When a new company lists their IPO and releases their shares in the market, you can buy it immediately at a very cheaper rate and after some time, you can realize those shares at 2-3 times higher amount. Therefore, you can earn by investments in an IPO.
- There is Price Transparency in buying an IPO. As the price of the shares, a person buys from a company has been written on the Order Document of the IPO. Hence, the small investors, as well as the big investors, have the same information about their IPOs.
- Whenever a company releases an IPO, there may be two reasons! If they have to pay their debts off or they want to expand their company at a high ratio. So, we can see that a company that is listing itself in IPO has more chances of growth in their near future, and there is less risk of loss and a higher possibility of gaining profits.
- IPO provides a lower cost of capital and equity to the companies.
- The Liquid stock equity Participation (such as ESOPs) enables public companies to attract and retain good management and skilled employees.
- The IPO helps in building the company’s image, prestige, and exposure which leads to increased sales and profits.
Q2. How profitable can be Direct Equity Investment?
Ans. Direct Equity is risky but also provides high returns. From the last 12-15 years, In India, the share market has jumped from 113 to 27,000 level and generates 44% annualized return. This means that in the last 15 years the benefit earned only from direct equity investment in the long term has multiplied by more than 230 times and that is the fantastic growth earned by direct equity.
Q3.Explain the trade of gold jewelry as an investment in India.
Ans. With the global population, the demand for gold in jeweler production increases over time. The gold production to make jewelry is about 49% worldwide. The buyer of the gold jewelry or its investors are quite price-sensitive as they buy more if the price falls and buy less when the price rises according to the market rotation.
Q4. Is it risk-taking to invest in Real Estate?
Ans. No, it is not at all risk-taking to invest in Real- Estate as one is guaranteed to make returns of annually 30% to 100%. It is low risks and a high profit-making investment for the long term investment.
Q5. What is the significance of investing in Mutual Funds?
Ans. The significance of investing in Mutual Funds are listed below:
- The mutual funds investment is handled by its experts which makes it much better than another investment vehicle.
- There is no lock-in period in Mutual Funds Investment.
- Investing in Mutual Funds comes at low costs so that small investors can easily access them.
- It provides the most systematic investment plans which run on the prospect of Mutual Funds.
- It also provides flexibility, liquidity, and diversification.
- It is regulated under (SEBI) and (RBI).
- It also provides ease of tracking. So, one can easily track investment in Mutual Funds.