Highlight: MFs, PPFs, and fixed deposits are investment options that are good for long-term financial goals, short-term goals, and tax savings.
There are a few aspects that go into investment planning that determine how much money you may make, how safe your investments will be, and what rewards you will receive. To begin, think about your investment horizon and goals, which will aid you in selecting the finest investment options.
There are investment options that are good for long-term financial goals, others that are good for short-term goals, and some that help you save money on taxes. However, you must decide which investment product you will use and how you will go with it. Financial and non-financial investments are both possible.
Bank deposits, mutual funds, Fixed Deposits, and other financial investments are examples of financial investments, while gold, real estate, and other non-financial assets are examples of non-financial investments. Before deciding on any investment options, it is recommended that you carefully review all the available financial vehicles and then make the best decision possible.
1. Mutual fund
When it comes to Mutual Funds, investors frequently find themselves in a quandary. Of course, because they are market-linked, they are riskier, but better returns cannot be underestimated. If you wish to participate in the markets but lack the necessary skills and ability, Mutual Funds offer better returns than many other investing possibilities.
These are market-related investments in which money is invested in a variety of financial instruments such as debt, equity, stocks, money market funds, and so on, with returns determined by the fund’s market performance.
Mutual funds are divided into three categories: equity funds, debt funds, and hybrid funds, each of which invests in a distinct asset class.
What is Equity Mutual Funds and How Do They Work?
Equities funds are market-linked instruments that invest 65 percent of their assets in equity and offer a higher return on investment by investing in shares of firms with various market capitalizations. Because equities funds offer bigger rewards, the risk associated is also higher.
Who should consider investing in equity funds:
Investors with a high-risk tolerance
Individuals seeking Long-Term Investment Opportunities
Investors looking for tax breaks can invest in Equity Linked Saving Schemes.
What are Debt Mutual Funds?
Government securities, corporate bonds, commercial paper, treasury bills, and other money market instruments are examples of debt mutual funds that invest in fixed-interest assets. These products are appropriate for investors with a modest risk appetite since they provide a consistent return.
Who should invest in Debt Funds:
- Risk averse investors
- Individuals with investment plans of 3 to 4 years
- Investors looking for highly liquid investments.
What exactly are Hybrid Mutual Funds?
Hybrid funds are mutual funds that invest in more than one type of investment security, such as stocks and bonds. As a result, these funds are ideal for beginning investors or as core holdings in a portfolio for diversification. The asset allocation of hybrid funds can either remain constant or fluctuate over time.
Who should buy Hybrid Funds:
Conservative investors looking for low-risk investment opportunities
Novice investors seeking significant equity exposure in their overall portfolio while avoiding high risk
Investors who have a long investment horizon.
2. The Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a government-backed investment plan that allows its members to make risk-free long-term investments. Every quarter, the interest rate on a PPF account is updated and paid by the government. The current rate of interest is 7.9%. PPF investments have a 15-year maturity period. However, after 6 years, you can only withdraw a portion of the money in your PPF account. On the other hand, a loan can be taken out against the balance of a PPF account.
The principal amount, as well as the interest earned, are entirely secure because this program is governed by the government.
PPF also falls under the EEE category (Exempt-Exempt-Exempt), which means that the principal, interest generated, and maturity amount is all tax-free. PPF contributions (up to Rs 1.5 lakh per year) are tax-deductible under section 80C of the Income Tax Act.
Who should put money into the Public Provident Fund?
PPF account investments are locked in for a period of 15 years, making it ideal for individuals looking for long-term investment opportunities.
Investors who want to take advantage of a tax break.
3. Bank Fixed Deposits
Fixed Deposits are one of the most popular investment alternatives accessible, following the classic investing methods. These are deposits made with banks that guarantee a set rate of return over a set length of time. According to bank restrictions and the FD tenure chosen by the investor, which might range from 7 days to 10 years. Individuals can, however, select from a variety of tax-saving fixed deposits with terms ranging from 5 to 10 years.
The investor has the choice of placing a cumulative deposit or a non-cumulative deposit when investing in fixed deposits. The interest on the cumulative option is reinvested in the principal amount and paid at maturity, whereas the interest on the non-cumulative option is paid to the investor according to the underwriting.
Fixed Deposits are appropriate for the following individuals:
- Investors seeking a certain rate of return
- Investors who are risk-averse or have a low-risk appetite should be cautious.
- Investors looking for long-term investment alternatives
Don’t forget to consider the risk and the potential return of the investment strategy you’re considering!