Where should you invest your money?

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Investing money helps you to guard yourself from unforeseen expenses. As a result you want to invest your savings in order to get returns. There are numerous ways in which you can invest your money. You can choose from safe to medium-risk investments or even higher-risk options as well. If you are looking to grow your wealth securely, you can invest in lower-risk factors which will give you smaller return or you can go for riskier options which, usually,  offer higher returns. Secure or risk-free investments are for those, who want to keep their money safe and secure, by investing in bank, Post Office, Bonds etc. Investment and return tend to be proportionate. They provide you lower returns. If you are looking for higher returns, then you should opt for higher risk options such as Exchange Traded Funds, Mutual Fund, stocks, option trading, future trading & Currency trading etc.

Investment in Secure Sections:

The downside of investing in securely is that the rate of return is low in comparison to higher-risk investments. In this section your money would be safe, however the rate of interest or return would be significantly lower.

Bank Deposit: Nowadays, you try to increase your money by keeping it in Savings accounts, Recurring or Fixed Deposit accounts. When you keep your money in Savings Account the rate of interest extended by the bank is significantly lower, it varies between 3.5% to 4% per annum (during the pandemic period many banks have reduced their rate of interest and offer 2.5% interest per annum), for a savings account with balance of less than 1 lac. Some banks offer up to 6% rate of interest for accounts with a minimum balance of more than Rs.1 lac. Incase of savings accounts you can deposit or withdraw your money as per your requirement, but most banks do not allow you to withdraw the entire balance from your account. Most banks deduct an amount of money for not maintaining the minimum balance as prescribed by the bank. The minimum maintenance-balance may vary from bank to bank.  It can range from Rs.500 upto Rs.1 lac.

You may also choose to save a particular amount of money each month for a period of time. This is  called Recurring Deposit (RD) scheme, where you would need to deposit a particular amount of money per month for a period of time. At the end of the specified time period the entire amount saved, will be returned to you with the interest. RD does not allow withdrawal prior maturity date, unless the account is prematurely closed (where additional charge may be deducted by the bank for premature closure). Banks usually offer from 4.50% to 6.25% as rate of interest per annum for RD.

You can also choose to opt for Fixed Deposit of any amount of money starting from Rs.100 to Rs.1 crore. You can deposit the money for minimum period of 1 week, which can extend upto 10 years.  Banks usually offer 6% to 7.5% as rate of interest per annum for Fixed Deposits (The rate of interest on FD has been reduced by the bank during the pandemic). In this case the money would be safe. However, you cannot expect more returns than the banks are offering. If you earn more than Rs. 40,000 per annum in interests, you will have to submit 15G/15H forms every year (If your income is below the taxable limit, then ,only, you can submit 15G/15H). Otherwise, 20% TDS (Tax Deducted at Source) will be deducted from the earned interest.

It’s a very handy option for investing in a secure way. The minimum amount to open a term deposit account is Rs.200 with no maximum limit. If you want to open more than one term deposit account in post office, then you can also choose to do it. The post office will not deduct any TDS for any kind on fixed deposits. The rate of interest on term deposits can be higher for NSC, KVP etc compared to bank FD.

Post Office Savings Scheme is like a savings accounts, where you can deposit and withdraw money at any point of time. Usually post offices offer 4% interest and have a minimum maintenance-balance requirement of Rs. 20 for savings accounts.

National Savings Recurring Deposit is also like a bank's recurring deposit scheme, where you need to pay a certain amount of money every month for certain period of time, and you will get the principal and the interest on maturity. It is for those who want to invest for at least 5 years. You’ll earn an interest of 7.2% per annum. You can invest a minimum amount of Rs.10 with no maximum limit. You can open more than one account as RD.

Under Time Deposit Scheme you can open an account individually or jointly. Even a minor can avail this service. The minimum amount required for investment is Rs. 100 and multiples of it  (multiples of 100) . The interest rate is 6.9% for the first 3 years, and 7.70% rate of interest for 3+ years.

Monthly Income Scheme (MIS) is a term deposit of Indian Post where you can deposit a certain amount of money and the post office will pay you the interest at the end of every month and  on maturity you will get the entire deposited amount back. Here you’ll earn 7.6% interest per annum, which is payable on a monthly basis. The lowest amount you can invest is Rs. 100 and highest investment limit is Rs. 4.5 lakh for single account holders and Rs. 9 lakh for joint account holders.

National Savings Certificate (NSC) is similar to bank FD but it has a lock-in-period of five years. It means if you open a bank FD, you can withdraw it before maturity date and get the money in case you need it. However for NSC, you will not be able to withdraw the amount before maturity period, which is 5 years. Here, you will receive 7.9% interest rate and the minimum investment amount is Rs.100. You can transfer certificates from one person to another person between the date of issue to date of maturity at any point of time.

Kisan Vikas Patra (KVP) is also like a bank FD. Unlike NSC, KVP can be withdrawn prematurely. It is a government scheme available at post offices where the lowest amount required for investment is Rs. 1000 with 7.6% interest rate, it has no maximum limit for investment.
These schemes are tax exempted under section 80c and the tax exemption is up to Rs. 1,50,000. Which means NSC, KVP are eligible for tax deduction for the year of investment, however the earned interest would be taxable at the time of maturity.

Sovereign Gold Bond: This is a government scheme which offers investors another process to purchase gold. This is the substitute for holding physical gold, and that is the reason it is also called paper gold. It’s value is calculated as grams of gold. The bond is issued by Reserve Bank of India. You can purchase gold in ‘certificate’. Usually gold bonds have a maturity period of 8 years. That means if you purchase a gold bond today at Rs. 100 which would be equivalent to 1 gram gold. After 8 years if the price of gold increases more than Rs. 100 per gram, then you would be in profit and if decreases then you will be in loss. However the price of gold does not usually reduce. You can choose to purchase Sovereign Gold Bond between 1 gram to 4 kg maximum. Capital gain tax is not applicable on gold bonds, that means if you purchase gold bonds at Rs. 100 and sell it at Rs.200, then you don’t have to pay any tax for gaining Rs.100 as profit. The bond also offers fixed interest rate of 2.50% per annum on the nominal/ purchase value which is taxable.

Risky Investments:

As we have discussed earlier that the rate of return is proportionate with risk. Risk increases with the chances of higher return. Here are brief descriptions of risky investment schemes.

Exchange Traded Fund: ETF is an investment fund which involves a collection of securities such as stocks, bonds, commodities (gold, silver), currency, real estate, Indices (like Nifty 50 or Sensex etc.). Among ETFs, Index funds are most favourite of billionaire Warren Buffet, as one Index contains multiple stocks of that particular segment (such as IT, Infra, Pharma) and over the year Index funds are more profitable and less risky than general stocks. As it holds the marketable security that means it can be easily bought and sold for low cost. An Index shows strengths of the stocks which are listed under that particular Index. Apart from Index funds, a new investor can also invest in gold ETFs, which is issued against gold reserve or other securities. With time and demand the stock price rise and fall, however ETFs have less volatility and offers steady growth than general stocks.

Mutual Funds: As the name explains it is a fund where an Asset Management Company (AMC) creates a pool of funds and invites institutional or retail investors like ourselves to invest into that fund. Once investors invest in that fund, the AMC collects all the money and invests the money in various securities like stocks, bonds, Index Fund such as Nifty & Sensex, commodities such as gold & silver or debt. Investors get equal part of ownership of that fund which is called units. Investors can buy mutual funds by themselves or by fund experts. As Mutual funds are operated by professional money mangers, there are a higher chance of highest possible returns, where investors do not need to monitor or worry about the portfolio. There are different types of Mutual Funds available ranging from low-risk to high risk. Investors can choose the risk categories depending upon their return expectations. Investment in Mutual Funds also have certain amount of market risk, however investor can reduce the same by diversifying their investment in at least 4-5 different mutual funds.

Investing in Stocks: If you want to make more money then you have to take a little bit of high risk. This is an excellent way to grow wealth. Stock is nothing but an ownership in a company. When you purchase a company’s stock, that means you’re purchasing a small part of ownership of that company and that is called a share and you are called a shareholder. If you purchase a stock at Rs.100 today and after a year if the stock price rises a to Rs.115, and if you sell the same stock you make Rs.15 as profit. This process is called Investing. Investing in stocks takes lot of time, knowledge and preparation by reading and analyzing news, going through company’s financial reports and understanding technical chart to understand current market trend and company’s situation. Investing in stocks poses higher risks than investing in Mutual Funds, however the risk can be reduced by investing in various companies instead of investing all your money in one company, which is called diversification.

Equity Trading: Trading is almost similar as investing. In case of investment, once you purchase a stock, it’s up to you to decide when will you sell it; you can sell it after a week, month, year or a decade. However for trading, once you purchase the stock you have to sell the stock within the very same day or the stock will be sold automatically before the market closes, that’s why it is also called Intra-day trading. There are two major benefits of Intra-day trading. The very first benefit, your broker will offer you 5 or 10 times more margin than your deposited money. It means if you deposit Rs. 100 in your demat account, your broker will let you purchase or sell shares worth Rs. 500 or Rs.1000. And the second benefit of trading is, if you can calculate if a stock price will decrease in a particular day; you can sell the stock at higher price first and later at that day, once the stock price decreases you can buy it, which is actually called squaring off. This option is not available for investment and the entire process where you sell a stock first and buy it later is called shorting. With all these eye catching benefits, day trading or Intra-day trading also poses a high potential threat of loss. As the stock market is highly volatile and it is very difficult to predict when and till what extent will a stock price rise or fall within the very same day. So, one miscalculation can cause you a chunk of money. And on the other hand since your broker will allow you higher margin if you make a mistake, you stand to make 5 or 10 times the loss.
For example: When ABC Limited’s stock is trading at Rs.100 at morning, you calculate the stock price will decrease up to Rs.95, where you stand to make Rs.5 in each stock you sell. You allotted Rs.100 in your Demat account and your broker will let you sell 5 shares of ABC. Now you have 5 shares. Suddenly the stock price start going upwards and reached at Rs.105. In fear of more loss, you squared them off at Rs.105. Now you made a loss of Rs.5 for 5 shares which will be Rs.25.

Option Trading: Option trading is a contract through which a seller gives a buyer the right to buy or sell ,but not obligation, a specified number of shares at a pre-determined price within a certain period of time. Originally option was created as insurance against investment. Lets assume you purchase a stock of XYZ Limited at Rs. 100. Now if the price rises you will make profit, however if the price falls you have to face loss. So, you made an agreement with an option seller if the stock price goes below Rs. 100 with in a month he will purchase your stock and you paid Rs.10 as premium. If the stock price rises and reaches at Rs. 125, then your profit would be Rs.25 (actual profit) – Rs.10 (option price) where your net profit will be Rs.15. However if the stock price falls and reaches Rs. 75, you ask the option seller and exercise your right to sell the stock. Where the option seller will be bound to purchase the stock at Rs. 100 from you, as that person and you have a predefined contract. In here you will make loss of only Rs. 10 which you paid as option premium. However the seller either has to hold the stock till it reaches Rs.100 or sell it on Rs. 25 loss. However now-a-days people have started trading option as trade method. It is not recommend for new traders at all and it involves higher risks than trading shares. Option is always time bound, usually options expire in every month’s last Thursday in the Indian stock market. It’s upto you to exercise option or not and that’s why it’s called right but not obligation.

Future Trading: Future trading is a financial contract that allows the buyer to purchase an asset or the seller to sell an asset at a pre-fixed future date and agreed price. It is a right and obligation as well. Lets say you have a stock of ABC Limited which you purchased at Rs. 100, and you want to sell it at Rs. 110 after a month. But you are not sure if the stock price will be increase or decrease than Rs. 110. So, you entered into a future contact with a buyer where you both agreed that after a month you will sell that stock to that person for Rs.110. Now after a month if the stock price increases at Rs. 120, you are obligated to sell it for Rs.110 where you make Rs.10 loss than the market value. However, if the stock price decreases at Rs.97 you have the right to ask that person for Rs.110 to purchase that stock, since you both agreed on pre-fixed price earlier. In this case the buyer will be in loss of Rs.13 and you will make a sweet profit of Rs.10. Future trading is considered even riskier than option trading. Hence it is not recommend unless you are a seasoned trader.

Currency Trading: It refers to as ForEx Trading, which is the purchasing and selling of foreign currencies to make profit. Where you can purchase USD for low and sell for higher price. However, it is one of the most risky investment. Predicting currency change is a rigorous process as currency price might rise and fall depending upon various factors including Geo-political disputes or tensions, economical and political situation and as well as stability of different countries. Since the risk is the high, the chances of return or loss is also high for currency or ForEx trading. Currently RBI allows trading of GBP, USD, EURO, JPY.

New investors always look forward to increase their money as quick as possible which is a big mistake. Instead you should be focused on increasing your wealth with well balanced investment options which suits your needs and capabilities instead of trying to find a get rich quick idea or find shortest route to success. The good thing about investing is that you not need a lot of money to get started. Investment should be everyone’s habit and not an option.


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