A well-planned investment strategy can help investors achieve their personal goals and build wealth. Typically, investors are asked to consider their financial goals, investment timeline, and risk tolerance level when developing an investment plan.
Investors often begin their investment process by classifying their financial goals as long-term, mid-term, or short-term goals. Subsequently, assigning time frames to their chosen goals helps them pick the most suitable investment instruments.
On that note, let’s discuss the popular investment plan in India and check which one matches your needs.
Investment Plans for Your Short-term Goals
These are the most popular investment plans for short-term goals
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Debt Funds
These popular investment options include options like money market funds, liquid funds, and ultra short-duration funds, and they are typically designed to generate short-term returns on invested capital. They have a low risk-reward component and offer individuals better access to their invested capital than most traditional savings options like traditional savings options and fixed deposits.
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Fixed Deposits
This investment plan in India is popular for short-term savings because it offers guaranteed returns and no exposure to market-linked risks. This means that investors can be confident that their capital will remain safe and they will earn a steady return on their investment.
However, it should be noted that the returns offered on fixed deposits are lower than the inflation rate, so investors may not be able to keep up with the rising cost of living through FD earnings. Also, fixed deposits come with a lock-in period, when investors cannot withdraw their savings without paying a penalty. They come with a limited liquidity limit for the same reason. Regardless, individuals can use fixed deposit calculators online to determine the estimated returns and maturity amount of the scheme.
Investment Options for Medium-term Financial Goals
These are the popular options for mid-term financial goals –
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Post Office Time Deposit
The Post Office Time Deposits scheme allows to park money away for a medium period and comes with a fixed term. These savings plans typically offer individuals with higher returns than traditional banking accounts. Post Office Time Deposit is among the most preferred government-backed schemes for the mid-term and hence has relatively low risk, making is suitable for retirees and those with low risk taking capacity.
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Debt Funds
Investors should know that there are 16 types of popular debt funds available in the market today, each with its own risk-reward component. Some of most popular debt mutual funds in India are banking funds, short-duration funds, corporate bond funds, and PSU funds. Individuals can pick a debt fund that is most suitable for their mid-term investment and financial goals and matches their risk tolerance level. Individuals can also use an online investment calculator to check their potential returns at the end of the investment period.
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Hybrid Funds
Hybrid mutual funds typically invest in multiple asset classes, but primarily in debt and equity. Some special hybrid funds also put money in real estate and gold. These funds are popular for their stability, which comes from their debt component, and their substantial growth potential, which comes from their equity component. Overall, they are known to provide investors with a nice balance of safety and returns.
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National Savings Certificates
National Savings Certificates are a popular type of savings account offered by post offices in India. The policy is backed by the government of India, hence they are deemed to be a safe means to save money. NSCs have a lock-in period of 5 years, and the scheme pays interest on the savings. Typically, the scheme offers subscribers the capital, plus interest, when the NSC investment matures.
Investment Opinions For Long-Term Financial Goals
These are some of the most popular investment options for long-term –
Direct equity
Direct equity is considered to be a more lucrative option to build wealth over the long term. The option involves investing directly in popular company stocks, which can help generate both capital gains (when the stock price surges) and high dividends (income earnings from the company). However, direct equity is considered to carry a risky component, as the value of company stocks can fluctuate significantly.
Equity mutual funds
Equity mutual funds are an effective means to lower the associated risk of direct equity investing by diversifying the investment portfolio. Equity mutual funds usually invest in a basket of company stocks, which helps to spread out the accompanying risk. These mutual funds are managed by professional fund managers, with deep expertise in selecting and managing a diversified portfolio of stocks.
Public Provident Fund
The Public Provident Fund (PPF) is a known government-backed savings scheme today that offers investors guaranteed returns on investments. PPF carries a relatively low-risk component but generates lower returns when compared to other market-linked investment options, such as stocks and mutual funds.
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National Pension Scheme
The National Pension System is a notable long-term investment product that is widely used for effective retirement planning. NPS is a voluntary government-regulated scheme designed to allow individuals to invest across different asset classes, such as corporate bonds, stocks, and government bonds. Investors can decide the amount of money they intend to invest in different asset classes, which allows them to plan investments based on their risk-taking capacity. Subscribers to the scheme are also entitled to claim NPS tax benefits under Section 80 CCD(1) of the Income Tax Act, 1961.
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Unit-Linked Insurance Plan (ULIP)
Unit-linked insurance plans (ULIPs) are famed long-term investment options that combine the perks of insurance coverage and strong investment potential. ULIPs allow individuals to invest in both bonds and equities to build a strong corpus, while a part of their investment is allocated towards the scheme’s insurance component. This aspect provides them with financial protection and also a chance to save for their future. However, ULIPs have a lock-in period of 5 years, during which subscribers cannot withdraw their savings.
However, it is crucial to assess one’s risk tolerance level before picking any investment option, including ULIPs. This will allow individuals to plan their investments as per their financial goals and risk appetite.