18 Apr 2018
#FinancialBytes: Best investment options for those who earn Rs. 1L
Creating wealth by making investments and earning good returns is essential for anyone as earning money isn't always enough these days to fund one's financial goals.
However, investing money in the right financial instrument is also crucial for financial security, generating good returns and beating inflation.
If you're someone earning a monthly salary of Rs. 1 lakh, here are some good investment options.
You're making good money. But how much should you invest?
While it is always good to save as much money as one can and invest the earnings/savings in the right schemes, experts advise one should ideally save at least 20-30% of their income to make investments.
However, one should make investments with the amount left after deducting taxes, expenses, contribution to the emergency fund to cover 3-6 months' expenses, etc. from the monthly income.
Equity investment, one of the most popular options
Equity investments, the funds invested in a company by purchasing its shares, are one of the best options.
Though there are high risks involved, equity investors have good chances of making returns as high as twice/thrice their capital.
Selecting the right stock and investing at the correct time is essential. Investors are increasingly buying shares through Equity SIP (systematic investment plan) at various frequencies.
One can invest as little as Rs. 500 in mutual-funds
Mutual funds deliver good returns while offering various options to investors and allowing them to withdraw investments anytime.
Basically, mutual funds are collections of stocks/bonds managed by professional fund managers on behalf of investors. They track the growth/performance and make any alterations to ensure best possible returns and avoid risks.
Mutual fund investments can be made through lump sum or SIP at regular intervals.
ELSS of mutual funds, an excellent option for higher RoIs
ELSS (equity-linked savings scheme), with a three-year lock-in period, is a type of mutual fund scheme where most of the corpus is invested in equities.
ELSS investors can currently enjoy up to Rs. 46,350 tax benefits on an annual investment of Rs. 1.5L under Income Tax Act Section 80C.
Data shows ELSS investments delivered an annualized return of 18% over the last five years.
Recurring deposits for investing fixed amount every month
For people who don't want to take risks, a recurring deposit is an excellent option for investing a fixed amount every month for a tenure between one and ten years. Unlike fixed deposits, investors need not deposit the amount at once.
RD investors can earn 5.25-7.9% annual interest (at present; varies with the bank) which is paid along with capital at the time of maturity.
Public Provident Fund
Public Provident Fund: The savings and tax saving scheme
Public Provident Fund (PPF) is a savings-cum-tax-saving instrument introduced by Finance Ministry's National Savings Institute.
PPF scheme, with a 15-year lock-in period, offers an interest rate of 7.6% which isn't taxable; deposits made towards this scheme can be claimed as tax deductions.
People can invest any amount between Rs. 500 and Rs. 1.5L (maximum) in a financial year in up to 12 installments.
Gold ETFs, an option for investing in paper gold
Gold Exchange Traded Funds (ETFs) allow people to invest in gold on a stock exchange where the yellow metal is the only principal asset.
While investors don't physically own gold, they receive the cash equivalent while redeeming the ETF. It reflects the price and performance of gold.
It is one of the preferred investment options for the transparency, high safety, and returns it offers.