Diversifying investment portfolio is very important to mitigate risk so that if one investment goes wrong a person can benefit from another. Usually, investors try to make investments to get quick high returns without the risk of losing their principal money.
Unfortunately, a high-return, low-risk combination, does not exist. In reality, risk and returns are directly related and the higher the risk higher are the returns. Know the top 5 Investment avenues that are fairly safe compared to other choices in India.
The PPF has a long investment tenure of 15 years and the impact of compounding of tax-free interest is huge, especially in the later years. Since the interest earned and the principal invested is backed by government guarantee, it is safer to invest in PPF. Interest rate on PPF is reviewed every quarter by the government.
Investing in stocks is not easy as it's a volatile asset and picking the right stock, timing the entry and exit is difficult. However, investors find it attractive as over long-periods, equity has been able to deliver higher than inflation-adjusted returns compared to all other asset classes.
However, there is a lot of risk associated with it and losing a considerable portion or even all of your capital is high unless you opt for stop-loss method to curtail losses. To reduce the risk to certain extent, you could diversify across sectors and market capitalisations. You can also opt for equity mutual fund schemes for investment in equity stocks. Debt mutual fund schemes are suitable for investors who want steady returns. They are less volatile and, hence, considered as less risky compared to equity funds.
A bank fixed deposit is considered a comparatively safer investment option compared to equity or mutual funds. Under the deposit insurance and credit guarantee corporation (DICGC) rules, each depositor in a bank is insured up to a maximum of Rs 5 lakh with effect from February 4, 2020 for both principal and interest amount.
Earlier, the coverage was maximum of Rs 1 lakh for both principal and interest amount. As per the need, one may opt for monthly, quarterly, half-yearly, yearly or cumulative interest option in them. The interest rate earned is added to one's income and is taxed as per one's income slab.
The National Pension System is a long-term retirement-focused investment product managed by the Pension Fund Regulatory and Development Authority (PFRDA). The minimum annual (April-March) contribution for an NPS Tier-1 account to remain active has been reduced from Rs 6,000 to Rs 1,000. It is a mix of equity, fixed deposits, corporate bonds, liquid funds and government funds, among others.
Never underestimate the power of compounding through the "real" assets. Land in India is limited while the needs are growing for future generations. In a way, it's a limited product.
Try to buy real estate at an early age so that later on you can buy a second house or move to a better location by selling your first house. The location of the property is the most important factor that will determine the value of your property and also the rental that it can earn. Also, you can buy some gold as a part of your investment portfolio.
As the innovative investment products continued to launch every day, it's important to have a balanced view and see the possible avenues to protect the capital as much possible. You may choose any of the above avenues early to build a stronger portfolio that is fairly resilient over the time, while you go frugal on other investments of your choice.