Investing means allocating money to assets with the goal of improving your future. You invest with the goal of earning returns. This increases your investment to a greater amount.
This article will cover the following: Why Should You Invest?
To achieve your goals, investing is crucial. It’s the only way to improve your future. You are saving money and building a reserve fund for the future by making investments. Regular investments not only help you save money but also make it easier to keep a budget in place. This will help you develop a sense of financial discipline over the long term.
The Impact and Importance of Inflation on Investing
Inflation is simply a rise in the cost of goods and services. Inflation decreases the value of your money and decreases your purchasing power. You can buy fewer things for the same money if the inflation rate rises. The inflation rate is not something you can control.
To stay ahead of inflation you will need more money in order to buy the goods you want to. Money doesn’t grow by itself. Your money must grow if it is to make returns. You must invest to earn returns. To combat inflation, it is important to make investments.
To buy the same item next year, you will need 8% more money to an inflation rate of 8.8. Here is how inflation at 8% affects Rs 1 lakh’s value over eight years.
Types of investments
There are many investment options available. Before you decide to invest in any investment option, it is important to evaluate your needs and risk profile.
There are two types of investments: active and passive.
You can dynamically alter assets in your portfolio depending on the market and economic conditions. Active investments require you to be able to invest enough time and have sufficient knowledge about investments. Active investments include equity investments.
Passive investments, on the other hand, require that you are not involved in your investments. Passive investments allow you to invest money and keep it invested for a set period of time. This strategy is also known as the “buy-and-hold” investment strategy.
This type of investment is recommended for people who don’t have the time or ability to manage their investments. Below is a table that shows the main differences between passive and active investments. After you have evaluated your needs and assessed your risk tolerance, you can choose whether to use an active strategy or a passive one.
India’s Top Investment Options
There are many investment options available. You need to make sure that you only invest in options that are within your risk tolerance and meet your needs. These are the 7 most powerful investment options in India. i) Direct Equity, also known as investing in stocks, can be one of the most lucrative investment vehicles. You can buy part of a company’s stock.
Directly invest in the company’s growth and development. To reap the benefits of your investment, you must have sufficient time and market knowledge. Direct equity can be as profitable as speculation if you don’t have the time and market knowledge. Stocks can be purchased by anyone who has a Demat account and has been KYC verified. Stocks make great long-term investments.
Your investments will be affected by economic and business factors. You need to manage them actively. You must also understand that returns cannot be guaranteed and accept the risks. ii. Mutual Funds Mutual funds are becoming more popular among millennials.
They have been around for decades. Mutual funds pool investment from institutional and individual investors with a common investment goal. A fund manager is a financial professional who manages the pooled amount. He or she invests in assets and securities to maximize returns for investors. The three main types of mutual funds are equity, debt, and hybrid.
Equity mutual funds invest only in equity and equity-related instruments. Debt mutual funds invest only in paper and bonds. Hybrid funds invest in both equity and debt instruments. Mutual funds can be used as flexible investment vehicles. You can start and stop investing at your own pace.
Mutual funds are an option for anyone. Mutual funds are easy to invest in. The fund manager will take care of the portfolio constitution and you just need to invest.
The past performance of a fund is not indicative of future returns.
Fixed Deposits Banks and financial institutions offer fixed deposits as an investment option. These deposit lump sums for a set period and earns a predetermined interest rate. Fixed deposits provide capital protection and guaranteed returns, which is not the case with mutual funds or stocks. FD offers no guarantees of returns, so you can compromise on their return. Fixed deposits are great for conservative investors.
FD offers a great option for conservative investors. The interest rates offered change according to economic conditions. Banks decide based on RBI policy review decisions. Fixed deposits are usually locked-in investments. However, investors can often borrow money or take out overdrafts against them. Fixed deposits can also be tax-saving, with a 5-year lock-in.
Recurring deposits A recurring deposit (RD), is another fixed-term investment. It allows investors to set aside a predetermined amount each month and receive a fixed interest rate. RDs are offered by banks and post offices. The institution that offers it will determine the interest rates.
An RD allows investors the opportunity to invest a small amount each month in order to build a corpus over a set time period. RDs provide capital protection and guaranteed returns. RDs, like fixed deposits, are recommended for risk-averse investors.
Public Provident Fund
A tax-saving investment vehicle known as the Public Provident Fund (PPF), comes with a 15-year lock-in period. The Government of India offers it and the sovereign guarantees your investments. The Government of India revises the interest rate provided by PPF on a quarterly basis.
The corpus that is withdrawn after the 15-year period is exempt from tax. After certain conditions are met, PPF allows partial and full withdrawals. You can make pre-mature withdrawals if you meet certain conditions. After maturity, you can also extend your investment for a 5-year period.
Employee Provident Fund The Employee Provident Fund (EPF), is another retirement-oriented investment vehicle. It provides tax relief for salaried individuals under Section 80C of 1961’s Income Tax Act.
EPF deductions typically take a percentage from an employee’s monthly income and are matched by the employer. The withdrawn EPF corpus is completely exempt from tax upon maturity. The Government of India also decides EPF rates every quarter. This sovereign guarantees your EPF investments.