Must Knows

The ins and outs of investment in India

[] If you are planning to invest in India, here’s a comprehensive guide on the various investment options in India.

Investing is putting money into something that you believe will help you in the future. Making investments to generate returns allows you to increase the amount of money you’ve put into them. 

You are reading: The ins and outs of investment in India

Inflation and the value of investing

Investing helps strengthen your prospects in the future. Saving and building an emergency fund are two of the many advantages of investing. Along with enabling you to develop financial discipline, making regular investments requires you to save frequently.

Inflation is an increase in the cost of goods and services. It undermines the value of your money and diminishes your buying power. Inflation causes you to purchase fewer products with the same quantity of money. Keep up with inflation by saving and investing more now than you plan to use in the future to buy the items you want. 

You need to put money into something in order to get a return. To combat inflation, it is vital to make investments. 8 per cent inflation indicates that you’ll need 8 per cent more money to buy the identical thing next year. Investing today is critical, but if you do not generate inflation-beating returns, you may not be able to buy the products and services you need in the future.

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Investment types

Active and passive investment are the two basic types of investment strategies. In order to engage in active investing, you must be willing to make constant adjustments to your holdings in response to changes in the market and economy. For active investing, you must have sufficient time and understanding of investments. Active investing is best shown by stock market investments. 

Investing passively, on the other hand, does not need constant attention. You put your money into an investment and stick with it for a certain period. It is also known as the ‘buy-and-hold’ investing approach. For individuals who do not have the time to keep track of their money, this is a good option. A comparison of active and passive investing may be seen in the following table:

Variable Active Investments Passive Investments
Appropriateness Those with a profound awareness of finances Everybody
Expenses of investing Portfolio turnover is greater when you exchange assets (mainly equities). As you purchase and retain shares for a longer time, your returns will diminish.
Risks Greater the frequency with which you acquire and sell securities Lower when securities are held over longer periods.
Profit potential Higher Lower

Investing opportunities in India

It is important to remember your tolerance for risk and requirements before making India investments. The following are India’s top seven investment options:

Fixed deposits 

For a specified duration, you may deposit a quantity of money and receive a specified rate of interest on it via fixed deposit accounts provided by banks and commercial institutions. Unlike mutual funds and equities, fixed deposits provide total capital security and guaranteed returns. In the end, the profits are the same regardless of what you do. 

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For the more cautious investor, a fixed deposit is a good option. Fixed deposit interest rates fluctuate based on the economy and the Reserve Bank of India’s policy review decisions. Although fixed deposit accounts are normally seen as a long-term investment, they may be used as collateral for loans or overdrafts. In addition to the standard fixed deposit, a tax-saving version of the product requires a 5-year lock-in period.

Recurring deposits 

Another fixed-term investment is the recurring deposit (RD), which lets investors set aside a certain amount each month for a predetermined period in exchange for a set level of interest. RDs are available through bank and post office locations. It is up to the lender to set the interest rate. RDs are designed for individuals who want to develop a long-term portfolio by investing a small sum each month over a certain length of time. RDs safeguard your money and guarantee a certain rate of return.

Direct equity 

Investing in stocks, or direct equity is one of the most powerful ways to make money. When you invest in a company’s shares, you become a shareholder. As a shareholder, you have a stake in the company’s future success. To get the rewards of your investment requires time and market expertise. 

All investors who have a Demat account may buy publicly-traded company shares via the stock markets. For long-term investing, stocks are the best option. Stocks are affected by various economic and commercial circumstances, which need an active approach to managing your assets. Moreover, you should be aware that no guarantees of profit can be made, and you should be ready to accept the accompanying risks.

Mutual funds 

For the last two decades, mutual funds have enjoyed increasing popularity among youngsters who are more interested in investing. Types of investors with a similar investment aim contribute to the formation of a mutual fund. Pooled funds are managed by a financial specialist known as a fund manager, who engages in securities and assets to maximise investor returns.

Equities, debt, and hybrid mutual funds are the three basic types of mutual funds available. Mutual funds investing in the stock market and equity-related assets are known as equity mutual funds, while mutual funds that engage in bonds and papers are debt mutual funds. Hybrid funds make investments in both equity and debt securities. 

Mutual funds are a kind of investment instrument that allows you to start and stop investing as per your choice. Mutual funds are open to everyone who wants to make a financial investment.

Because the fund manager is responsible for portfolio construction, one does not need to have any prior experience or expertise to invest money. It is recommended that you only invest in plans whose relative risks and investment goals are compatible with your own. It is not possible to guarantee returns since they are contingent on the movements of the stock market. A fund’s previous success does not guarantee that it will perform well in the future.

Employee Provident Fund 

EPF is another retirement-oriented investment opportunity that allows salaried workers to earn a tax deduction under Section 80C of the Income Tax Act, 1961, if they meet the eligibility requirements. If an employee’s monthly income includes a portion of the EPF, the employer contributes the same proportion of that compensation, too. 

The withdrawn EPF corpus is likewise tax-free. Government of India-determined EPF rates are also backed by statutory guarantees. Contributing more than the required amount is permitted under the Voluntary Provident Fund (PPF). Please keep in mind that your EPF assets are locked up until you reach retirement age and may only be accessed if you satisfy strict conditions.

Public Provident Fund

Long-term tax savings are available via the Public Provident Fund (PPF), which has a lock-in duration of 15 years. It is provided by the Indian government, and the government guarantees your investments. On a quarterly basis, the Indian government revises the interest rate given by the PPF. 

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The investor may withdraw the whole corpus tax-free at the conclusion of the 15-year term. Following the fulfilment of specific requirements, PPF permits loans and partial withdrawals. It is possible to take a partial withdrawal up to five years before the maturity of your investment, but only under particular circumstances.

National Pension System 

Investments in the National Pension System (NPS) might save you money on taxes since it is a relatively new option. In contrast to the PPF or EPF, NPS investors are guaranteed to remain invested until they retire, and they may expect better returns because the NPS provides plans that invest in stocks. 

A portion of the NPS maturity corpus must be utilised to buy an annuity for the investor to receive a regular pension. Only 40% of the total corpus may be withdrawn as a lump amount, while the rest is invested in an annuity plan. NPS membership is required for certain government workers.

How should your investments be planned?

To begin planning your investments, you must first choose the most appropriate investment for your profile and specific requirements. Remember the following while making your financial decisions:

  • After doing a thorough study, make informed investing decisions.
  • Avoid falling for quick-money scams that promise maximum return in a short period of time.
  • Your stock and mutual fund holdings should be reviewed regularly.
  • Take into consideration the tax consequences of the profits on your investments,
  • Keep things simple and avoid sophisticated investments that you aren’t familiar with.

When it comes to making financial investments, time is of the essence. The earlier you begin investing and the longer you remain committed, the greater the returns on your assets will be.

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Which investment alternative should you select?

Due to the many investment vehicles available, it is common for investors to get perplexed while deciding which one to use. To prevent incorrect decisions from causing huge financial losses, we advise you to base your investing selections on the following criteria:


Investing objectives might be short-term or long-term in nature. For short-term aims, you should go with a more secure investment, and for long-term goals, you should consider the huge return potential of shares. Negotiable and non-negotiable are the terms under which some of your demands may be met. Guaranteed-return investments are a fantastic alternative for non-negotiable objectives like saving for a child’s education or a down payment on a home. Equities mutual funds and stocks may be advantageous if the aim can be delayed, which implies that it could be delayed for many months. Keep in mind that if your assets perform well, you may achieve your objectives considerably sooner than anticipated.


With less responsibility and longer investing time frames, young investors are more likely to succeed. It’s possible to invest in long-term vehicles and raise your stake as your income goes up over time if you have a lengthy professional career. For young investors, equity-oriented investments like stock mutual funds are a better choice than fixed deposits. Older investors, on the other hand, have the option of investing in FDs, which are more secure. Your investments will have to change as you get older.


The amount of money you make and the number of people who rely on your income are other important considerations. To assume equity-related risks, a younger investor may not be able to do so if his primary concern is providing for his family. If you are older and have no dependents, you may invest in stocks to receive a better rate of return. In investing, there is no one-size-fits-all approach. To get as much out of investments, they must be properly picked and meticulously mapped out.

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Category: Must Knows

Debora Berti

Università degli Studi di Firenze, IT

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