Investment Avenues in India

The main popular investment avenues in India are as follows:

1. Bank FD’s: One of the traditional investment methods where investors feel the safest to invest. Provides safe and consistent returns but the returns are consistently low. The main problem with investments in Bank FDs is that the returns do not beat even the normal inflation rate going in the market. This essentially makes you lose money in the long term. It is a good avenue to park some funds as a safety net, but there are much better ways to invest and earn safe returns if that is the primary concern of investors. The additional problem with Bank FDs is the lock-in periods which needs to be broken to withdraw the amount locked into FDs. Any interest earned on FDs is also added to the income of the investor and taxed accordingly so it does not provide any major tax benefits. Bank FDs are insured by the government only up to the extent of 5,00,000 so it is not a completely safe avenue to invest your hard-earned life savings.


2. Real Estate: Another traditional and popular investment method is to invest in Real Estate. Any investment in premises that an investor lives in should not be considered as an investment as it does not earn any returns. Any additional investments to premises which the investor does not intend to live in and is rented out can be considered an investment in Real Estate. A nice sector that can provide huge returns, if lucky, but can also result in dead funds if the real estate market slows down. Highly illiquid (not saleable as and when required) assets and the capital required, make this a very difficult investment avenue for the average investor. Titles may come under dispute at any point in time, which will lock your money and take years to settle. If you are unlucky, the government may also take issue with the location of your investment as it might be blocking some key infrastructure deployment.


3. Gold: The most traditional form of investment for Indians for centuries, gold has a deeply rooted sentimental value for families and is often considered an essential investment. The harsh truth of the matter is that any investments in gold in the form of ornaments cannot be considered an “investment” as (a) High cost in the form of making and wastage charges (b) Big reduction in the value of gold when selling ornaments compared to pure gold (c) Safety concerns with storage of gold ornaments (d) Deeply sentimental and emotional attachment to the ornament and hence cannot be sold without bias when in need of money. Gold can only be considered as an investment if it is in the form of a gold bar or coins. A primary concern with gold as an investment is that it is impossible to determine its movements in the market for the average investor as it depends on global supply and demand.


4. Life Insurance: Many Indians consider Life Insurance as an investment even though it is only an instrument for the security of life and does not act as a traditional “investment”. Since there is a trigger requirement for any returns from an insurance policy, life insurance cannot be considered as an investment. They provide risk coverage in case of any mishap and is a crucial component in case there are any dependents in the family. Insurance agents will try to sell various unit-linked insurance and other insurance products, but we consider a simple term life insurance and any medical cover to be sufficient for any investor. There may be additional insurance for other assets like cars, bikes, office premises, etc. which may be important and necessary but none of these are return making investments and are only to serve as coverage for any mishaps.


5. Direct Equity: Direct Equity has been gaining momentum in recent years due to its ability to generate returns to investors who can study the companies that they are investing in. Direct Equity investment is not just restricted to stock selection, but the timing of entry and exit is very crucial. All Investors have a feeling that they are going to make money in direct equity investments and that they are going to be winners in the stock market but the losers in the market are far greater in number than the gainers. For a good, diversified portfolio in direct equity, the capital required is much more extensive than what can be invested by the average person. Investments in singular stocks or sectors are nothing other than pure speculation and can only be done if the investor has the appetite to lose not only the principal sum invested in the equity market but also any hypothetical “returns” made in the short-term in the worst-case scenario.


6. Mutual Funds: Mutual Funds are professionally managed investment fund that pools money from many investors to purchase securities from the market. There are debt mutual funds, equity mutual funds, gold funds, and real estate funds. Achieving diversification through equity funds is much easier through mutual funds than under direct equity as the fund managers diversify the pool of funds into different sectors like technology, pharma, etc so that any drop in a single sector does not tank the value of your investments. There are appropriate mutual funds for conservative, aggressive and moderate investors and any unique requirements of investors in the market. Whether it is for retirement, emergency funds or any other unique goal that you may have, we can create a specialised basket of mutual funds to fit the purpose.
   
   The beauty of mutual funds can be taken to full advantage with the power of SIP (Systematic Investment Plan). It allows you to invest in the market both during peaks and troughs. It automatically adjusts your investments into the market by letting you purchase more when the market is undervalued and purchase less when the market is in a bubble or overvalued. Mutual Fund Investment also lets you enjoy the benefits of compounding returns wherein you earn returns over not only the initial investment but also on the profits you have already generated through your earlier investments. There are also taxation benefits for your investments if you invest in Tax Savings Schemes like ELSS which earns you a deduction on your total taxable income of up to Rs. 1,50,000 under Sec 80C of Income Tax Act, 1961.