There are multiple types of investments starting from the safest FDs to stocks, mutual funds, bonds, ETFs and so on. Therefore, as a retail investor at present, you get too many options to accumulate substantial wealth over time. However, it is essential to weigh the effects of different investment types carefully.
In this guide, we will walk you through 7 common types of investments that can secure steady growth in the long run. So, without delay, let us dive deeper into the topic.
7 Popular Types of Investments for Beginners
If you are planning to embark on an investor’s journey in India, get ready to encounter the following most sought-after investment options:
1. Fixed Deposits
You can open a fixed deposit or FD account with a bank or any other non-banking financial company (NBFC). These schemes come with a predetermined lock-in period and allow you to maintain the highest level of security for your hard-earned money.
By using a fixed deposit scheme, you can invest a lump sum amount and in return earn fixed-interest income throughout the agreed-upon tenure. For a higher interest rate, you can compare different FD providers and choose the best that is tailored to suit your needs. Be sure to check the annual maintenance and utility expenses before signing up as these help calculate the estimated returns precisely.
2. Mutual Funds
Unlike FDs, mutual funds are market-linked investment avenues that allow you to invest in a pool of equities and debts. Based on your financial goals, you can opt for systematic investments in debt funds, equity funds or balanced funds. Nevertheless, you must always ensure to review your risk tolerance capacity before exploring mutual funds.
If you are a tax-conscious investor who simultaneously eyes for considerable returns then going for ELSS funds can make more sense. Otherwise, for risk-averse investors, there are a bunch of balanced funds that are actively managed by fund managers. As a beginner, you can invest in these instruments for more stable returns.
3. Public Provident Fund (PPF)
PPF is a long-term investment plan backed by the Central Government of India. You can start investing in your PPF account by contacting a nearby bank or post office. While opening your account, you need to deposit at least ₹100 (this amount may vary for some banks). Throughout the tenure of investment, you also need to deposit at least ₹500 every year to keep your PPF account active.
The highest permissible yearly investment limit for PPF accounts is ₹1.5 lakh. These accounts have a 15-year lock-in period, and their interest earnings are exempt from tax under Section 80C of the Income Tax Act, 1961.
Upon maturity, you can extend the PPF investment term by five years. Moreover, while investing, if you face a crisis and need to withdraw cash, you can do so from your PPF account after 6 years of investment, subject to a penalty.
4. National Pension Scheme
The National Pension Scheme (NPS) is one of the several types of investments that are duly supported and encouraged by the Indian government. Through this scheme, you can directly put your money in four different asset classes – government bonds, equities, corporate bonds and Alternative Investment Funds (AIFs).
By virtue of this retirement plan, when you eventually hit 60, you can start getting superannuation. Alternatively, you may opt to continue your investments under the NPS till the age of 75. Therefore, these flexibility terms coupled with the several tax benefits under sections 80CCD (1), 80CCD (1B) and 80CCD (2) make NPS a highly appealing investment option for beginners as well as veteran investors.
5. Bonds
In India, bonds have gained recent popularity as a form of dependable debt investment. As a bond investor, you lend money to the issuer and earn a fixed coupon rate till the end of the predetermined tenure.
All bond issuers pay their investors interest as per fixed or floating rates over the bond term. At present, you can leverage from bond investments either directly or via debt mutual funds.
6. Unit Linked Insurance Plans (ULIPs)
In ULIPs, your premium gets segmented into two parts. One part of it builds a protective life cover while the other half is invested by managers in market-linked instruments. The best part is, that you can enjoy tax deductions on the maturity sum owing to long-term capital gains applicability on ULIPs.
While picking a ULIP, your aim should be to prioritise plans that allow optimal flexibility in terms of customisations involving different fund options and premium payments. It will later allow you to redirect your investments according to evolving risk appetite and prevalent market conditions.
7. Stocks
Direct equity or stocks are ideal for long-term wealth creation but they require a deep understanding of various underlying parameters and through market analysis. Here, investors should know when to buy and sell stocks smartly and be calm with taking risks since stocks can be unpredictable because of market ups and downs.
If you are willing to take calculated risks, investing in stocks can pay off substantially in the long run. Historically, stocks that did well usually gave better returns than other investments after adjusting for inflation.
Final Word
In the end, it is quite important to maintain a mix of different types of investments in one’s portfolio to mitigate risks and maximise returns. When it comes to beginners as well as individuals who emphasise having stable returns, financial experts readily recommend FDs as they are safe and reliable. Still, if you may want to consider spreading out your investments, there is always the option to look for alternative means that can help create a diversified portfolio.