What Are Some Best Ways to Invest Money in India?

India is viewed as a vast realm of opportunities where the economy is expected to experience significant growth over the next two decades. Making investments today holds the promise of yielding substantial returns in the future. However, this requires careful selection of investment avenues and maintaining a long-term commitment to wealth creation.

In this contemporary era, there exists a plethora of investment options. It’s prudent to set a reasonable expected rate of return, which not only aids in taking calculated risks but also serves as motivation for sustained, long-term investments. Diversifying across various asset classes and aiming for an overall portfolio return of 10 to 12% can be advantageous. Tailoring the asset mix based on age and risk tolerance is essential.

Investing is a strategic process wherein savings are made to work for one’s benefit. However, investing without a specific goal could lead to random and unsustainable decisions, susceptible to being halted in times of emergencies. Therefore, aligning investments with a goal-based strategy is crucial.

Asset allocation plays a pivotal role in creating and maintaining a balanced investment portfolio. This principle, often emphasized by financial experts, revolves around the concept of not concentrating all investments in a single avenue, as encapsulated by the phrase ‘Never put all your eggs in one basket.’

Here’s a breakdown of asset classes and their attributes:

Equity

Allocate 60% to 80% of the investible surplus.

• For individuals aged 20 to 40: Allocate 80%
• For those above 40 years: Allocate 60%

Equity investments can pave the way for long-term wealth creation and inflation-beating returns. For those lacking expertise in direct equity, exploring avenues like ULIP and Mutual Funds via Index Funds, Nifty ETFs, or balanced Funds is advisable. Systematic Investment Plans (SIPs) offer an effective means to invest in mutual funds.

• Core Portfolio (60% of Equity Allocation):
  • Large Cap and Midcap funds: 40% of total portfolio (yielding 10 to 12% returns on SIP for the long term).
• Satellite Portfolio (40% of Equity Allocation):
  • Mid and Small Cap funds: 20% of total portfolio (potentially generating 15 to 18% returns in the long term) adding dynamism to the overall portfolio return.

Debt

Investing the remaining 20% or 40% of the surplus in debt instruments ensures capital protection and guaranteed returns. Vehicles like PPF, Guaranteed Insurance Plans, high-quality debt funds, and NPS serve as effective tools for long-term wealth creation and retirement planning, while short-term goals can be pursued through good quality Debt mutual funds.

Guaranteed insurance plans play a dual role, providing financial protection along with assured good returns that can be tax-free (per section 10(10D)). These plans, typically offered by insurance companies, guarantee a specific income every year as well as a sum upon maturity, ensuring capital protection regardless of market fluctuations. They combine the benefits of insurance coverage with a savings component, offering a predetermined return on investment. Moreover, guaranteed insurance plans offer a disciplined savings approach, encouraging individuals to commit to regular premium payments while safeguarding their financial future through assured returns.

Also Read: Retirement Planning for High-Income Professionals

Gold

Consider allocating 5 to 10% of the overall portfolio to gold, which acts as a hedge against inflation. Regularly purchasing small amounts of gold (e.g., 1 gm monthly) through Gold ETFs or Gold bonds is recommended due to their liquidity and safety.

Also Read: Buying Gold Coins from Banks: Pitfalls and Challenges

Cash

Holding minimal cash reserves is advisable for meeting day-to-day and emergency needs, as cash offers negligible returns.

Real Estate

Consider real estate investments at a later stage, especially as income and savings grow. Commercial properties and land investments can provide regular income through rent and capital appreciation in the long run.

Each asset class’s varying returns help balance out low or negative returns in one with higher earnings from others.

Bonds

Investing a portion of the surplus in bonds can offer a reliable avenue for steady returns and capital preservation. Bonds, essentially debt instruments issued by governments or corporations, provide fixed interest payments over a specified period, offering a predictable income stream for a limited period.

Five points in mind for a worry-free financial journey:

1. Wisely plan for taxes, allocating 70% of the tax-saving limit to equity ELSS for superior returns over the long term, and the remaining to PPF for capital protection and assured returns.
2. Don’t miss getting insurance; opt for a term insurance plan for income protection.
3. Review your portfolio annually and adjust asset allocation based on significant life changes.
4. Adhering to systematic investment commitments can pave the way to achieving financial independence early.
5. Complete the nomination process for all investments to ensure proper succession planning.

Final Thoughts

In the pursuit of financial success, maintaining a strategic, diversified investment approach in India is paramount. Embrace the power of long-term thinking, diversification across asset classes, and a keen understanding of risk to navigate the ever-changing landscape of financial markets. Align investments with clear goals, regularly reassess your portfolio, and stay informed to make prudent decisions. Remember, patience, discipline, and periodic adjustments are key elements on the path to achieving enduring financial stability and growth.

Remember, wealth creation is a long-term endeavour. Stay committed to your asset allocation strategy and refrain from reacting to short-term market volatilities. Stick to your systematic investment plan, and you’ll undoubtedly reap the benefits in the future.