Investment Options for Professionals

Lets understand the two terms before we start, in our day to day communication we use two terms very frequently i.e. Savings and Investment. Saving is what is left with you in hand out of your income after spending for your day to day expenses. Investment is the process by which you grow your savings.

An individual must save 20% of his/her monthly income in order to assure a financially stable and secured retirement. Best way to assure that we are saving 20% of our income is to plan our expenses according to 80% of our income. For instance, if you earn ₹ 50,000 per month then just assume that your monthly income is ₹ 40,000 only and then plan expenses accordingly. Saving is very difficult for anyone and savings are always forced, so one need to force himself/herself to save. In order to manage expenses in what you earn is to make sure that one should not take any kind of loans… or very essential loans …

Now lets talk about investment options:

There are two investments which are must to have i.e. insurance

1. Health Insurance: considering the uncertainties in life one should must take a health cover of minimum 4 to 5 Lacs for complete family. There are health plans available in market which provides cover for complete family and if any member of family gets ill this cover can be used.
2. Term Insurance: This is must for everyone and one should take a cover of at least 25 times of their annual income, in order to make sure that unfortunately if the earning member of family leaves this world early then dependent can lead a normal life till the next generation get ready as earning member.

Now before we discuss other options of investment lets understand few important terminologies which are important to decide your investment portfolio.

1. Inflation: Inflation refers to an increase in the prices of commodity over a period of time or we can say decrease in the value of money over a period of time. Inflation rate in India is around 5% to 6% every year, which means that the prices of commodities increases by 5% every year i.e. if in current year you need ₹ 100 to buy any article then in next year you need ₹ 105 to buy the same article.
2. Compounding Interest: Simple way to explain this term is compounding interest is interest on interest. Almost every investment option provides you compounding interest. Let me explain you with the help of an example if you invest ₹ 1000 per year and return on investment is 10% then kind of growth in investment will be as follows:

So the value of investment at the end of fourth year will be 5105.1, this is the beauty of compounded interest. The person invested ₹1000 per year i.e. total amount invested in four years is ₹ 4000 and return is 10% so if we go with simple interest calculation, the value of investment would be ₹ 5000, here additional return of 105.1 is on the interest earned in previous years and reinvested.

Before you decide or zero down on any investment plan, you should first identify yourself and your needs because every individuals investment need and portfolio is different on the basis of following parameters:

• Your Age
• Time duration for which you are willing to invest
• Number of dependents in the family
• Tax liability on your income
• Financial commitments
• Ability of risk taking

Lets start talking about multiple investment options out of which you can choose and create your own portfolio:

1. Fixed Deposits: A traditional way of investment, where an amount is blocked in your bank account for fixed period of time where you get a fixed return after a specified period of time, current rate of return of FD is 5.5% to 7% depends of plan and this return will increase for the senior citizens. Also the interest earned on FD is taxable so if you want to grow your money according to me this option is not advisable for young investors.
2. Recurring Deposits: This is another variant of FD, where you can invest a specified amount every month/quarter/year for a specified period and, current rate of return on RD is same as FD and also the interest earned is taxable, so again this option is not advisable to young investors this is good for Senior citizens to actually want to protect their money rather than grow the money.
3. Systematic Investment Plan (SIP): This is best option for investment for those investors who are willing to invest a small amount every month, this investment is further invested by the fund managers in equity to get higher returns, we all know that equity investments always work on law of averages, so it is always advised to keep this investment for long time, the average returns in SIP is around 9%-12% per annum, investment in SIP provides you with tax benefits. So I recommend SIP as a best investment option for the investors who are looking for a long term investment and growth in amount invested.
4. Invest in Gold: Investment in Gold is considered to be the safest investment option since long time, earlier there was only option to invest in real gold, i.e. gold coins and jewellery but now you can invest in real gold, Gold bonds and Digital gold where you have a leverage of investing small amounts as and when you can spare some amount out of your savings. This investment can be done through multiple mobile applications, and these applications are safe to invest. This is a safest investment that a person can do.
5. Public Provident Fund (PPF): This is an ultimate investment option to secure your retirement, investment is tax exempted and a person can investment minimum of ₹ 500 to maximum of ₹ 1.5 lacs here. Rate of return in this investment is approx. 7% per annum. I recommend this investment as a part of your portfolio.

There are other options for investment like invest in Equities, Mutual funds, open a demat account and start investment in Shares. These are high risk and high return options. I would like to conclude here with a note that one should analyze their needs and then should try to create a portfolio which should include Equity ( high risk-high returns) PPF and gold investment ( secured and fixed returns ) along with a Health and term insurance plan.

In next article we will talk about How to Analyze Your Needs and decide the kind of amount that need to be invested in different options of your portfolio.