Here
we will discuss following Long term investment options:-
1. Mutual Funds- Debt or Equity
2. Direct Investment in equity shares of
company
3. Real Estate
4. Government Bonds
5. Investment in Gold
6. Fixed Deposit in Bank account
Follow
my next blog where we will discuss other Long term investment options
Mutual
Funds (MF) Investment – Debt or Equity
Mutual
Fund is another popular type of investment option which is getting popular at
very fast pace. Indian Mutual Fund industry as on 30 Jun 20 stands at Rs. 26
trillion i.e. 26 Lakhs crore which in comparison to US Mutual Fund industry is
still small which stands at $ 2.2 trillion.
Generally
Mutual Fund are subjected to market risk, which means the investment is done in
the open market to make returns for the Mutual fund investor and Asset
management company managing the mutual fund.
Q-
Who should invest in Mutual Funds?
A-
Usually this investment is good for long term investor, having moderate risk
appetite and looking for investment returns better than Fixed Deposit or
government bonds but less risk in comparison to direct investment in stocks.
Q-
Why someone should invest in Mutual Fund?
A-
Mutual fund are good mode of investment because it gives flexibility to
investor to enter the investment at lower amount, and exit. Mutual fund also
gives you the choice in the type of fund you want to invest. There are
different types of funds in the market ranging from size (Small Cap, Mid, Large
Cap) to class (Bluechip etc.) to risk category etc.
Q-
What is the Tenure of Investment?
A-
Some of the Mutual Fund that has tax benefit has minimum lock-in period of 3
years and other mutual fund can be remain invested till they continue or
invested money is not withdrawn. Here, it is important to note, most of the
mutual fund have exit load of 1% as deduction if you move out before end of 1
year from investment.
Q-
Amount of Investment?
A- Most of the Mutual fund can be started
with a minimum investment required is Rs. 500/- and usually no limit on maximum
amount. Person interest in MF investment can opt for weekly or monthly
Systematic investment plan (SIP) or System Withdrawal Plan (SWP) depending upon
the need of business.
Q-
What is the rate of return earned by Mutual Fund investment?
A-
The rate of return earned by Mutual Fund scheme depends on how well the fund is
managed by Fund Manager investing in market and scheme selected or it belongs
like Debt or Equity or balanced etc. Debt Mutual Fund can reap return of about
6.5%-8% p.a. while equity mutual fund can reap out a return of 10%-15% per
annum basis.
Q-
Where I can go for investing into MF?
A-
One can do it both online and offline, but the most prefer way to start is
Online. Now there are lot of broker there which are affiliated with NSE or BSE.
One may choose to invest directly or with GROWW app which also facilitate
direct MF investing. Otherwise if someone needs guidance also, there one can
choose broker like Sharekhan, Zerodha etc.
Q-
Is there any tax benefit available investment or return of MF?
A-
The person investing in ELSS fund are exempted from tax subject to the
conditions as specified, however if you make a short term or long term gains,
all that shall be treated same as other gains are treated under income tax act.
Direct
Investment in equity shares of company
Direct
investment in equity shares of company is also an option for lot of investor
especially for those who are looking for big value at the end of investment
term. Since this investment comes with high risk, thus expected returns can
also vary significantly from extreme negatives to highly positive gains.
This
investment is more suitable to those who are looking for very long term
investment i.e. 10 to 15 years and have patience to ignore negative trends and
sail through the ups and down of stock market. One should be able to wait for
positive trends in market.
Here
investor need to be very cautious and alert, either he should understand and
invest in right stock or good/great companies or follow expert stock market
advice.
To
address this concern one should read and understand the stock more before
investing or go with reliable consistent bluechip companies only.
However
suggestion here is – investor should not park all the money in one basket i.e.
one stock or direct shares, especially when you don’t understand stock market
well, because at times investment value could show negative results also.
However still lot of people make lot of returns in long run when they invest
direct in strong companies.
Real Estate
Real
Estate is also very popular in India, especially with those who have large
amount of money to invest in and remain invested for long run. This investment
option is good for those looking for long term capital gain or some amount of
recurring rental incomes.
Now
a days – investor can earn returns by become owner of commercial property but
not doing business there. In this concept a piece of large space in commercial
building is sold to multiple investor, which later on given to big investor or
commercial shop owner like Big Bazar, PVR, or a big corporate etc. who in
return pays rent to builder and builder pays to owner as per the agreed terms
or after taking his share. This concept is popularly known as Virtual Space.
Usual
before Covid-19 the expected rate of return on residential property was
approximately 4% p.a. and commercial property could fetch you 8% p.a. on amount
invested. However after demonetization and RERA property regulation act enacted
by Indian government, this sector has become less attractive. Now other than
tangible feeling of having a property, capital gain is not that lucrative now.
May be again in future it becomes more
However,
in some place Land or luxury projects on outskirts are still lucrative option.
Government
Bonds
Government
bonds are issued by central or state government and much safer option from
safety perspective. It is like giving debt given to government or may be called
a Debt Instrument.
Usually
Government Issue these bonds to get more money in their hand when state or
central government is running through crisis and looking to build better road
network, bridges or other needs of public.
There
is coupon or interest rate declared by government on these bonds, which is paid
by government to public investing with them. The tenure of these bonds could be
5 to 10 years usually carrying 7% - 8%.
Since
the returns could be fixed and floating therefore one should check the scheme
of return and liquidity before investment.
Gold
Gold
is the oldest mode of investment in India and popular among household. It is a
yellow shining metal which usually goes up in the price when share market is
falling and used against hedge. However now a days with GOLD ETF option made
available in the market, which in turn gets invested in gold only- you need not
to invest in physical gold.
With
ETF option you can buy it electronically and no risk of damage or theft.
Fixed
Deposit in Bank account
It
is an investment instrument which gives you fixed amount of interest after term
ends. But not a preferred mode of investment because of rising inflation rate
and tax on return. This means your return becomes negative due to inflation and
tax applied on return.
Invest
only where you don’t want to take any risk and looking for safety of your
capital / principal amount.
SCSS
investment instrument is sponsored by government of India for senior citizen
aged 60 years or above only. The main objective of this scheme is to provide
social and financial security to retirees in terms of ensuring a regular flow
of income.
Though
this scheme is applicable to individual retirees who are Indian citizen having
an age of 60 and above but this has an exception also, like individuals having an
age ranging from 55-60 taken voluntary retirement scheme or superannuation and
they apply for SCSS within 1 month of gaining retirement benefits. Retired
defence personnel can also avail this scheme anytime, subject to other
requirements.
·
Minimum
deposit required to start is Rs.1000
·
Due
to Covid-19 Interest income for Q1 FY 2020-21 reduced to 7.4% annually, earlier
it was 8.3% - 8.7% per annum.
·
Returns
on investment is guaranteed and received on a quarterly basis in the saving
account as a simple interest method i.e. Principal amount * rate of interest applied
for quarter. Rs. 1 lac should give Rs.1850 quarterly interest.
·
Tax
benefits are available on investment under section 80C of Income tax act
·
Interest
income earned above Rs. 50,000 is taxed
Thanks
for reading and I hope you must have learnt something new. For any query or
question, please comment and I shall try to answer.
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