Several factors contribute to investment planning, such as the associated risk, rate of return, tax incentives etc. The most suitable investment plans can vary across investors depending upon their requirements. A lot depends upon an investor’s risk appetite – some investors are willing to take a higher risk, resulting in varying investment choices. Let us understand the various investment plans according to investors’ risk appetite.
Risk-averse investors typically focus on conserving their capital instead of maximizing returns. Such investors would be more willing to invest in stable investments or across asset classes exhibiting low volatility. The most suitable investments for risk-averse investors are mentioned below.
- Bank Fixed Deposits – Fixed Deposits fall amongst the most popular investment options. Investors can deposit their money with banks, which guarantee fixed rate interest on fixed deposits. The fixed deposit tenure may range from 7 days up until ten years. Investors can also select tax-saver fixed deposits that range from 5 to 10 years.
- Recurring Deposits – Recurring deposits are how investors can make regular deposits and earn stable returns. The tenures of RD may range from 1 to 10 years.
- Public Provident Fund (PPF) – The PPF investment plan is backed by the Government and helps investors benefit from risk-free returns for the long term. The Government computes the interest rate of PPF every quarter. A significant advantage of PPF is that the principal amount, maturity amount and interest earned – are all exempt from tax up to Rs. 1.5 Lakhs per annum.
- Senior Citizens Saving Schemes (SCSS) – The SCSS is a 5-year saving scheme for Indian senior citizens. Investors over 60 years can make investments for five years from opening the account. The scheme allows for a tax deduction for an amount up to Rs. 1.5 Lakhs per annum.
- Post office monthly income scheme (POMIS) – This scheme is backed by the Government and allows investors to earn a specific monthly income. The scheme holds a maturity period of 5 years. Any Indian citizen is eligible to invest under the scheme starting with a minimum amount of Rs. 1,500.
- Gold ETF – Gold ETFs are regularly traded, similar to trading in a company’s stock. These are traded on the NSE and comprise passive instruments based on gold prices, which makes their pricing completely transparent.
- Real Estate – One of the fastest-growing sectors in India is real estate. Since property rates are expected to rise steadily, the risk is low and investors may generate high returns in the long term.
Risk-taking investors are more inclined toward exploiting opportunities in the market volatility and taking substantial risks in the expectation of a higher return. Such investors are more inclined toward high-risk investments, which can lead to significant returns or steep losses at the same time. The most suitable investments for risk-takers are mentioned below:
1. Mutual Funds – Mutual funds are market-related instruments that invest money in diverse financial instruments such as stocks, funds, bonds etc. Mutual funds can be further classified into the following categories.
- Equity Mutual Funds – These are market-linked securities that invest 65% of their assets into equities. Investors can achieve higher returns by investing in stocks of different companies. The scheme offers high risk and high returns for investors.
- Debt Mutual Funds – Debt mutual funds include instruments such as treasury bills, commercial paper, government securities, corporate bonds, etc. The scheme yields steady returns.
- Hybrid Mutual Funds – These comprise mutual funds that invest in multiple investment securities such as bonds and stocks. Investors looking for diversified portfolios can benefit significantly from investing in hybrid mutual funds.
Alternatively, investors may also choose to invest directly in a company’s stocks, purchase bonds or target diverse asset classes to design a portfolio.
2. National Pension Scheme (NPS) – The NPS scheme is backed by the Government and enables you to invest in market-linked securities such as debt and equity. NPS also gives tax benefits up to Rs. 50,000.
3. Unit Linked insurance plans (ULIP) – Insurance companies offer a product called ULIP that gives investors a single integrated plan for insurance and investments. The investor is required to pay a specific premium annually, a segment used to provide insurance coverage. The remaining is invested in a fund that the policyholder selects.
There are multiple investment plans available in the markets. Investors must carefully assess their risk appetite, investment lock-in period, and tax benefits before selecting an investment plan. Additionally, evaluating the best available options, such as comparing the rate of interest on fixed deposits, help you maximize your gains.