Kapil Rana, Founder & Chairman, HostBooks Ltd.

Mr. Kapil Rana is the Founder and Chairman of HostBooks Limited – an automated All-in-One NextGen business solution. Kapil is a young, dynamic, visionary who is a seasoned entrepreneur with strong business acumen and a solid background in strategic management, finance, Law and Information Technology.  He is a qualified CPA (Ireland) and Fellow Chartered Accountant (India), a first-class management and law graduate, holds a diploma in Information System Audit. A key learner, Kapil keeps rekindling the fire of knowledge. He has dedicated his life to continue pursuing more studies because he firmly believes a business is only as strong as the people behind it. He is currently pursuing his doctorate (PhD) in Business Administration from AIMA-AMU.

 

Whether it is to generate income and increase its value fast over a short period of time or just to ensure financial security, investors always look out for the top investment plan that has maximum return for their investment. However, the amount of return pretty much depends on the quantum of the risk. The more the return the more the risk and vice versa! Therefore, it is important to choose the right financial option for saving & investment in 2021, which helps you meet your financial goal. 

There are two investment products in India i.e. financial assets and non-financial assets. Financial assets are those assets whose value is derived from a contractual right or ownership claim i.e. market-linked securities like mutual funds, stocks, etc., and fixed income products like Bank FDs, Public Provident Funds (PPF), Bank RDs, etc. On the other hand, non -Financial assets are those assets that are not traded in the financial market, and their value is derived from their physical value i.e. tangible assets like property, plant, and equipment, or gold investment, real estate, etc. Here’s the Must Remember Financial Option for Savings & Investments in 2021

Direct Equity

It is not easy to choose an investment option, which has a higher return but also has a high risk of losing money. Direct equity is such an investment option that has a high return but also has high risk. It comes under a highly volatile asset class which is quite risky, so even there is a chance that you lose all your capital. Therefore, choosing the right company’s stock, the timing of your entry and exit is very important. You also need to explore various sectors and understand the market capitalizations to reduce the risk to a certain extent. Direct Equity can deliver higher returns as compared to all other classes of investments. 

To directly invest in equity, you need to open a Demat and a trading account and invest in the markets through a stockbroker.

Equity Mutual Funds

Equity mutual funds invest the maximum of your money in equity/shares. According to the Securities and Exchange Board of India (SEBI) Mutual Fund Regulations, it is mandatory for an equity mutual fund scheme to invest at least 65 percent of its total assets in equity and equity-related instruments. 

There is a high risk in equity mutual funds as your money is invested in shares that tends to go up and down. Though short-term equity funds have high risk depending on market condition, there is comparatively low risk in long-term equity shares as a negative return and positive return make the average return quite reasonable in time. In long-term equity mutual funds, you can get up to 13 to 15 percent return in 7 or 10 years. 

Debt Mutual Funds

Debt mutual fund schemes are good for those investors who want assured returns for their investment. It is less volatile and, therefore, considered less risky as compared to equity mutual funds. It primarily invests money in fixed-interest generating securities like corporate and government bonds, debt securities, treasury bills, commercial paper, and other money market instruments.

Debt mutual funds are not market-linked. Hence, whether there is a loss or profit of a financial institution, it doesn’t affect your money. It is just like you give a loan to a company and charge interest for that as same as banks or other financial institutions do. There is high liquidity in debt funds as you can withdraw your money anytime. You can get an assured average return of up to 7 to 8 percent in debt mutual funds.

SIP (Systematic Investment Plan)

A systematic Investment Plan (SIP) is the safest and best way to invest in Mutual Funds. As its name indicates, under this, you can deposit a fixed amount in different instalments as per your convenience in the mutual fund of your choice. In fact, SIP is a better plan for those investors who do not want to invest directly or lump sum in the stock market. There is also a high potential for high returns in the long term in SIP. There are many such SIP schemes in the market, in which investors can start their investment with just 100 to 500 rupees. 

National Pension System (NPS)

It’s a pure retirement planning product, regulated by Pension Fund Regulatory & Development Authority. It has two plans. The first one is Tier 1 plan – a pension plan, and the second is Tier 2 – an investment plan. In both of the plans, your money is invested in equity (Share market) or debt bond (government bonds and security) in a certain ratio. In tier one; that is your main plan, there are benefits on retirement. You can withdraw money in LUMP SUM or you can withdraw money as an annuity from your NPS account. 

There is a higher return in NPS than other saving instruments. For example, usually, there is a 7 to 8 percent return on PPF, EPF, PF, or FD. But in NPS, you can get returns ranging from 9 to 12 percent p.a. depending on your plan. Returns on NPS amounts are tax-free. That means you don’t have to pay tax on the return made in the form of equity or interest. And finally, when your lump sum is made, you can withdraw your money without paying any tax on that.

Public Provident Fund (PPF)

PPF is the best-suited plan for individuals who want to earn high but also look for a stable return. It has a long tenure of 15 years; but has guaranteed returns as the impact of compounding of tax-free interest is huge, especially in the subsequent years. Further, since invested funds in the PPF accounts are not market linked and interest earned and the principal invested is backed by sovereign guarantee, it is considered a safe investment. 

Bank Fixed Deposit (FD)

A bank fixed deposit is a low-risk investment option that helps investors grow their investments with a fixed rate of interest. Under the deposit insurance and credit guarantee corporation (DICGC) rules, every depositor in a bank is covered up to a limit of Rs 5 lakh for both principal and interest amount owned by him/her. The interest rate earned is added to one’s income and is taxed as per one’s income slab.

The tenure of an FD could range from 7 days to 10 years, wherein long-term investments plans are usually for more than three years, medium-term plans fall in between one and three years, and short-term are usually less than a year. While investing in FDs, investors must consider the tenure, interest, interest payout, tax deducted at source, etc. Further, investors must choose the right lender bank or NBFC and ensure that it is covered by the DICGC.

Summing Up

Some investments options are safe and have fixed returns while others that are market-linked have high returns but are unsafe in nature. While market-linked investments play a vital role in wealth creation in the short term, fixed-income investments help ensure financial security. So, both have their own vital significances and as per one’s convenience and prudence, both are profitable. Therefore, it is good to try both keeping investments risk, return, and time horizon in mind.

 

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