In India,investment is not a preferred option and people are risk -averse. Nobody wants to take any risk . Neither in their investments nor in their career. But they forget that not taking risk is the biggest risk which they are taking .
Investment mindset will only be developed if people invest or do business. But in India everyone wants job, because of this mentality India has the the most number of job seekers in the world . To be exact there are 53 million unemployed people as of December 2021. Today , we will cover why people don’t want to take risks regarding their investments.
If people in India plan their finances properly and invest in right aveneues, they can easily achieve financial freedom. To know more about financial freedom visit this linkhttps://sidworld.in/5-ideas-for-financial-freedom/
The first reason people don’t take risks is because they have no knowledge. Sometimes people have no knowledge about the investment products. For many people, they have no knowledge where to invest their hard earned money .
They know only 2 places , one is the life insurance agent ,other is fixed deposit. India has 150 lakh crore worth of fixed deposit lying in the various banks. Insurance does not give the required return . The required return can be understood as some product which can beat inflation .Today as I am writing this blog ,the inflation is 7%. and fixed deposit rate is 5% in State Bank of India. So the real rate is negative. Similarly the rate of return in Recurring deposits is 6%. Still the real rate interest earned is negative .
Then comes insurance which is for a general tenure of 20 years . If Sum assured is 1 lacs and term is 20 years . And on maturity the life insurers double the money ,it still translates to a return of 5 %. Now where should one invest, so that he can earn a decent return which can beat inflation.
Life insurance is important but it should be taken for its primary purpose, i.e.life insurance https://sidworld.in/insurance/
There are some places where they can invest which also beats inflation and gives decent returns .The first among them is equity. Equity market or share market gives the best returns one can ever imagine . Just to prove my point, I will give a simple example . Most of you must have heard of a company called Wipro . In 1980 if someone had invested in Wipro shares ,it would be worth 700 crore today. There are hundreds of good companies in which if people would have invested in their growth years ,they would have become rich.
Similarly the share price of Titan in 2003 was Rs 3, today’s it is Rs.2334 ,a gain of 778 times. There is another company called Bajaj Finance .Its price of 1 share in 2002 was almost Rs.6 . Today closing price was 7076. Simply put if one had bought 2000 shares worth Rs.12000, it would have become 1.41 crores today.
The other place where one can earn decent return is mutual funds . Mutual funds are a type of funds which invest in shares and debt of a company but the money is managed by a professional. It is less risky than shares but gives much more return compared to fixed deposit and recurring deposits. Mutual fund has many schemes in it like large cap fund fund ,mid cap fund , small cap fund , balanced advantage fund and various other schemes.
There are 46 Mutual fund companies, some are government bank sponsored and some are private bank sponsored. Some are foreign bank sponsored or backed by a financial institution. There are more than 6000 schemes in different mutual funds so one should invest wisely and consult a financial advisor before investing because every person’s goals are different.
Another place where one can invest is ELSS or equity linked saving scheme . It is not at all new or different .It is a type of mutual fund scheme only with some minor modifications. The difference between normal mutual fund scheme and ELSS is that there is a lock-in of 3 years in ELSS. It means investor cannot withdraw money from it before 3 years . ELSS comes under Section 80 C . Means if a person invests in this product ,he can get a tax rebate upto 150000.
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Another place where one can invest is fixed deposits . I personally feel, this should only be considered by people who are above the age of 55 or more because they cannot take the risk of investing in equity because it involves risk. They need guaranteed return and safety of money which a fixed deposit can provide. But a person whose age is 40 and earning a good amount in salary and still investing in fixed deposit does not make any sense.
The forth place where one can invest is life insurance . Life insurance is also a important aspect of investment . The primary purpose of insurance is providing life cover for the bread earner of years family. Suppose a person is married with 2 kids and earning 1 lakh per month, he should get a life cover of 1 crore because if some unfortunate event happens with him , his family will get 1 crore which will take care of immediate expenses.
Of course ,in life insurance return will be low compared to equity or mutual fund but it will provide life cover if he dies unfortunately. There is no alternate to life insurance. Government on its part provides rebate in taxes upto 150000 if someone invests in insurance. It is called rebate under Section 80 C of the Income tax Act.
The fifth place where one can invest is health insurance. It does not provide any return but provides cover against any health emergencies. Some health issues keep happening in anyone’s family ,sometimes kids ,sometimes grandparents. Absence of health insurance and some medical emergency like an accident can mean expenses in lakhs and can wipe out months of savings . Government also provides some relief in taxes under Section 80D of the Income Tax Act,1961. This is in addition to Rs.1,50000 provided under 80C.
The sixth investment option is NPS or National Pension Scheme. It is deposited keeping the retirement in mind . People can deposit on a monthly basis or lumpsum, but it will be withdrawable only upon retirement. Government also provides tax rebate under Section 80CCD of the Income tax Act upto Rs.50000 in a year . If we total the amount in tax free investments ,it will come around 225000 (150000 +50000 +25000).
Seventh investment option is gold . Some part of the portfolio should also be kept as gold. It is all time favorite and the price is always increasing.
The eight last investment option is real estate or property. Land or property is the best investment and the price is always increasing. The only demerit in this assest class is liquidity. If someone has to buy land ,it requires a huge sum of money and if someone is in need of money the owner cannot sell it . It is also possible that he may have to sell at a loss instead of profit because the buyers are not always available .
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