Investing is a crucial step towards securing your financial future. But in the face of a plethora of investment options available, one may find it overwhelming to make the right choice. Whether you are a beginner just starting out or a seasoned investor, aligning your investments with your financial goals is vital.
This detailed guide will help you navigate through the best investment options available in India based on your financial aspirations.
Understanding The Link Between Your Age and Goals
Before we step into the world of investments, it’s essential to understand the relationship between your age and financial goals. Different life stages bring distinct financial objectives — from building wealth to retirement planning and achieving financial freedom. Tailoring your investments to your age and goals can help yield optimal results.
Investment Options for Different Financial Goals
1. Early Wealth Accumulation (Age 20 to 30)
Your financial goals will likely revolve around wealth accumulation during your younger years. You have time, allowing you to embrace higher risk for potential rewards. Potential options include
Stocks
This involves directly purchasing shares of publicly traded companies with the expectation of earning substantial returns via dividends or capital appreciation. However, doing so requires thorough research and market understanding. To invest in stocks, it’s necessary to
open a demat account and trading account online with a stock broker.
New investors are advised to first learn the basics about how to invest with the help of a SEBI-registered member or stock broker.
Characteristics:
- Investment Period: Basis of investor’s goals (no lock-in period)
- Risk Level: Medium to high
- Investment Amount: No definite minimum amount is required
- Returns: 15% CAGR in last 20 years(Market Linked)
- Tax Benefit: None
Mutual Funds
Mutual Funds are the best investment options in India to start your investment journey. They are managed by fund managers belonging to Asset Management Companies - they invest your money into a pool of stocks, bonds, and other securities. In India, asset management companies are regulated by the Securities and Exchange Board of India (SEBI).
Mutual Funds offer a diversified portfolio of stocks, ideal for those seeking long-term capital appreciation. One can invest in them through Systematic Investments Plans (SIP), using small amounts, or through a lump sum amount.
There are tax saving mutual funds as well, which come with the added benefit of tax benefits and are well known as ELSS (Equity Linked Savings Scheme).
Characteristics:
Investment Period: Basis of investor’s goals (no lock-in period)
Risk Level: Low to Medium
Investment Amount: Min: ₹ 500 - Max: No upper limit
Returns: 10 to 15% p.a. (Market linked)
Tax Benefit: ₹ 46,500 tax exemption on investment of ₹ 1.5 Lakhs
Unit-linked Insurance Plans (ULIPs)
Combining insurance and investment, ULIPs are suited for those seeking growth with life coverage. ULIP is ideal for building wealth for your long-term goals which could include purchasing a house, children’s education, retirement, and more.
Characteristics:
- Investment Period: 5 years lock-in period
- Risk Level: Medium to high
- Investment Amount: Min: ₹ 1500 - Max: No upper limit
- Returns: Basis of investor’s profile
- Tax Benefit: Tax-exemption of up to ₹ 1.5 lakhs p.a. under Section 80C and 10(10D) of the Income Tax Act
2. Early Retirement Planning (Age 25 to 50)
Many young professionals aspire to retire by the age of 40, but only a few achieve it. Retiring rich and early calls for planning while you’re young. The best time to start is in your early or mid-twenties.
As you approach your retirement years, your goals gradually shift toward wealth preservation and steady income generation. Starting early can be rewarding. Your best options include
National Pension Scheme (NPS)
A pension-focused investment, NPS helps you build a corpus for your retirement years. It's a voluntary defined contribution pension system that allows you (a subscriber) to contribute regularly to a pension account during your working life.
On retirement, you can withdraw a part of the accumulated corpus in a lump sum and use the remaining to buy an annuity to secure a regular income source after retirement.
Characteristics:
- Investment Period: Up to 60 years of age (extendable by 5 years)
- Risk Level: Low
- Investment Amount: Tier I: ₹ 500 / Tier II: ₹ 1000
- Returns: 9 to 12% p.a. (Market linked)
- Tax Benefit: Tax deduction up to 10% of pay (Basic + DA) under Section 80CCD (1), subject to a max of ₹ 1.5 lakhs under Section 80CCE of the Income Tax Act
Public Provident Fund (PPF)
This long-term investment builds wealth while providing tax benefits. PPF is considered a risk-free investment as its returns are guaranteed by the government. It's available at almost all Indian banks and post offices, and you can only open one account at a time.
There is no age limit restriction to open an account. A minor’s account is handled by her or his guardian until the age of 18.
Characteristics:
- Investment Period: 15 years lock-in period (extendable by 5 years)
- Risk Level: Low
- Investment Amount: Min: ₹ 500 - Max: ₹ 1.5 Lakhs p.a.
- Returns: 7.10% p.a. (floating)
- Tax Benefit: Tax-exemption of up to ₹ 1.5 lakhs p.a. under Section 80C of the Income Tax Act
Sovereign Gold Bonds (SGBs)
Investing in sovereign gold bonds hedges against inflation and diversifies your portfolio with the stability of gold. As government securities, they make an attractive option for those planning for their golden years.
Characteristics:
- Investment Period: 8 years lock-in period
- Risk Level: Low to medium
- Investment Amount: Min: 1 gram / Max: 4 kilograms
- Returns: 2.5% p.a. twice a year
- Tax Benefit: STCG is taxable at 15% + 4% cess. For LTCG, if profits are below Rs.1 lakh then investment return is tax-free. If LTCG profits are above Rs. 1 Lakh, it's taxed at 10% + 4% cess
Real Estate Investment Trusts (REITs)
For diversification, consider REITs that offer a share in commercial real estate properties such as office buildings, retail outlets, and warehouses. One can expect earnings from rental income or capital appreciation.
Characteristics:
- Investment Period: No lock-in period
- Risk Level: Medium to high
- Investment Amount: Min: ₹ 10,000 to ₹ 15,000
- Returns: ? (Market linked)
- Tax Benefit: Taxable as per rules listed for REITs
3. Conservative Growth (All Ages)
If you prefer lower risks and consistent returns, these options might well suit you:
Bank Fixed Deposits (FDs)
Ideal for investors who want to play it safe, FDs offer stable returns over a fixed tenure. Suitable for those looking to achieve goals within the next one to three years. FDs cater to your short-term needs without compromising on security.
Characteristics:
- Investment Period: 7 to 10 years lock-in period
- Risk Level: Low
- Investment Amount: Min: ₹ 500 - Max: ₹ 5 Crores
- Returns: General citizens: 3% - 6% p.a. / Sr. citizens: 3.50% - 7% p.a.
- Tax Benefit: Tax-exemption of up to ₹ 1.5 lakhs p.a. under Section 80C of the Income Tax Act
Post Office Monthly Income Scheme (POMIS)
POMIS provides regular monthly income for retirees and those looking for a secondary income source. It’s ideal for conservative investors. It offers the option of opening a single account, joint account, and minor account
Characteristics:
- Investment Period: 5 years lock-in period
- Risk Level: Low
- Investment Amount: Single Account: ₹ 1000 - ₹ 9 Lakhs / Joint Account: ₹ 1000 - ₹ 15 Lakhs
- Returns: 7.1% p.a. payable monthly
- Tax Benefit: Tax-exemption of up to ₹ 1.5 lakhs p.a. under Section 80C of the Income Tax Act
4. Short-term Savings (All Ages)
For short-term goals, which may include buying a car, marriage preparations, or funding a vacation:
Treasury Bills
Government-backed securities with short tenures, provide lower risk and moderate returns. A suitable option for those with short-term goals. Treasury Bills offer stability without compromising on security.
Characteristics:
- Investment Period: 91, 182, and 364 days
- Risk Level: Low
- Investment Amount: Min: ₹ 25,000
- Returns: General citizens: 6.7 - 7.2% p.a.
- Tax Benefit: Subject to STCG tax and taxable per investor's tax slab rate
Corporate Bonds
Suitable for those seeking fixed income, corporate bonds offer varying tenures and risk levels.
Characteristics:
- Investment Period: Short-term (<3 yrs.), medium-term (4-10 yrs.), and long-term (10+ yrs.)
- Risk Level: High
- Investment Amount: ₹ ?
- Returns: General citizens: 8 - 10% p.a.
- Tax Benefit: No
Investing is not a one-size-fits-all approach. It requires a clear understanding of your financial goals, risk tolerance, and available investment options. Your age plays a vital role in determining which options best align with your aspirations.
By considering the options listed above and tailoring them to your unique circumstances, you can make informed decisions that pave the way for a secure financial future.
Ready to begin your investment journey?
Start investing today and take charge of your financial future. To get started,
open a trading account and gain access to a wide range of investment options tailored to your goals.
Remember, the key to successful investing is knowledge, planning, and staying aligned with your financial goals. Happy investing!
Note: Information shared in this article is for educational purposes only. It does not constitute financial advice. Consult a qualified financial advisor before making any investment decisions.
