If one wishes to systematically achieve one’s financial goals within a stipulated period of time, then having a good investment plan is indispensable. These plans guarantee safety of investment, guarantee of return, and tax minimisation all at once and hence, considerable time and effort must be invested into choosing one.
Wish to know some of the components that must be included in one’s investment plan if he or she falls under the middle income category? Read on!
Best Investment Plan in India for Middle Class
Best Low-Risk Investments
Debt Mutual Funds
Debt mutual funds like liquid funds, money market funds, or even Banking & PSU Funds are some of the best low-risk investments. These funds are liquid in nature and can earn higher returns than Fixed Deposits. If held for more than 3 years, they turn tax efficient as indexation benefit is allowed. But you will have to bear in mind that debt mutual funds can have other risks like the credit risk (the risk of principal not being paid back) and the interest rate risk (the risk of fluctuating interest rate).
- Fixed deposits
One of the most familiar and trusted methods of investment, fixed deposits are good investment options for those who have a low risk-taking appetite. The interest earned is higher than savings bank account and is liable to be exempted under Section 80C of the Income Tax Act, if these FDs are held for 5 years. The exemption limits are higher for senior citizens and the interest rates are not fixed, and vary interbank and for different tenures.
- Public Provident Fund
The Public Provident Fund has been created with the purpose of instilling the savings culture amongst citizens of India. It is a long-term scheme operated by the Government of India that invests into fixed income securities. Therefore, one can safely say that the risk involved is low and the returns, though not very high, are stable and guaranteed. A PPF has a lock-in period of 15 years with a 5 year renewal option thereafter. The investor has the option of opening the account in either the Post Office or in a certified bank account.
- National Pension Scheme
The National Pension Scheme is a combination of an investment and pension scheme that is designed for all the employees from the public sector, private sector, and even the unorganized sector. The interesting feature about this is that it is a saving, pension, and investment scheme, all at once.
- Senior Citizen Savings Scheme
This scheme comes with the aim of providing regular interest income for seniors above the age of 60 years, for those who have opted for the Voluntary Retirement Scheme or have been superannuated and are in the age bracket of 55 to 60 years. The Senior Citizen Saving Scheme is available across all post offices and certified banks across India. It has a lock-in period of 5 years and the minimum investment amount is Rs. 1,000 and the maximum investment allowed is Rs. 15,00,000.
Best High Risk Investments
- Equity Mutual Funds
A market linked investment that promises returns high enough to overcome inflation, mutual funds are ideal investment plans for the aam aadmi. These funds ensure that there is diversification of risks as one can in either in index funds, large cap, mid cap or small cap funds or a combination of them. The idea is to preserve the capital while generating steady returns over a period of time.
- Unit Linked Investment Plan
With the dual benefit of insurance and investment, ULIPs are considered to be good investments as they offer decent returns. The amount invested is partly used for insurance and the remainder is placed in market linked instruments. Most ULIPs have a minimum lock period of 3 to 5 years, with some allowing investors to pool their funds for up to 10 years. ULIPs also offer the additional benefits of tax exemption. However, their complicated expense structure is a point of concern.
- Direct equity
Direct equity is a good option to invest in if one is looking at a longer time horizon. It demands a substantial amount of research and must be opted in for if one has financial cushions that can help them through shocks. It is a high-risk investment option that could offer high returns in the long term. Note that it also gives the investor ownership rights in a company and makes him eligible for bonus shares and dividends as well..
- Cryptocurrency Investment
Cryptocurrencies are digital assets and are classified as a high risk investment that provides high returns. They are highly volatile and the values fluctuate majorly in a short span of time. One has to be mindful of government regulations as well as the risks associated before investing in them.
Frequently Asked Questions
- What are the types of investment plans?
There three main types of investment plans categorized on the risk associated with it. These are- low risk investment plans with low risks and low returns, medium risk investment plans with moderate risks and moderate returns and high risk investment plans with high risks and high returns.
- How will the middle class benefit from a good investment plan?
Investment plans are said to offer the following benefits to the middle class investors –
- Multiplying stagnant funds to create wealth.
- Securing the future of family members with the income generated.
- Ensuring financial goals are easily met through sustained effort.
- Making use of tax benefits available under law.
- What are National Pension Schemes?
The National Pension scheme is a good scheme to invest in, for a secure, steady flow of income. The sums invested are put into government securities, corporate bonds and equity. The investments made into the NPS are liable for tax deduction under the Income Tax Act if the amount is less than Rs. 50,000.
- Which schemes are exempt from tax?
Equity linked savings schemes, public provident fund, insurance plans, etc. are exempt under Section 80C of the Income Tax Act.