5 Ways to Effectively Invest your Money in India

Most people want to invest their money in such a way that they get high returns quickly and that too without much risk of losing the actual amount they have invested. 

However, one should know that the investment options that give higher returns with comparatively lower risk do not exist in reality. 

Hence, while investing your hard-earned money, you should be very well aware of your risk profile and also the risks associated with the product in which you are investing.

Some investment options are associated with high risk, however, they can generate high returns as compared to the other investment options. 

Whereas, there are some investment options associated with low risk and also give lower returns. 

In this blog, we have discussed ways in which you can invest your  money effectively, 


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Direct Equity

Before investing in direct equity, you should be aware of the fact that the risk associated with this investment is very high, and there is no guarantee of returns. Hence it is also known as Volatile Asset Class. 

Furthermore, you should also study the market well before getting started so as to know the right time to make entry and exit and also pick the right stock. 

The good thing about investing in direct equity is that it has the potential to give higher returns over time when compared to other investment options.  

Nonetheless, the risk of losing the major portion of your investment is also quite high, unless you opt for the stop-loss method to have control over the losses.

In this method,  you can place an order in advance to sell a stock at a specific price, to reduce the risk to some extent. 

You can also diversify your investment in direct equity by investing across various sectors. 

How To Invest In Direct Equity

You can invest in Direct Equity by buying shares. For investing in direct equity you should have a Demat Account and Trading Account. 

The company sells a specific percentage of its ownership to the public at a certain price. This is called an IPO. 

When all the shares that are issued in an IPO are bought by the public, the stock exchange facilitates buying of those of shares in a secondary market. Anyone can buy and sell shares of any company which is listed in the stock exchange through an online trading account. 

Mutual Fund 

When a capital collected by various investors is invested in purchasing company stocks, shares, and bonds, Mutual Fund is formed.  A mutual fund is shared by many investors and is managed by a professional fund manager to gain the highest possible returns. 

Mutual Funds are regulated by SEBI and hence are safe to invest your hard-earned money. 

There are two types of mutual funds in which you can invest. 

Equity Mutual Funds 

Equity mutual funds mainly invest the money in Equity. According to the recent regulations of SEBI, an equity mutual fund scheme must invest at least 65 percent of its assets in equities and equity-related instruments. 

Debt Mutual  Funds

Debt Mutual Funds are associated with less risk as compared to Equity Mutual Funds and hence it is an ideal investment option for those who want steady gain. 

Debt Mutual Funds mainly invest in fixed-interest generating securities like government securities, commercial paper, commercial paper,  corporate bonds, treasury bills and other money market instruments. 

Equity Linked Saving Scheme(ELSS)

ELSS is the only mutual fund which qualifies as a tax saving instrument under 80C section of Income Tax with a lock-in of upto 3 years and a tax exemption of upto 1.5 lakhs.

Like all other equity funds, the returns of an ELSS are also subject to long term capital gains tax (LTCG) at 10%. However, long term capital gains of up to Rs. 1 lakh per year earned on equity funds are exempt from tax.


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How To Invest In Mutual Funds 

You can directly invest in Mutual funds by buying mutual fund units from Fund House Website through online banking. 

The other way to invest in mutual funds by using Online Trading Platform by paying certain amount of fees. 

Public Provident Fund 

Public Provident Fund (PPF) scheme is a long term investment scheme launched and supported by the Government of India. 

It is a popular option for investing for Indians as it combines a higher interest rate with safety. 

How To Invest In Public Provident Fund 

You need to open a PPF account in a bank or a post office. The process of opening a PPF account is quite easy and can be done either online or offline 

Every financial year you can invest minimum  INR 500 to maximum INR 1.5 lakh in PPF in maximum 12 installments. 

The tenure of the PPF account is fixed at 15 years however you can extend it for  5 years further.

Additionally, PPF investments are eligible for deduction under Section 80C of the Income Tax Act (ITA).

National Pension Scheme 

The National Pension System (NPS) is a long term retirement-focused investment option that is managed and regulated by the Pension Fund Regulatory and Development Authority (PFRDA). 

National Pension Scheme is a mixture of liquid funds, equity, corporate bonds, fixed deposits, and government funds. 

It is a perfect investment option for your retirement planning as it provides income with quite a reasonable market-based returns at old age.  

How To Invest In National Pension Scheme

It is based on unique Permanent Retirement Account Number (PRAN) which is allotted to every subscriber of this scheme. PFRDA allows online as well as the offline opening of NPS account. 

The minimum annual contribution for an NPS Tier-1 account to remain active is reduced from INR 6,000 to INR 1,000. And hence you can decide how much money you want to invest in equities through NPS. 

In case you don’t mention your choice of fund at the time of registration, your investments will be invested in the default funds that are handled by the Pension Fund Regulatory and Development Authority and managed by professional fund managers.


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Fixed Deposit

Fixed deposit is investment instruments offered by banks and non-banking financial companies, where you can invest or deposit your money to earn a higher rate of interest as compared to savings accounts. 

The main criteria for fixed deposit is that the money deposited cannot be withdrawn before maturity, however, you can always withdraw the money in case of emergency by paying a penalty.

How To Invest In Fixed Deposit

To invest in Fixed deposit, you need to open a FD Account with a bank or post office or any other non-banking financial company(NBFC). This account can be opened very easily, either by online or offline method. 

You can deposit a lump sum amount of money in FD  for a specific period, which may depend on your financier.

You can opt for monthly, quarterly, half-yearly, yearly or cumulative interest option in fixed deposits. The interest rate which is earned is added to your income and is taxed as per your income tax slab.

Conclusion 

Now that we have discussed the five ways in which you can effectively invest money, Let us take this opportunity to let you know that some of the investment options are fixed-income whereas the others are linked to equities. 

Both of these investment options play a crucial role in the process of your wealth creation. 

The Equity investment options like stocks help in generate higher return while the fixed income investment options help in safeguarding your money as they generate fixed returns. 

Also, note that your investments in equity have much higher risk as compared to the fixed-income investments which makes it imperative to choose an optimal mix of both these options.

Thus it is important to realize that the best way is to make a portfolio which is a good mix of both these segments. Most portfolios have a 60:40 or 70:30 ratio of equity to fixed income instruments. Hence, it is important to conduct research. To help you further with investments, here are the average yearly returns expected and their lock-in periods for each of these instruments:

Average Annual Returns
Investment OptionAverage Return (p.a.)
Fixed Deposit6.50%-8.25%
Public Provident Fund8%
National Savings Certificate8%
National Pension Scheme10.81%*
Equity12.50%
Lock-in-Period
Investment OptionLock-in Period
ELSS3 years
Fixed Deposit5 years
Public Provident Fund15 years
National Savings Certificate5 years
National Pension SchemeTill retirement