The term ‘Finance’, which seems to be complicated to many youngsters is actually very easy to understand. It is nothing but a way someone manages his/her money in such a manner that all the expenditures are met without actually draining out the whole amount. Financial experts technically define Finance as a system of creating, managing, and investing money with a motive to make the best use of the available resources.
It’s important for oneself to set future goals. Finance is a lifeblood of a modern economy and therefore, to fulfill any goal, a person needs money. This fact of life bounds you to set your goals in terms of finance. It is, therefore, important to have some future financial goals to accelerate the saving and channelising the same to earn out of it.
Investment is pooling off money to gain more benefits after a specific period. It is a technique to increase the capital employed after a specific time. Investment is the placement of capital in the expectation of deriving income or profit from its use or appreciation.
These are the Top 10 Best Investment Opportunities
1. Real Estate Property
2. Public Provident Fund(PPF)
3. Mutual Fund
6. Certificate of Deposits
7. National Pension Scheme(NPS)
8. Money Market Accounts
9. National Saving Certificate
10. Post Office Monthly Saving Scheme
1. Real Estate Property
Real Estate investment generally refers to investment in physical assets or commodities that can be procured. These are an investment in proprieties that cannot easily be moved, usually buildings and the grounds they are built on or the space used for a specific purpose. Real Estate investment is acquiring tangible assets, which are reserved to utilize through development or built-in facility. Example- Land: this can be used to build buildings on it or for resale at a higher amount than purchase. Such tangible assets can be built by occupying office buildings, purchasing warehouses to store inventories, or acquiring a residential home. Investments in Real estate property yields higher return with no risk than any other investment mechanism.
Public Provident Fund is a saving cum tax-free account. Public Provident Fund is a long-term investment that yields magnificent returns with no risk. This scheme was implemented in India in 1968 to mobilize saving habits among the people which would further be employed for investment and return purposes. Public Provident Fund is a safe investment to save taxes and earn an assured return for the amount invested with no risk and complete capital protection as it is backed up by the Indian government.
One has to open a PPF account under this scheme with either a post office or with any nationalized banks that are permitted to provide this facility. Any Indian citizen who is an adult or on behalf of a minor can open this account with a minimum deposit of ₹100 a month. A Public Provident Fund account provides the facility to designate a nominee, but it cannot be a joint account. Public Provident Fund allows a minimum investment of ₹500 and a maximum of ₹1.50 lakh for each financial year. Investment can be made in lumpsum or instalments of 12 maximum annually. Public Provident Fund is an investment for 15-year tenure with a deposit made every financial year. Withdrawals are made on completion of the tenure on the entire amount standing in the credit of this account along with the accrued interest or premature withdrawal upon certain condition permits 50% of the total amount from the 7th year, i.e. after completion of 6 years. Public Provident Fund falls under tax exemption of Income Tax Act section 80C on the deposits made in PPF and also, on the accumulated amount and interest at the time of withdrawal. Public Provident Fund is a good investment to accumulate funds for retirement while reducing yearly taxes. Current Public Provident Fund interest is 7.1% which is updated by the government every financial year.
Mutual Funds can be defined as money pooled by a large number of people (Investors) having one common investment objective. The money collected under the scheme, usually run by an asset management company, is then invested in equities, bonds, money market instruments, and other securities by professional fund managers of the Mutual Funds. The portion of holding of the fund is provided as ‘Units’ to each investor in proportion to the amount invested by them. The income generated from the scheme is distributed among all the investors in proportion to their investment by calculating Net Asset Value or NAV.
Mutual Fund earns dividends on the stocks and interest on the bonds according to their investment in the portfolio. The annual return is given to the mutual fund portfolio owner as distribution at the end of the year. This distribution can be out-checked or reinvested to purchase an additional share. Mutual Fund differs from stock as it does not provide voting rights to its holder as purchasing a share of a mutual fund means procurement of part of portfolio value. Net Asset Value (NAV) denotes the performance of a particular scheme of a Mutual Fund. NAV can be defined as the market value of all the securities (equities, bonds, money market instruments, and other securities) held by the scheme.
Investment in stocks is also an alternative for individuals for their savings. Investment in stock/equities earns dividends generated from the company’s net profit of the invested fund. This financial instrument can be of two types:
- Equities/Common Stock: Equities holders are privileged with voting rights on policies and rules and elect the Board of Directors of the company. Equities represent ownership in terms of the net monetary value of some business. Investment in equity yields a higher rate of return in long term in form of dividends or capital gain when sold at a higher price in the stock market. However, it involves more risk than other securities as it earns dividends when the company earns a profit and after the preferred shareholder are paid dividends. At the time of liquidation, it has a claim on the company’s asset after the creditors, bondholders, and preferred shareholders are paid off.
- Preferred Stock: Preference shares are a different type of equity that represents possession in the company and are entitled to the company’s operation. Preference shareholder enjoys forechoice on distribution(dividend) than equity shareholder and also at the time of liquidation of the company, claim on the company’s assets. This financial instrument is more appealing to certain investors as it possesses the attributes of both equity shares and bonds- the ownership and quarterly or monthly earning fixed dividend. Preferred stock also yields an efficacious appreciation of price resulting in stable future cash flows.
Bonds are evidence of long-term debt, by which the bond issuer is obliged to pay interest when due and repay the principal at maturity, as specified on the face of the bond certificate. The right of the holder is specified in the bond indenture, which contains the legal terms and conditions under which the bonds were issued. Bonds are a financial mechanism to guarantee or secure a financial risk. Bonds are issued by governments and companies to raise money and are obliged to pay interest on the capital invested by the investors. This financial instrument asks for advance investment and then pays a reoccurring amount over the life of the bond. For the capital invested, the bondholder receives reoccurring payments in form of a coupon, which are generally fixed. On the maturity of the bond, the bondholder receives the capital invested. Bonds’ prices fluctuate because of the fixed coupon payment which generally earns a higher yield. Bonds are of two types:
- Registered Bond: A bond that is recorded on the books of the issuer by the trustee, with interest paid by mail to the holder of record.
- Bearer Bond: A negotiable loan instrument payable to its holder by the issuer according to preset conditions. The owner must safeguard bearer bonds to prevent loss; interest is usually paid by coupon redemptions.
6. Certificate of Deposits
A product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump sum deposit untouched for a predetermined period. It is the mechanism of saving different from a saving account because there is no liquidity. The money cannot be withdrawn before maturity, and if withdrawn the holder loses interest or have to pay some penalty. Certificate of Deposits yields a higher return rate for the loss of liquidity. Searching for the best Certificate of Deposit rate in the market is important as different financial institutions offer different rates for the money invested. Investment in a Certificate of Deposits is risk-free than investment in securities like stocks and bonds. Certificate of Deposits provides an opportunity for growth with a guaranteed rate of return being non-volatile. The term period of this financial instrument varies from six months to more than a year.
7. National Pension Scheme (NPS)
National Pension Scheme is a long-term investment to secure life after retirement. The investment fund in National Pension Scheme is a diversified portfolio including government bonds, corporate debentures, and shares. National Pension Scheme is a systematic saving financial instrument voluntarily contributed to making the optimum utilization of income earned for the future by developing the habit of saving for retirement. The investment mechanism is monitored and regulated by Pension Fund Regulatory and Development Authority(PFRDA) to pool the savings of individuals into a pension fund to find a sustainable solution to the problem of providing equitable retirement income to every citizen of India.
Under the National Pension Scheme, the investment fund accumulates over the years and grows according to invested fund return yield. National Pension Scheme involves low risk with a maturity of investment after 60 years of age of the investor. On reaching the age of 60, the investor holder can only withdraw 60% of the total long primer, and the remaining 40% is used according to the choice of the investor to purchase a pension plan. The return earnings or pension wealth from the investment is utilized to purchase a life annuity. Return calculated on this investment on the net asset value declared by the pension funds of various banks. A minimum of ₹500 deposit is required to avail National Pension Scheme with no upper limit of investment. According to sections 80C and 80CCD, investments of ₹2 lakhs and the returns on NPS are exempted from tax for tier-I and tier-II.
8. Money Market Accounts
An interest-bearing account at a bank or credit union is sometimes referred to as Money Market Account. Money Market Account is a financial product that yields a higher interest rate than a saving account. An initial deposit is required to open a Money Market Account and has to maintain the minimum balance to be active or bank charges may be levied. Investment in Money Market Account is suitable for those investors who want to invest for a shorter term period for a specific purpose to earn a higher rate of return. A Money Market Account is an interest-bearing account at a bank or credit union.
National Saving Certificate is a risk-free government-backed fixed-income investment for five years. Investment in this scheme can be made through Indian public banks, some private banks, and all post offices. National Saving Certificate is an impediment-bought certificate that bears less to nil risk. Investment in National Saving Certificate requires a minimum of ₹1000 invested or any multiples of 100 in one financial year through instalments of 12 without maintaining any upper limit. National Saving Certificate yields fixed interest return amalgamated annually at the rate announced by the Ministry of Finance quarterly. The interest earned is paid off at the end of the maturity period, whereas the interest earned annually is reinvested and is exempted from taxes. The amount can be withdrawn before maturity only when the National Saving Certificate holder is deceased. Investment in National Saving Certificate is tax exempted under section 80C of the Income Tax Act till ₹1.5 lakhs annually. Tax is levied on the accumulated interest at the end of the maturity period according to the regular tax slab.
Post Office Monthly Scheme is a great opportunity for investment for middle-class earning people and housewives. Post Office Monthly Scheme is a monthly scheme availed through all Indian postal services. An investor has to open an account with a minimum investment of ₹1000, and the account opened can be a single account, joint account, parent of a minor, or minor above the age of 10. The account holder has to maintain a maximum of ₹4.5 lakhs if the person is the single holder of the account and ₹9 lakhs for joint holders. Post Office Monthly Scheme maturity can be after five years from the date of opening the account in this financial instrument.
The account of the Post Office Monthly Scheme cannot be closed before one year, otherwise, a penalty of 2% is charged for premature closure of the account on the principal amount between 1-3 years and 1% between 3-5 years. Post Office Monthly Scheme is a risk-free scheme with a return rate of 6.60% (currently) per annum paid monthly to the account holder, which can be automatically credited to the investor’s saving account. Tax is levied on the interest received on the investment in Post Office Monthly Scheme. However, a claim can be made by the nominee prematurely if the account holder is deceased. Post Office Monthly Scheme is a great investment for individuals who earn nominal and want to save from that income to invest for some return without risk involvement.
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