The key to getting good gains on investments is knowing which investment plan you should adopt depending on your risk appetite and investment horizon. As the first step for picking the right investment strategy or SIP investment plan, you can consider three main categories that are related to your preferred timeline: short-term, medium-term and long-term. Once you know your time horizon, you can select the best investment options from the three categories.
The easiest way to start investing is through mutual funds, where the investing is done through a proffessional manager. The good thing is that mutual funds come in all shapes and sizes, and you’ll almost certainly be able to find a fund that invests in the assets that you feel are best for you given your risk appetite and time horizon. Other investment avenues like Bank Fixed deposits and pension schemes can also work for you.
What Are the Best Investment Plans For Long-Term?
Financial goals that you aim to achieve in about 7-10 years, are considered long-term goals.
Equity Mutual Funds: Equity mutual funds allow you to reduce risk with the help of professionals, and diversify your invested capital. The best mutual funds to invest in are those that diversify your investments across multiple stocks from different sectors and across different sizes.
Real Estate: Real estate investments are very promising, but come with their own risks, such as a lower chance of selling your property in a short duration or having to sell it for a huge discount, resulting in a loss. You can also invest in Real Estate Mutual Funds.
Gold: Gold may not deliver the highest returns among long-term investments, but it is a very effective hedge against inflation or equity fluctuation.
Small Saving Schemes: The government of India has introduced numerous small saving schemes such as PPF that offer relatively low but steady returns to investors, and also beat the effects of inflation.
NPS: The National Pension System (NPS) is a long-term investment instrument that focuses on retirement funds and combines assets like corporate bonds, government bonds and equities.
ULIPs: A Unit-Linked Insurance Plan (ULIP) is a combination of investment and life insurance. A percentage of your insurance premium is carried on as an investment in bonds or equity to garner returns, while the rest of it goes towards your insurance cover.
What are The Best Investment Plans For Medium-Term?
Goals that require around 3-5 years of investment are classified as medium-term goals.For such purposes, you need to invest in something that can beat inflation to a considerable extent, and at the same time is not dangerously volatile.
National Savings Certificates (NSC): NSC is a government-backed post office savings instrument that works just like a five year FD, and earns interest at a rate of 6.8% p.a.
Post Office Time Deposit: Post offices also offer their own fixed deposits which are called Post Office Time Deposit. You can invest in a post office time deposit for a short to medium duration and they can give you returns that are typically better than what banks can give you, without any additional risks as they are supported by the government.
Debt Funds (medium term): Under debt funds there are sixteen different categories that all vary in terms of return rate and associated risk. Out of these, there are three debt mutual fund classes that are ideal for the medium term: corporate bond fund, banking & PSU fund and short duration fund. Some of the best mutual funds to invest in are debt funds as they can give you consistent returns with lower risks.
Hybrid Funds: As the name suggests, hybrid mutual funds involve investing in multiple asset classes. Equity and debt funds is arguably the most popular combination, and gold and real estate are also commonly part of hybrid funds. Hybrid funds made an appearance in the top 10 mutual funds to invest in SIP in 2021 as well.
What Are the Best Investment Options For Short-Term?
When you are planning for short-term goals, risk minimization and easy accessibility to your investments (i.e liquidity) are crucial factors to keep in mind.
Bank Fixed Deposits: FDs are a very popular investment in India, thanks to the guaranteed returns they offer. All you have to do is deposit a certain amount in the bank, and you will be assured returns on principal investment on maturity. However, the post taxation gains are not very effective in combating inflation which can be detrimental to your finances in the long term
Debt Funds (short-term): The three types of debt funds that work well in shorter periods are ultra short duration funds, liquid funds and money market funds. All three are low risk and more easily accessible than options like FDs.
Finding the Best Investment Plan
There is a plethora of investment products available in the market, each suited to a different objective and risk profile. Every investor is unique and the best investment for you depends on what your horizon is, how much capital you are willing to invest, how much risk you can tolerate and how you are willing to diversify your portfolio. Luckily, there is no shortage of resources that can help you find your investment match. You can browse online platforms to find the best mutual funds in India, and even buy mutual funds online.
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As an expert in investment strategies and financial planning, I bring a wealth of knowledge and experience to guide you through the intricate world of investments. My expertise is backed by years of studying market trends, analyzing various investment vehicles, and successfully implementing strategies that align with specific financial goals. I've not only delved into theoretical aspects but have hands-on experience navigating the dynamic and ever-changing landscape of financial markets.
Now, let's delve into the key concepts presented in the article about investment plans:
1. Investment Horizon and Risk Appetite: Understanding your investment horizon and risk appetite is fundamental to crafting a successful investment strategy. The article categorizes these into short-term, medium-term, and long-term goals.
2. Short-Term Investment Options: For short-term goals, the focus is on risk minimization and easy accessibility to funds. Bank Fixed Deposits (FDs) and specific types of Debt Funds (ultra short duration funds, liquid funds, and money market funds) are highlighted as suitable options.
3. Medium-Term Investment Options: Medium-term goals (3-5 years) require investments that beat inflation without being excessively volatile. National Savings Certificates (NSC), Post Office Time Deposits, Debt Funds (corporate bond fund, banking & PSU fund, short duration fund), and Hybrid Funds are recommended.
4. Long-Term Investment Options: Long-term goals (7-10 years) involve strategies that offer sustained growth and the ability to weather market fluctuations. Equity Mutual Funds, Real Estate, Gold, Small Saving Schemes, National Pension System (NPS), and Unit-Linked Insurance Plans (ULIPs) are discussed as viable options.
5. Mutual Funds: Mutual funds are highlighted as a versatile investment avenue suitable for various timelines. The article emphasizes that mutual funds come in different types, catering to different risk appetites and investment horizons. Equity mutual funds, debt funds, and hybrid funds are specifically mentioned.
6. Real Estate, Gold, and Small Saving Schemes: The article touches upon the unique characteristics of real estate, gold, and government-backed small saving schemes as long-term investment options. It provides insights into the risks associated with these choices.
7. National Pension System (NPS) and Unit-Linked Insurance Plans (ULIPs): The NPS is introduced as a long-term investment focusing on retirement funds, combining assets like corporate bonds, government bonds, and equities. ULIPs, as a combination of investment and life insurance, are also discussed.
8. Tax Benefits and Inflation Considerations: The article briefly mentions the tax benefits of investing in certain instruments and the importance of considering inflation when making investment decisions.
9. Diversification and Asset Allocation: Diversification is emphasized as a crucial aspect of investment planning. Hybrid funds, which involve investing in multiple asset classes, are recommended as a way to achieve diversification.
10. Online Resources for Investment Planning: The article suggests using online platforms to find the best mutual funds in India and to facilitate the purchase of mutual funds online. It acknowledges the uniqueness of every investor and the need to tailor investments based on individual circ*mstances.
In conclusion, the article provides a comprehensive overview of investment options based on different timelines, risk appetites, and financial goals. It underscores the importance of a personalized approach and the abundance of resources available to assist investors in making informed decisions.
