Best way to start investing money in India.
The best way to invest your money is always investing by yourself in quality fundamental stocks. However, many people will not have the heart to invest all their savings in stocks considering the risk involved. In addition to Investment in stocks, to diversify your risk. We we have a very unique approach in suggesting you to start investing money. The word is income tax. I know this very word bores the hell out of you and sucks out any fun there is. But stick to this and read on, it will help you uniquely in the long run.
Now, no matter what our profession is, we earn money and we need to save and invest it wisely. We live in a country where we have to pay taxes depending on our income level. So, why don’t we invest in those products that not only helps us reduce our tax burden but also gives us returns depending on our risk appetite. The returns we get is much more than just the interest we earn on it.
So imagine you invested Rs 100000 in stocks and got 18% return on it. So, your earning before tax is Rs 18000. Short term capital gains is 15% flat rate. So, post-tax returns is 15300 (ignoring the time value of money). Similarly let us compare for a product that is tax free and if you range in 20% tax bracket. So, the moment you invest Rs 100000 in a tax savings product, you save Rs 20000 upfront and even if you get 10% return. It will be Rs 30000. Finally, if you see there is no comparison at all. First you need to appropriate money to invest in tax savings products like
1) Employer Provident Fund
2) Public Provident fund
3) Tax saving FD’s
4) ELSS tax saving mutual funds
5) Senior citizen savings scheme
6) Unit Linked Insurance Plan
7) Sukanya Samriddhi Yojna
Many of us would have exhausted our limits on 80C which is at Rs 150000. Don’t worry we still have more options available for investment. All these are investment options beyond 80C
1) Infrastructure bonds
2) New Pension Scheme
3) Rajiv Gandhi Equity Savings Scheme
This is the best and smart way to start your investments. Once you have exhausted these limits you will realize that you have invested a good proportion of your money in slightly more riskier investments like New Pension Scheme, Rajiv Gandhi Equity Savings Scheme ELSS tax saving mutual funds. One more product that I would like to introduce which is not complex is exchange traded funds (ETF).
ETF’s were introduced in the markets by National Stock Exchange of India Limited (NSE). It takes into account the benefits of trading in shares and mutual funds but removes away the disadvantages of trading in shares and mutual funds. A share unlike a mutual funds does not provide any diversification but a share can be sold at any time during the day unlike the mutual funds that can be sold only a day end price. If we remove the disadvantages and we have a product that is a mutual fund but trades like a share. This is what an ETF exactly is. In India one can trade in gold ETF, Nifty ETF, Liquid Bees, etc.
Sometimes increasing fund allotment in tax saving instruments returns better than equity oriented mutual funds during bear phase in the market.