The FY2018-19 has already started and it is time for the salaried employees to make investment declarations in a bid to save tax. However, where should you invest in the current market scenario?
The new financial year 2018-19 has already started and it is time for the salaried employees to make investment declarations in a bid to save tax. However, many people are still wondering how and where to invest or which investment avenues to choose from a plethora of investment options currently available in the market. True, making any investment is the investor’s choice and should be based on one’s risk profile and financial goals. However, whatever you do, you should try to follow Warren Buffett’s investing wisdom that “never invest in a business you don’t understand.” The same holds true for investment avenues also. Therefore, first assess your risk profile, identify your financial goals, and then invest in a product you understand.
Here we are taking a look at some of the top investment options available in the current market scenario:
1. Mutual Funds: Mutual funds, particularly equity mutual funds, are believed to be the best investment avenue in India currently. With top funds having generated nearly 20% CAGR over a 10-year period, this means every Rs 1 lakh investment by a retail investor became more than Rs 6 lakh. It can’t get any better than this, say financial experts.
“With a variety of portfolios, investing styles, themes, inexpensive costs and friendly tax norms, MFs are a truly mass product when it comes to wealth creation. Through MFs, any average investor with little or no knowledge can build their wealth just like stock legends. All they need to have is patience, persistence and the discipline of investing money in funds. Through the convenience of the Systematic Investment Plan (SIP) route, now anybody with as little as Rs 500 a month to spare can join the tremendously successful MF bandwagon,” says Anil Rego, Founder and CEO, Right Horizons.
2. Stock Market: After the recent correction in stock markets, valuation looks reasonable. Easiest investments to handle in terms of investing, monitoring and redeeming. Despite the introduction of long-term capital gains tax, equities remain the most tax friendly investment option. With economic growth picking up and inflation moderating, we are likely to witness strong growth in corporate profitability in the new financial year. “Moreover, markets have also corrected and come down to reasonable levels. Hence, from a risk-reward basis, markets have not looked so promising for a long time. One of the main advantages of equity investments is that small amounts can be spread across various small, mid and large cap stocks or mutual funds and hence you can design and get a portfolio suiting your risk profile and return expectations,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.
3. Real Estate: This sector has undergone both a time-wise as well as price-wise correction. A lot of excesses in this sector have been cleared. From a long-term perspective, this appears to be a very good time to start investing. With RERA getting implemented, regulation and safety levels of investments have vastly improved. “A large part of the froth from the previous bull market has got removed. The sector has also been purged of fly by night operators. With rapid urbanisation, increase in consumerism and easy availability of home finance, real estate is set to slowly but surely start moving back to boom time again. Currently, the affordable housing segment can be a very attractive segment to invest in with a long-term view,” says Kapur.
It may also be noted that buying a house with a home loan can also help you save a substantial amount of income tax every year till the loan is paid off completely.
4. NPS: National Pension System a safe option to invest in because of being a government-sponsored scheme. Another advantage of NPS is that irrespective of his contribution, the contributor is assured a minimum amount of pension. “NPS is also an excellent tax-saving tool. In addition to regular deductions of items comprised in Section 80C, 80CCC and 80CCD up to Rs 1.50 lakh every year, you can also contribute additional Rs 50,000 under Section 80 CCD (1B) and claim this additional deduction. If you are in high tax bracket, you can also get your salary structured in such a way that your employer contributes 10% of your salary without you having to match the contribution. You can avail this additional benefit without any upper monetary limit to claim the tax benefit under Section 80 CCD(2),” says Balwant Jain, tax and investment expert.
5. PPF: Despite the introduction of so many investment avenues in the Indian market in recent years, Public Provident Fund (PPF) still remains one of the best investment options for the common man and risk-averse investors. A PPF account can be opened in both banks and post offices, but those who prefer the online mode can opt for any leading bank that offers PPF as they can be applied for online. However, one has to visit the branch to get the application verified and stamped. It could be any branch, doesn’t have to be the home branch.
“A PPF works just like an RD, and has a tenure of minimum 15 years, which can be extended. It’s a great investment for salaried individuals in particular, who can keep aside a dedicated amount for the same every month. One can even avail loan on the PPF when required and even make early withdrawal from the 7th year of the PPF’s existence. The best part is that interest earned on PPF is tax free and the investment amount can be claimed for exemption under Section 80C,” says Adhil Shetty, CEO, Bankbazaar.com.