Investment Scheme – Overview
“If you don’t find a way to make money while you sleep, you will work until you die.” – Warren Buffett.
This famous quote from one of the greatest personalities of all time is enough to understand the importance of investing your money. It is the primary objective of every person to build a secure future. That is what we earn, right? But, the value of your money reduces over time due to various economic factors.
Essentially, the purchasing power of money is reduced due to inflation which is also called the “time value of money.” So, if you leave your money idle, it reduces in value. On the other hand, if you invest your money, the return on your investments will not only cover the inflation but also help you build your capital.
Investments can not only help you to fund big events in your life but can also support you on rainy days. You can use the investments to fund your education, marriage, medical expenses, and emergencies. Alternatively, they can also help you fulfill your dream of building a house or buying a car.
Now you will ask, how to invest money in India? There are various investment schemes where you can invest your funds and earn good returns for a secure future. This blog describes what is an investment scheme, the different types of investment schemes you did not know about, and how to start investing money in India.
What are investment schemes?
Financial plans designed to facilitate investments are called investment schemes. These are structured financial instruments which are easily available for investments. Investors can understand the plan of the investment scheme and decide whether they want to invest in it or not. Investment schemes are designed to fulfill specific investment objectives.
For Ex: There are various types of Mutual Funds like Equity Mutual Funds, Debt Mutual Funds, Hybrid Mutual Funds, Exchange Traded Funds, etc. Although, investors cannot directly control where the Mutual Funds invest their money. On the other hand, P2P lending platform allows investors to directly lend money to the borrowers and earn fixed interest income in form of monthly repayments.
So, if you are worried about how to invest money in India for good returns, choosing the best investment scheme is the first step. But why do you need an Investment Scheme at all? Let’s see the types & significance of Investment schemes for an investor.
Best Investment Schemes in India
If you ask someone best scheme to invest money, most probably the answer would be bank FDs. Here are some of the lesser-known investment schemes that can help you money even when you are peacefully sleeping.
Wondering how to invest money in India for good returns? Based on the concept of direct lending, online P2P lending platforms provide a marketplace where investors can lend money to borrowers directly, also called peer-to-peer lending. In return, they receive a monthly repayment from the borrowers, including the principal and interest amount. Here are some of the key features of P2P lending:
- P2P platforms are regulated by the RBI and have to follow its guidelines
- Transactions using the Escrow mechanism to safeguard investors’ money
- Start investing with as low as Rs. 500 and earn through monthly repayments
- High Return on Investments (LenDenClub’s FMPP investors have earned upto 12% p.a. since launch.)
- Low default rates between 3-4% with the LenDenClub P2P platform
- Diversifying investments with multiple borrowers to reduce the risk
- Extensive borrower evaluation (LenDenClub evaluates borrowers on 200+ data points)
- Auto-investment facility based on AI technology
- Earn compounded returns by reinvesting the EMI received on the platform
With these features and high return on investments compared to FDs, P2P investments are gaining popularity among conservative investors. At the same time, they carry no market risk like stocks. So, how to invest your money in India? The answer is P2P lending.
National Savings Certificate (NSC)
NSCs are 5 years government-backed bonds that offer fixed interest on the amount invested. You can subscribe to the scheme through the Post Office. The Government of India issues NSCs from time to time.
Currently, the running NSC VIII can be subscribed by investors, which started from 01.04.2020 for 5 years. The interest rate fixed for NSC VIII is 6.8% p.a. Compounded annually. Although, the interest amount is paid only on maturity of the certificate.
Voluntary Provident Fund (VPF)
As an extension of the government’s Employees Provident Fund Scheme, VPF is the additional contribution that an employee can make to the EPF over and above the 12% statutory contribution. You can claim a deduction from taxable income up to Rs. 1.50 lakhs every year. Currently, an interest rate of 8.10% p.a. is payable to investors on VPF contributions.
For making a VPF contribution, an employee can request the employer to open a VPF account. The maximum contribution allowed in VPF is 100% of Basic Salary and Dearness Allowance.
Equity shares are by far one of the most attractive and high-yielding investment options. Every investor dreams of earning big and making a fortune out of stock investments. You simply need to register with a stock broker, open a Demat Account and start investing your money in the share markets.
But what’s less understood is the very high risk involved in it. Your returns from the stock markets depend on the fluctuation in the market prices of the stocks. As a result, a lot of factors play an active role in limiting or expanding your investment value. Hence, the returns from stock markets are un . Look at these figures.
BSE Sensex, one of the key indices in India, has provided a net return of 70% during the last 5 years. But, when you look at the figures for the last 4 months, the geopolitical and supply chain crisis has led to a steady fall in the index.
This un ty has fuelled a widescale selloff from FIIs worth more than INR 209,000 Crores since February 2022. Due to the Russia-Ukraine war itself, the Sensex has lost almost 15% of its value from the highs of 62,245.43. With threats of economic recession and uncontrolled inflation, the future outlook for Stock Markets is also negative.
Exchange Traded Funds (ETFs)
Similar to a Mutual Fund, the ETF schemes are created solely to track the price of a specific index. For Ex: The price of Gold ETFs follows the exchange price of Gold. While the price of gold on the stock exchange is calculated at 10 grams, 1 unit of the Gold ETF is equivalent to only 1 gram of gold. Hence, ETFs are affordable for investors. Consider the following table:
|Commodity||Market Price||ETF Price|
|Gold||Rs. 50,000 (10 grams)||Rs. 5,000 (1 gm = 50000/10)|
For an average investor, it is easier to invest Rs. 5,000 for 1 Gold ETF. Although, the drawback with Gold prices is that they have been stagnant for quite a long time. Hence, the average returns are much lower compared to other investments.
- Bonds and Bond funds: Bonds refer to the debt securities which can be issued either by government departments or a corporation to raise funds for large projects. Generally, there are 3 types of bonds:
- Plain Vanilla: These bonds pay a fixed coupon amount every year, which is reinvested to provide the benefit of compounding. At the end of the tenure, both principal and interest are paid together.
- Convertible: Issued mainly by corporates, these bonds issue Equity shares equivalent to the redemption amount of the bonds instead of paying the money back. Hence, they give dual advantages to investors.
- Zero-Coupon: ZCBs are usually issued by government departments. Instead of paying a coupon amount every year, they are initially issued at a discount and redeemed at face value.
For Ex: If a ZCB of Face Value of Rs. 10,000 for 4 years is issued at a 90% price; investors have to pay only Rs. 9,000 today. On redemption, investors can get the face value, i.e., Rs. 10,000. So the return on investment is Rs. 1,000.
You can choose to either directly invest in these bonds or purchase the units of a Bond Fund, which is a debt mutual fund that invests only in Government and Corporate bonds.
Real Estate Investment Trusts (REITs)
REITs are similar to Mutual Funds, with the only difference being the asset class. REITs simply use the pooled money to purchase commercial properties that can be rented for purposes like office premises, hotels, warehouses, or infrastructure projects like fiber cables, mobile towers, etc.
The biggest benefit of REITs is that their units are much cheaper for investors compared to purchasing a commercial property. REITs distribute dividends regularly to investors from the rental income earned by them.
Significance & Need of Investment Schemes
Having learned what an investment scheme is, you must be wondering what is the need and significance of an Investment Scheme. Why at all is it necessary? Here’s why opting for an investment scheme is one of the best choices for investors.
- Keeps Your Money Safe: The biggest threat associated with cash is the risk of theft. Investment schemes can not only safeguard your money but also earn good returns. And there is no risk of your cash being stolen.
- Develops a Habit of Saving: The first step before investing is to budget your expenses and the fund requirements. Based on your budget, you can save and invest your money. Investment schemes require you to save and invest money regularly. Hence, investing can help you build a habit of saving money.
- Helps you Earn Passive Income: You do not have to work to earn returns on your investment. Once you invest in an investment scheme, you can sit back and enjoy the returns that your invested money is generating. Hence, investment schemes are a source of passive income.
- Structured Investment: Investment schemes always work in a framework that depends on the objective and risk tolerance capacity of investors. As a result, you can choose the best investment scheme that suits your needs and be that your funds are safe. So, if someone asks how to invest your money in India, investment schemes are the go-to option.
- Saves Taxes: Many investment schemes are even backed by the government. To encourage forced savings, the government allows such investments as a deduction from the taxable income. So, with investment schemes, you can also save taxes while earning good returns.
- Builds Your Retirement Capital: Investment schemes can help you build retirement capital in the long term. You can save regularly to earn compounded returns that can grow your capital at a faster pace.
- Saves Excess Expenditure: When you invest your money, it gets locked in the investment scheme during the tenure of investment. Hence, you need to properly budget your expenditure and emergency funds before investing. As a result, it saves you from unnecessary expenditures.
First Get Your Finances Ready
Another question asked by investors is, how to invest money safely in India? Investing money is not a simple exercise. Before you lock your money in investment schemes, you should be prepared for any kind of un ties that can crop up in the future.
So, you need to plan your finances well in advance to avoid getting into financial troubles at a later stage. Here are the steps you should take to get your finances ready for investing.
Step-1: Budget your expenses and savings
Experts suggest a 50/30/20 rule for the distribution of your income. As per the rule, you should spend only 50% of your income on essentials. 30% of the money should be saved for buying luxuries, and the remaining 20% should be invested. Hence, budgeting expenses helps you to invest regularly.
Step-2: Build an Emergency Fund:
Some investment schemes involve a lock-in period, while others might take some time to liquidate. Hence, it is not advisable to depend on your investments in an emergency. As a result, it is better to create an emergency fund before investing your money.
Step-3: Choose the Best Investment Option
As an investor, you should always weigh the investment schemes based on your Investment Objective, risk appetite, and tenure of investment. Only if the structure of an investment scheme suits your goals, you should invest in it.
Having learned about how to invest money in India, let us now bust some of the most common investing myths. These are as follows:
- Investing is complicated: With the LenDenClub P2P platform, you can benefit from the auto-invest facility where you can easily sit back and enjoy the returns without lifting your finger. Sounds complicated enough?
- Investment risk cannot be controlled: You can easily reduce your investment risk by diversifying your investments. Investing in different asset classes can help you balance out your risk and returns. LenDenClub allows you to invest small amounts in multiple borrowers. Hence, the risk of default is considerably reduced.
- Investments require a lot of money: How to invest a small amount of money in India when all investments are so costly? Is this concern right? No, you can start investing in schemes like P2P lending with small amounts.
Still, wondering how to invest money in India? Well, it might be difficult for you to decide which option is the best for you. Let us narrow down your choices. Peer-to-Peer lending is emerging as one of the most trusted and preferred investment options in India. Websites like LenDenClub have gained fast acceptance from all sections of investors across India.
LenDenClub provides one of the best opportunities for you. A user-friendly interface coupled with an AI-powered auto-invest facility and easy access across platforms makes LenDenClub the first choice for investors.