The majority of people must invest if they want to enjoy a secure financial future. But, as the coronavirus epidemic showed, an economy that first appears to be solid may be flipped upside down. That left individuals who weren’t prepared for hard times scurrying for money.
As the Indian economy struggles under a wave of rising inflation, you may well be looking for investment opportunities that can beat the rising cost of living. The perfect investment strategy is to blend riskier, higher-return investments with safer ones. The resulting diversification will help you reduce your overall portfolio risk.
Why invest?
Investing may boost your income, fund your retirement, or even get you out of a bad financial situation. But, above all, investment increases your wealth by assisting you in meeting your financial objectives and growing your purchasing power over time.
Perhaps you recently sold your home. Or you inherited a large sum of money. Or your monthly income leaves you with some disposable income at the end of the month. These cases allow your money to work for you which is great!
While investing can help you develop wealth, you must balance your risks and your returns. And you’ll want to be in a financial position to do so, which means you’ll need manageable debt, an appropriate emergency fund, and the ability to ride out market ups and downs without accessing your money. Also, keeping some money aside for emergency purposes is recommended.
There are a variety of investment possibilities, ranging from low-risk selections like certificates of deposit and money market accounts to medium-risk ones like corporate bonds and even higher-risk ones like stock index funds.
That’s fantastic news since it means you can select investments that meet your risk tolerance while offering a variety of returns. Moreover, it implies that you can mix assets to build a balanced, diversified, and safer portfolio.
These are the various investment options available to you:
Peer-to-Peer Lending
P2P lending is a recent development, commonly referred to as peer-to-peer lending. Online P2P lending platforms open investment opportunities that can generate high returns. P2P lending platforms such as LenDenClub, connect you with potential creditworthy borrowers through online channels. These platforms enable you to lend money and earn pre-decided interest rates on such investments.
P2P lending does not involve traditional banking channels. P2P platforms pool your investments with other investors to lend to the person seeking financing.
After that, you’ll have a fixed monthly amount (EMI) that includes the interest you owe. As a result, the profits you receive from P2P lending are significantly higher than the traditional savings counterparts. FMPP investors have earned upto 12% p.a. since launch, LenDenClub offers easy access to P2P investments.
Real Estate
It is among the most well-liked investment choices among Indians. But, although real estate investment opportunities have produced incredible profits, such options have their own risks and restrictions. The real estate segment carries several risks, one of which is the lack of liquidity. If you need to sell the house soon, you could have to offer a steep discount. This might also lead to a loss of capital. Furthermore, you will need to sell the entire property even if the amount of money you need is less than the asset’s value. Again, the volatile nature of prices is another risk factor that investors should take into consideration. Other limitations include the size of investments which is quite large when it comes to real estate. If you don’t have a sizable amount, you won’t be able to access this investment segment.
PPF
The government has developed several small savings programs for those seeking to engage in extremely safe investment options. These programs provide investors with returns with zero volatility. Yet, your returns are smaller than those of market-linked investments like NPS, mutual funds, and equities. PPF currently yields a 7.1% return which is revised on a quarterly basis. Whereas, other government schemes offer average 4.5% – 7.60% p.a. Besides, these options are usually for investors who cannot afford to lose their money.
Small savings plans often outperform FDs and inflation . Investment choices, including Public Provident Fund (PPF), Senior Citizens Savings Scheme (SCSS), the Sukanya Samriddhi Scheme, and the Kisan Vikas Patra, etc. which are small savings plans for the long term.
Bank Fixed Deposits (FDs)
This is one of India’s most popular investment products because it provides profits. FD operation is pretty straightforward. You place your money in the bank, which ensures that at the end of the term, you will receive a specific return on your investment.
FDs rank below government investment schemes when it comes to risk. But they have some severe drawbacks. FD post-tax returns hardly keep pace with inflation. The pre-tax returns average between 4% to 7% depending on the tenure and the bank.
This implies that if you invest in FDs, you get negative real returns and lose wealth.
Additionally, FDs charge a fee if you take your money out before they mature. The low liquidity is another serious drawback as a result.
Equity Mutual Funds
Equity mutual funds provide retail investors to access the Indian equity markets indirectly. The asset-management companies pool the amounts invested by different investors. They invest such amounts in well-researched stocks to generate high-returns which are then distributed among the investors.
Mutual funds have historically generated an average of 12-15% returns per annum over long tenures of over 7-10 years. While such products are managed by qualified fund managers, equities are well-known for the wild swings in shorter durations. While they remain a preferred choice of investment over longer durations, if you’re looking to invest for short terms, there are much better alternatives available in the market.
Direct Equity
Investing in equities is among the finest and also the riskiest strategies to build wealth for your long-term objectives. There are many instances of equities that, over time, have increased investors’ wealth.
For example, during the past 15 years, Indian non-banking financial enterprise Bajaj Finance has produced an average return of 41%.
An investment of Rs. 10,000 in Bajaj Finance in January 2007 would have grown to more than Rs. 18 lakh in January 2022 to put this return in context. Your assets would have increased 180 times, in other words.
Like Bajaj Finance, other stocks have become investors’ wealth sources. But, a lot of businesses have also proven to be wealth destroyers. Consider Reliance Communications as an illustration. From their high in January 2008, its stock prices fell by 98– . Additionally, owners of these stocks saw their value diminish.
In conclusion, while stocks have enormous long-term growth potential for your money, they also carry a sizable risk.
Direct investment is possible in company stocks. Finding the correct supplies, yet, is the actual difficulty. Additionally, choosing the proper stocks is tricky, given that there are more than 5,000 stocks registered on Indian stock exchanges.
So while we see quite a few investment opportunities to consider this year, which one is well-suited for you?
As a non-market linked investment product, the P2P segment has the ability to generate higher returns. If you’re inclined towards P2P to lend money, check out LenDenClub’s P2P lending environment that has produced excellent historical returns and has become a go-to choice for Indians in the P2P industry.
*P2P investment is subject to risks. And investment decisions taken by a lender on the basis of this information are at the discretion of the lender, and LenDenClub does not guarantee that the loan amount will be recovered from the borrower.