Why invest?
You can use investing to supplement your income, finance your retirement, or even get yourself out of a tight spot financially. Above all, investment increases your money, enabling you to reach your financial objectives and gradually boosting your purchasing power. Or perhaps you recently sold your house or received a windfall. Choosing to put your money to work for you is a good choice.
Best Way to Invest Money
Some people invest to reach their investment goals, while others do so out of a desire for financial security. The ideal investing strategy should be determined by your level of risk tolerance, investment horizon, financial objectives, and liquidity requirements.
The two broadest kinds of investment opportunities in India are financial and non-financial assets. We can further categorise the financial assets into fixed-income products like bank FDs, Public Provident Funds (PPF), and bank RDs, as well as market-linked instruments like mutual funds, equities, bonds, and so on. Non-financial assets include Treasury Bills, real estate, and gold investments, among others.
Top Investment Options 2023
| Investment Options | Period of Investment (Minimum) | Who Can Invest? | Risks | Returns Offered |
| Direct Equity | NA | An investor who knows to balance risk and return | High | NA |
| Mutual Funds | Within a scheme like ELSS, the lock-in period is 3 years | An investor who has an appetite for medium-to-high risk | Low-to-High | Market-Linked |
| National Pension Scheme
(NPS) |
60 years age | An investor looking forward to retirement plans | Low-to-High | Market-linked
(9-12 percent p.a.) |
| Public Provident Fund (PPF) | Lock-in period of 15 years | Long-term investment goals | Nil | 7.1 percent p.a. in December 2022. |
| Bank Fixed Deposits | 7 days to 10 years | One who doesn’t wish to take the risk or be exposed to equity | Nil | Fixed returns, Interest rate changes from bank to bank |
| Senior Citizen Savings Scheme (SCSS) | 6 years | Senior Citizens | Nil | 8.0 percent p.a. |
| Real Estate | 5 years | Anyone | Medium | 15-19 percent p.a. |
| Gold ETF | NA | Anyone | Low-to-Medium | Market-linked |
| RBI Bond | 6 years | Indian Citizen | Nil | 7.35 percent p.a. |
| Pradhan Mantri Vaya Vandana Yojana (PMVVY) | 10 years | Senior Citizens | Nil | 7.4 percent p.a. |
| Unit Linked Insurance Plan (ULIP) | <= 45 years | An investor keen on wealth creation and life cover | High | Depending on the investor’s profile |
| Post Office Monthly Income Scheme (POMIS) | 5 years | Indian Citizen | Nil-to-Low risk | 6.7 percent p.a. |
| Initial Public Offerings (IPO) | NA | An investor should have Demat-cum-trading account | Moderate-to-High | NA |
| Real Estate Investment Trusts (REITs) | NA | Investors having substantial capital at their disposal | Medium-to-high | Real Estate Market-linked |
| Cryptocurrencies | NA | An investor who knows to balance the risks and returns | High risk & High returns | NA |
High-yield savings accounts
You get interest on your available funds when you have a high-yield online savings account. High-yield internet savings accounts are accessible vehicles for your money, just like a savings account earning pennies at your local bank.
Who are they good for?
For people who may soon require access to money, a savings account is a suitable option. For risk-averse investors who wish to eliminate the possibility that they won’t get their money back, a high-yield savings account is a good option.
Risks
You don’t have to be concerned about your deposit being lost because the banks that provide these accounts are FDIC-insured.
Short-term certificates of deposit
Banks issue certificates of deposit, or CDs, which often have a greater interest rate than savings accounts. And if you anticipate an increase in interest rates, short-term CDs can be a better choice because they allow you to reinvest at a greater rate when the CD matures.
Who are they good for?
Retirement investors who are able to lock their money away for a while and don’t require immediate income may find CDs to be a viable option because of their safety and greater returns. Risk-averse individuals who need money quickly and are willing to tie up their cash in exchange for a little bit higher income than they would get from a savings account can consider a certificate of deposit (CD).
Risks
CDs are regarded as risk-free investments. They do, however, come with reinvestment risk, which is the danger that, as we saw in 2020 and 2021, investors may lose money if they reinvest their principal and interest in new CDs with lower interest rates as interest rates fall.
The risk that rates may increase, but investors won’t be able to benefit since their money has already been committed to a CD, is the contrary. Stick with short-term CDs so that you can reinvest at higher rates in the near future because rates are predicted to rise even further in 2023.
Dividend stock funds
Dividends are profits that can be distributed to shareholders, often once every three months. Dividend stocks are therefore those equities that offer a cash payout, which is not true of all stocks, while a fund combines solely dividend stocks into a single, convenient unit.
Who are they good for?
Individual stock purchases, dividend-paying or not, are better suited for experienced and intermediate investors. But, you can lower your risk by purchasing a number of them in a stock fund. For practically any type of stock investor, dividend stock funds are a fine option, but those seeking income may prefer them. They can be appealing to investors who require income and have longer investment horizons.
Risks
Dividend stocks carry risk, just like any equity investments. Although they are regarded as being safer than growth stocks or other non-dividend stocks, you should take care when selecting them for your portfolio.
Instead of choosing firms with the highest current yield, make sure you invest in those with a track record of dividend increases. That might portend impending trouble. Yet, even well-regarded corporations are susceptible to financial crises, so a positive reputation is ultimately no guarantee that the company won’t cut or eliminate its dividend.
However, you eliminate many of these risks by buying a dividend stock fund with a diversified collection of assets, reducing your reliance on any single company.
What to consider
You should think about your risk tolerance, time horizon, investing knowledge, financial condition, and the amount of money you have available to invest as you choose what to invest in.
If you want to increase your wealth, you can choose assets with lower risk but lower returns, or you can choose investments with higher risk but higher returns. Investing often involves a trade-off between risk and return. Nevertheless, you can adopt a balanced strategy, making 100 percent safe financial investments while yet allowing yourself the chance for long-term success.
10 best investments in 2023
- High-yield savings accounts
- Short-term certificates of deposit
- Series I bonds
- Short-term corporate bond funds
- Dividend stock funds
- Value stock funds
- REIT funds
- S&P 500 index funds
- Nasdaq-100 index funds
- Rental housing
