How to Invest Your Money in India the Smart Way In 2019

How to Invest Your Money in India

If you are looking to invest your money in India, I’m sure you already know that-

To become wealthy, you need to do more than simply earn money.

You might be wondering why I said become wealthy instead of rich?

Just think of being ‘rich’ what comes to your mind?

Fancy cars?

Private yachts?

Expensive jewellery and clothes?

When people think of being rich they often associate it with owning a bunch of expensive things and showing it off.

While there’s nothing wrong with buying expensive and luxurious stuff but that’s a secondary part of being wealthy.

When you’re wealthy, the primary concern is to live free. The secondary concern is to live large.

By live free, I mean a life where you don’t have to worry about how you’re going to pay your bills. And you can to afford all the things you want, without worrying about the price tag.

Moreover, looking rich is very different from being wealthy, It’s easy to look rich because bankers love helping people to look rich and that’s how they get wealthy.

So, for you to become wealthy, you need to hold onto the money you earn. And then, grow that money.

Now, the question arises, how to grow your money? The answer is fairly simple – by Investing!


Why do people invest?

If you want to build your wealth, you have to invest your savings.

By Investing you put your money in financial instruments or products such as shares, bonds, units, real estate and even term deposits that have the potential to earn strong rates of return.

If you don’t invest, you will miss out on the opportunities to increase your financial worth.

To be wealthy you have to make your money work for you and this can’t be done by keeping your life savings in your back pocket or under a mattress instead of investing.

If you can’t make your money work for you you’ll never have more than what you can save or receive through inheritance.

So, why do people invest?

To simply put, people invest to make more money.

There are also various reasons why people invest. Let us look at a few:

1. To fight inflation

The more technical reason that most people choose to invest is inflationary pressures.
An economics concept, Inflation generally explains a general increase in prices and fall in the purchasing value of money, over the period.

In India, the Reserve bank of India tries to control and manipulate inflation.

Owing to the fact that the RBI manipulates the money supply and interest rates to control the inflation rate, inflation will continue to occur, and prices will continue to rise.

Investing offers a way to outpace inflation and grow your wealth. Although inflation has averaged close to 3-6% per year over the last few years, some investments have returned far more than that. In fact, some stocks have given more than 60% returns in the last decade.

2. Tax benefits

Real estate, Stock investments and other related investments may offer tax rebates or other benefits. In case you generate a loss from an investment, you may apply that loss against any gains from other investments, which lowers the amount of your taxable income.

3. Power of compound returns

By investing your money you can significantly grow your money over time by the power of compound returns.

Investing in your 20s is as important as investing wisely since compounding earnings can skyrocket even small investments.

Compounding works like magic if you are in for long term investment. It gives your investment a multiplier effect since the interest earned by the initial capital also earns interest, the value of the investment will be always increasing at a geometric rate rather in straight-line that is an arithmetic rate. The higher the rate of return on investment, the steeper the growths curve.

4. To build wealth

People invest their money for the reason that they want to build their wealth. So, they save and then invest their savings over time.

In this process, the proceeds from the investments, whether they are dividends or interest earned, can be reinvested into the same financial instrument or even something else.
This way you too can start investing and continue building your wealth.

5. Financial security

Everyone wants to be financially secure and to be financially secure we need to have extra money.
If you are financially secure you’ll be able to protect yourself financially against whatever money related hardship that might strike you.

An example could be a costly life event such as a major health crisis or marriages or loss of property by a natural disaster.


When should you invest your money in India?

Now that you know why you should invest, the question that might come to your mind when is the right time to invest your money in India?

The answer to that is plain and pretty simple. The greatest time to invest is the time you decide to invest if you know how and where to invest.

when to invest your money in india

Doing anything for the first time can be terrifying, especially when it involves your hard-earned cash.

Investing through sounds intimidating, but it’s not.

Yes, there’s always a potential risk for loss, but there’s an even bigger potential for serious gain if you know what you are doing.


Where to invest your money in India?

Having figured out why to invest? & then when to invest? The next obvious question would be – Where would one invest, and what are the possible returns one could expect by investing.

There are hundreds if not thousands of investment alternatives and opportunities available in India.

To build sustaining wealth, you must invest your money in the right financial instrument at the right time.

Because, if you don’t do that, then you’ll miss out on precious opportunities to increase your earning potential.

However, It’s very important to understand that every investment doesn’t guarantee substantial returns. But if you wait patiently for the right opportunity and invest wisely, the potential to gain wealth is much higher than not investing at all.

However, it’s important to choose the right asset class that suits our risk and return temperament.

What is an asset class?

An asset class is a class of financial instruments with particular risk and return characteristics.

The following are some of the popular assets class:
1. Fixed income instruments
2. Equity
3. Real estate
4. Commodities (precious metals)
5. Cash

Types of asset class

Asset Class #1 – Fixed Income

It’s the most favourite asset class to invest in India. Fixed-income assets are a highly popular invest-able instrument with very limited to no risk to the principle and the return is paid as an interest to the investor based on the type fixed income instrument he chooses.

The interest paid, could be quarterly, bi-annual or annual intervals and at the end of the maturity period, the capital is returned to the investor.

When you make a fixed deposit in a bank, you are lending your money to the bank, government or corporations with a promise that they will return back your principal amount along with a pre-defined interest.

Typical fixed income investment includes:
1. Fixed deposits offered by banks
2. Bonds issued by the Government of India
3. Bonds issued by Government related agencies
4. Bonds issued by corporate

Note that, the typical return from a fixed income instrument varies between 6% and 9% in India.


Asset Class #2 – Equity

To get the best return on investment for long term nothing can beat the equity asset class. In India, it is slowly getting more and more acceptance since the last 1 or 2 decades.

Investment in Equities involves buying shares of publicly listed companies and both the Bombay Stock Exchange (BSE), and the National Stock Exchange (NSE) trades these shares.

When an investor invests in equity, he doesn’t get any capital guarantee like in a fixed income instrument.

However, as a trade-off, the returns from equity investment can be highly attractive.
Indian Equities have generated returns close to 14% – 15% CAGR (compound annual growth rate) over the past 20 years.

Investing in some of the best and well managed successful companies has yielded over 20-25% CAGR in the long-term.

Although, identifying such investments opportunities requires skill, hard work and patience.
But, due to the fact that equity returns are very volatile, some people refrain from investing into direct stocks or mutual funds, but they are the real wealth builder if the investor knows what he’s doing.


Asset Class #3 – Real Estate

Real Estate Investment involves buying or selling any commercial and non-commercial land. Typical examples would include transacting in plots, sites, apartments and commercial buildings. There are two sources of income from real estate investments one is Rental income, and the other one is the capital appreciation of the investment amount.

The transaction procedure can be really complex involving a legal verification of documents.
The money involved in real estate investment is usually quite large.

There is no official metric to measure the returns generated by real estate, for the reason that real estate market has cycles of ups and downs and returns from real estate can be very volatile as well as can depend on various other factors such as city development, area development, government policies, political situations, resources, etc.

Also, check the Common ways to lose money in the Stock Market you should avoid

When you invest your money in real estate in India. the investor needs a high ticket size for investment, the market is recently regulated and its implementation is questionable, it’s still a more or less one-sided market with a lot of opaqueness.


Asset Class #4 – Commodities – Bullion

After fixed income Investments, buying gold and silver is considered one of the most popular investment avenues in India. But gold and silver are not the only commodities that are counted in these asset class, copper, pulses, rice, and oil etc is also included here.

Gold and silver over a long-term period have appreciated in value. Investments in these precious metals have yielded a CAGR return of approximately 8-10% over the last 20 years.

There are several ways to invest in gold like in the form of jewellery or Exchange Traded Funds (ETF) and Sovereign Gold Bonds (SGBs).

People in India generally put their money in commodities not for investing for the long term, but mainly for trading, where they can benefit of the market cycles and predict demand and supply movements to make a quick profit.


Asset Class #5 – Cash

Here “cash”, means not only just the hard cash, but also the money lying in your saving bank account, or liquid mutual funds.

The best thing about cash is that it is very liquid. You can buy anything instantly with the cash like a car, a shirt or a phone.

The liquidity factor and the fact that the cash cannot be tracked easily are some of the reasons why people prefer to hold a lot of cash in India.

However cash has one problem, it won’t help you fight inflation. The money lying in saving bank account just earns 3-4% which is quite low when you compare it to the returns you get from other asset class.


Bottom Line

One can say that equities tend to give you the best returns especially when you are looking for a multi-year investment.

But, investments optimally should have a strong mix of all asset classes and you must have proper asset allocation as it is smart to diversify your investment among the various asset classes.


Things to Keep In Mind before Investing Your Money In India

  • Risk and Return usually go hand in hand. Higher the risk, higher the return and Lower the risk lower is the return.
  • Investing in fixed income assets is a good option for a retired person if he wants to protect his principal amount because it is relatively less risky but if you are looking for a long term investment say 30 years you have to take the risk of losing money otherwise the inflation will eat up all your money
  • To beat the inflation over a long period of times, Investment in equities is the best option. Historically it has generated returns close to 15%. However, without proper knowledge and understanding equity investments can be very risky.
  • Real Estate investment requires a large amount of money and the liquidity factor is another issue with real estate investments – you cannot buy or sell real estate whenever you want.
  • Though Gold and silver are known to be a relatively safer option when you invest your money in India but the historical return on commodity investments has not been very encouraging. It’s not advisable to invest in commodity for the long term.

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