A surefire way of securing your future is choosing the investments that will work best for you. Succeed, and before long, you’ll find that all your practical needs are taken care of and your retirement needs are provided for. But what are the best investment options for the average saver?
Popular investment options like investing in the stock market or funding a startup can make you some serious money. But, they can also cause you to lose serious money. In other words, they’re high-risk investments and, unless you’re already wealthy, they stand to make your future less certain. In short, the average saver should be looking at the best and safe investment options.
Investment Tips for Everyday Savers
The security of your money will depend on the duration of your investment journey. In short term, the value of moderately risky investments is hard to predict. So if you think you’ll want to cash out in a few months or years, you’ll want to look for secure short-term investment options.
But, if you do opt for moderately risky investments, your money may increase in the long term. This is because these investments tend to generate a significantly larger profit than your typical low-risk investments. Therefore, if you’re happy to lock your money away for a decade or more, these are relatively safe investments with high returns.
With those principles in place, here's our guide to some of the best investment options for the everyday saver.
Savings Accounts and Deposits
The best saving investment plan is also the one that offers the most modest returns. But savings accounts still provide value. For instance, if you’re looking to build up an emergency fund in case you lose your primary income, a savings account is the perfect place for it. You’ll have instant, penalty-free access to your money and, while the returns are low, at least they exist.
Another kind of high-interest savings account to consider is a Fixed Deposit (FD). This saving investment approach gets you a better interest rate in exchange for agreeing not to withdraw your money for a fixed term. So, if you’re willing to lock your money away for up to five years, this deposit is worth a look.
A Recurring Deposit (RD) offers the same benefits, except that it allows customers to make monthly payments. Most banks allow customers to add a minimum of INR 500 each month to their deposit for a minimum lock-in period of 6 months. It is because of these benefits that a Recurring Deposit is considered one of the best investment options for salaried people.
Government and Company Bonds
These work just like the Fixed Deposits, except that these kinds of Bonds, are IOUs (I Owe You) issued by a government or a company. They are, however, riskier than both Fixed and Recurring Deposits. In the case of IOUs, if the issuer defaults, you’ll lose your money—but the interest rates are higher.
Government Bonds are generally safer with lower returns than company bonds. This is because governments are less likely to default (although it could happen on rare occasions). Independent credit agencies rate bond-issuing organisations on how likely they are to default, so be sure to weigh up the potential risks and rewards before investing.
Investment & Savings Plans
Insurance companies have plans that offer the dual benefit of insurance and investment/savings, giving you life cover and the opportunity to create wealth at the same time. It’s the smart way to reach your long-term financial goals. Investment plans today are pretty flexible, too, allowing you to decide your investment based on your risk appetite, age and financial goals. A number of innovative plans are available on the market.
You can opt for a fixed return, such as with the Future Generali Triple Anand Advantage, which is a savings plan that offers a fixed payout at three stages of your life, until you reach the age of 80. Or you could choose to take on more risk by investing in debt instruments, equity, or a combination of both. With the Future Generali Big Dreams Plan*, you can set the debt-to-equity component yourself, and adjust it anytime during the policy. What’s more, is that most insurance plans also qualify for tax benefits!
Public Provident Fund (PPF)
One of the best tax-saving investment options in India is a Public Provident Fund (PPF). You can put aside any extra money you have in your PPF account and build up a sizeable corpus. The government-backed investment is risk-free and unlike FDs also offers partial withdrawals.
A similar option is to invest in your Employer’s Provident Fund (EPF). This government scheme works by automatically deducting a percentage of an employee’s basic salary each month to invest in this fund. The employer contributes the same amount to the employee’s fund. Upon retirement, the employee will get their own and the employer’s contribution as well as interest earned. Employees' contribution to PF is eligible for deduction under Section 80C. Interest credited is exempt only to the extent rate of interest does not exceed 9.5%. Interest accrued on employees/ individuals contributions (in excess of Rs. 2,50,000) to a provident fund account is now taxable. Further, for withdrawals to be tax-exempt, certain conditions are to be met.
Pension Plan Options
You could also set up a private pension. While you’ll need to spend more time exploring your options and seeking expert advice, a private pension has several advantages over a workplace pension. For instance, the returns are often better, and you may also be able to opt for early retirement.
A mutual fund offers you the chance to benefit from pooling your money with other investors. Advantages include:
- A professional fund manager with the know-how to minimize risks and maximize returns
- Economies of scale, such as lower transaction fees
- The lower risk that comes with a diverse range of investments
A mutual fund is ideal for long-term investments as they tend to be relatively volatile in the short term. In the long run, however, their value tends to increase. That said, they can be tricky to navigate.
Different funds invest in different assets, from shares and indices to bonds and even gold. Some are fixed-term, while others are open-ended. And some are riskier than others. So, if you’re a beginner, don’t go it alone. An independent financial advisor can help you decide which funds are right for you.
A physical dwelling can be a straightforward investment decision. After all, we all need somewhere to live, and the value of property investment in India tends to outpace inflation. You could even go a step further and buy a place to rent out, which will generate income on top of the property’s appreciating value.
However, this option won’t be for everyone. If your job means you can’t settle in one place, or you don’t have time to maintain the property or look after your tenants, then a property investment might not be worth the returns. In short, think carefully about the lifestyle implications of owning a property before taking the plunge.
Other Investment Options
The phrase “diversify your portfolio” is just a fancy way of saying don’t risk it all on one option—spread your investments out. “Low-risk” isn’t the same as “no risk”, so it’s always a good idea to pick several investments with a range of terms and risk levels. That way, in the unlikely event that one investment doesn’t pan out, you’ll have others to fall back on.
Finally, speak to an independent financial advisor for more information on investments. They know more about investing than most of us ever will, and it’s their job to help you find the best possible mix of investments to achieve your financial goals.
* In Future Generali Big Dreams Plan policy, the investment risk in the investment portfolio is borne by the policyholder.