Smart Ways To Invest 3 Lakhs In India

If you are looking to invest 3 lakhs in India, there are a variety of options to consider. The best investment plan for you will depend on your financial goals, risk tolerance, investment horizon, and current financial situation. Some of the key factors to consider when choosing an investment plan include your financial goals, risk appetite, the past performance of the investment, and the lock-in period. It is also important to analyze the pros and cons of each investment option and select one that fits your requirements. Some examples of investment options in India include equity, mutual funds, fixed deposits, bonds, real estate, and gold.

Divide your financial goals into long, medium and short-term buckets

When it comes to investing 3 lakhs in India, it's important to divide your financial goals into long, medium, and short-term buckets. This approach helps you stay focused and disciplined with your investments, ensuring that you're not only working towards your immediate needs but also your future aspirations. Here's a detailed guide on how you can divide your financial goals into these three categories:

Short-Term Financial Goals

Short-term financial goals are those that you aim to achieve in less than three years. They are your priorities and should be addressed first. Examples of short-term financial goals include:

• Building an emergency fund
• Purchasing term life insurance for family income earners
• Investing in a comprehensive family health insurance plan
• Clearing high-cost debts, such as credit card balances and personal loans
• Saving for an annual family vacation
• Buying a two-wheeler

To achieve these short-term goals, you can consider investing in secure and accessible options such as fixed deposits, recurring deposits, savings accounts, liquid funds, short-term debt funds, short-term bonds, or treasury bills.

Medium-Term Financial Goals

Medium-term financial goals have a time horizon of three to seven years. Once your short-term goals are on track, you can start allocating resources to these objectives. Examples of medium-term financial goals include:

• Accumulating a down payment for a home
• Starting a business
• Renovating your house
• Planning for an international family vacation

For medium-term goals, you may want to explore investments that offer a balance between growth and security, such as medium/long-term debt funds, monthly income plans, equity-oriented hybrid funds, ETFs/index funds, or large-cap funds.

Long-Term Financial Goals

Long-term financial goals are those that will take more than seven years to accomplish. These goals are typically related to significant life events or milestones. Examples of long-term financial goals include:

• Funding a child's higher education and marriage
• Planning for your retirement and your spouse's retirement
• Paying off your home loan ahead of schedule
• Achieving financial freedom

When it comes to long-term goals, consider investing in a diversified portfolio of large, mid, and small-cap funds, direct stock buying, index funds, PPF, EPF, NPS, and other long-term government small savings schemes.

It's important to note that the categorisation of financial goals can vary depending on individual circumstances. For example, if someone wants to renovate their house within a year, it becomes a short-term goal. Similarly, if someone is aiming to pay off a 10-year home loan in five years, it would be classified as a medium-term goal.

By dividing your financial goals into these buckets, you can effectively prioritise and achieve them. It's essential to work with an investment expert who can help you categorise, prioritise, and navigate the best investment options for each of your goals.

Choose between high, medium and low-risk investments

When choosing between high, medium, and low-risk investments, it is important to understand that there is no perfect definition or measurement of risk. However, risk is fundamental to investing, and it is crucial to consider it when making investment decisions. Here are some factors to consider when choosing between different risk levels:

High-Risk Investments:

• High-risk investments have a large percentage chance of loss of capital or underperformance. There is a significant possibility of a devastating loss.
• Biotechnology stocks are an example of high-risk investments due to the high failure rate of experimental cures.
• High-risk investments offer the potential for higher returns. Equities, for example, offer investors the best chance to achieve their financial goals, but they come with a higher risk.

Low-Risk Investments:

• Low-risk investments have a lower chance of loss or underperformance and aim to protect your capital.
• Examples of low-risk investments include fixed deposits, government bonds, and debt-focused Unit Linked Insurance Plans (ULIPs).
• While low-risk investments provide stability, they typically offer lower returns. It is important to diversify your low-risk investments to mitigate market risks.

Medium-Risk Investments:

• Medium-risk investments fall between high and low-risk options and offer a balance between potential returns and stability.
• Diversification is key when considering medium-risk investments. Holding a variety of assets with different risk levels can help reduce overall risk.
• Dividend-paying stocks of major corporations are generally considered medium-risk investments, offering mid-to-high single-digit returns.

When deciding between risk levels, assess your risk tolerance, financial goals, and investment horizon. High-risk investments may be suitable for those seeking higher returns and are comfortable with potential losses. Low-risk investments are ideal for risk-averse individuals who prioritize capital preservation. Medium-risk investments offer a balance and can be achieved through diversification. Remember to conduct thorough research or seek professional advice before making any investment decisions.

Explore mutual funds

Mutual funds are a great way to invest your 3 lakh rupees in India. They are professionally managed portfolios of stocks and/or bonds, where mutual fund companies (AMCs) collect money from thousands of investors and invest in researched stocks/bonds.

There are several types of mutual funds to choose from, each with its own benefits and risks. Large-cap funds, for example, are expected to be less risky compared to mid and small-cap funds, but small-cap funds may have higher potential for growth and returns. You can also choose from multi-cap, large & mid-cap, mid-cap, small-cap, value, contra, focused, sectoral/thematic, dividend yield, and equity funds.

When investing in mutual funds, you have the option of regular or direct plans. Both plans are the same except that, with the regular plan, the mutual fund company pays a commission to the broker, which is deducted from your returns.

You can start investing in mutual funds with a small amount, and many platforms offer SIP (Systematic Investment Plan) options, which allow you to invest a fixed amount at regular intervals. This can be a great way to build wealth over time.

When choosing a mutual fund, it's important to do your research and make informed decisions. Consider using a platform that offers detailed information on different funds and provides tools to help you invest based on your needs and preferences. You can also seek guidance from experts to build a personalised portfolio that aligns with your risk appetite and investment goals.

Some popular mutual fund companies in India include SBI, Axis, HDFC, UTI, Nippon India, ICICI Prudential, Tata, Kotak, DSP, and Canara Robeco.

Consider investing in equities

If you are looking to invest 3 lakhs in India, one option to consider is investing in equities. This involves buying shares of a company and becoming a part-owner, allowing you to participate in the company's growth opportunities. While investing in equities is riskier and more time-consuming than investing in mutual funds, it can also be more rewarding. Historically, stocks have outperformed every other asset class in the long run, even in India.

When investing in equities, it is important to choose the right company by looking for sustainable and superior growth prospects. The company should be able to adjust to inflation and offer profitable returns on its shareholders' capital. Getting the investment time perspective right is also critical. In the short term, the performance of equity shares is often driven more by market sentiment than company fundamentals. Therefore, it is generally recommended to invest with a time horizon of at least 5 years to allow sufficient time to benefit from the company's growth.

To get started with investing in equities in India, you will need to contact a broker who is a member of one of the stock exchanges in the country. They will help you fill out the necessary forms and open two types of accounts: a trading account and a demat account. A trading account is used for buying and selling shares, while a demat account is used to hold your shares in electronic form. Similar to a bank statement, each time you buy or sell shares, your demat account will be credited or debited accordingly.

There are several benefits to investing in equity shares. As a shareholder, you may receive dividends, bonuses, and rights shares. Additionally, you can gain from capital appreciation, which is the increase in the share price above your purchase price. For example, if you buy a share at Rs 100 and it increases to Rs 200, you can sell it at a profit of Rs 100.

It is important to note that investing in shares carries risks, and there may be losses alongside profits. Share prices fluctuate based on demand and supply, and it is challenging to predict exact market movements. Therefore, it is recommended to seek guidance from your broker, who can provide research reports and insights to help you make informed investment decisions.

Invest in real estate

Real estate is a beneficial investment option in India, but it's important to understand what works for you. Consider how much you are prepared to invest, the kind of liquidity you desire, the regularity of cash flow, and your risk appetite.

Traditional/Conventional Investment Model

The simplest way to invest in real estate is to buy or lease a property for the long term and then rent it out to tenants. This process requires a significant initial investment and yearly maintenance and upkeep costs. Ensure the property is free from any legal hassles and that you follow the correct registration procedures. Once the property is registered, you can advertise it or spread the word about its vacancy in the market. The tenant will then have to sign a lease agreement, and the monthly rentals will be your passive income.

Renting Out a Portion of Your Existing Property

If you don't want to be burdened with significant investment costs, you can start small by renting out a room or a whole floor of your current house to commercial or residential tenants. However, you will have to deal with the extra traffic generated and ensure that the rental agreement includes all your terms and conditions.

Fix-and-Flip

This investing mode involves buying a property that needs maintenance, fixing it up, and then selling it at a higher price. This method has fewer constraints regarding regular maintenance and registration, but it requires familiarity with the real estate market and renovation costs.

Investing in Real Estate via ETFs, Mutual Funds, and REITs

You can invest in real estate indirectly by buying Exchange-Traded Funds (ETFs) and mutual funds invested in real estate stocks, such as publicly-traded home builders and REITs (Real Estate Investment Trusts). REITs allow investors to pool their resources and invest in multiple real estate assets through a single fund. While they offer smaller investment ticket sizes, they may not provide yields that match equity-oriented products, and investors have no control over how the investment is spread across assets.

Fractional Ownership

Fractional ownership allows multiple investors to park their money in a single real estate asset, reducing the investment cost. Property investment firms that deal in fractional ownership scout out assets based on market analysis and historical rent performance in the area. The asset is then analysed for its future growth prospects and listed as an open investment. The firm creates a Special Purpose Vehicle (SPV) to manage investments and dealings, including maintenance and upkeep costs. Fractional ownership typically involves commercial properties with lease agreements of three years or more, and it can generate a rental yield of up to 8-10%.

Key Factors to Consider Before Investing in Real Estate

Before investing in real estate, ask yourself these questions:

• What type of property do you want?
• Is the location accessible, and will the property be appreciated in the future?
• Do you have the finances readily available to invest?
• Is the property free from any legal hassles?
• Is the market condition favourable for investing in real estate?

Frequently asked questions