Smart Ways To Invest 70 Lakhs In India

Investing 70 lakhs in India requires a thoughtful strategy. It is important to understand the basic concepts of expected returns and reasonable risk of loss. When expected returns are lower, selecting the right investment option is simpler, and debt-based funds are a good choice. However, when expected returns are higher, one must consider riskier options such as equity. To achieve a 12% return, equity-oriented mutual funds are an option, but they come with volatility and higher risk. It is crucial to stay informed about the market and consult professionals. Diversifying one's portfolio across stocks, bonds, mutual funds, and real estate can help spread risk and increase potential returns. Additionally, investing regularly and taking advantage of compound interest can significantly enhance returns over time.

Investing in stocks

India has two primary stock markets: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE is the oldest stock exchange in India, established in 1875, while the NSE, founded in 1992, is the largest in terms of volume.

The two prominent Indian market indexes are Sensex and Nifty. Sensex is the BSE's oldest market index for equities, created in 1986, and includes shares from 30 firms. The Nifty index, created in 1996, includes 50 shares listed on the NSE.

If you are looking to invest in stocks in India, you can do so through a brokerage firm. Some of the popular brokerage firms in India include Zerodha, Sharekhan, Motilal Oswal, Interactive Brokers, Fidelity Investments, and Charles Schwab. These firms offer various services, including online trading platforms and access to the Indian stock market.

When investing in stocks, it is important to consider the risks and volatility involved. Equity-oriented mutual funds, for example, have the potential to deliver high returns but are also riskier due to their volatile nature. Debt funds, on the other hand, are considered low-risk products but typically offer lower returns of around 7-7.5%.

Additionally, when investing in stocks, it is crucial to diversify your portfolio to mitigate risks. This can be achieved by investing in a range of companies across different sectors and industries. It is also essential to consider your investment horizon, which is the length of time you plan to hold your investments. A longer investment horizon generally allows for greater potential compound annual growth.

Before investing, it is always recommended to consult with a financial advisor or expert to ensure that your investment decisions align with your financial goals and risk tolerance.

Investing in bonds

There are several types of bonds to consider:

• Government Bonds: These are issued by the government and are considered one of the safest types of bonds to invest in.
• Convertible Bonds: These bonds offer the bondholder the option to convert the bond into equity on pre-specified terms.
• Corporate Bonds: These are simple bonds where a company borrows money and pays interest at regular intervals.
• Inflation-Linked Bonds: The principal amount and interest payments on these bonds are indexed to inflation.
• Zero-Coupon Bonds: These bonds are issued at a discount but are redeemed at the principal amount.

There are several benefits to investing in bonds:

• Capital Preservation: Investment bonds are a less risky option, and your capital is protected.
• Assured Returns: Although lower than equity, returns on investment bonds are assured.
• Tax Benefits: Tax-free investment bonds are a good option if you fall into a higher tax bracket.
• Regular Income Stream: Fixed-income securities provide investors with a steady stream of income.
• Low Market Volatility: Bonds carry very low volatility compared to equity or mutual fund prices.
• Safety and Principal Protection: Investors benefit by preserving and increasing their invested capital.
• Portfolio Diversification: Bonds enable efficient portfolio diversification and assist in portfolio risk mitigation.
• High Priority Claim to Assets: Bond investors have a higher priority over common and preferred stockholders.

Investing in mutual funds

Mutual funds are a great way to invest your money and achieve your financial goals. They are a straightforward and effective way to grow your wealth. Here is a detailed guide on investing in mutual funds in India:

How to Invest in Mutual Funds

There are several ways to invest in mutual funds. You can either submit a duly completed application form with a cheque or bank draft at the branch office, investor service centre (ISC), or Registrar and Transfer Agent. Alternatively, you can invest online through the mutual fund's website or with the help of a registered mutual fund distributor, such as a bank or broker. Here are the different methods explained in detail:

• Mutual Fund Distributor: Engage an AMFI-registered distributor for financial advice and transactions. Distributors aid in risk assessment and selection. While there are no direct fees charged to investors, regular plan costs are higher. Note that mutual fund products have inherent market risks and varied risk/return profiles.
• Direct Investment with Asset Management Company (AMC): Invest directly with an AMC by visiting their office or through their online portal. Submitting KYC documents is necessary for new investors. Direct plans have lower expense ratios and are suitable for experienced investors with a good understanding of market risks and dynamics. These plans offer higher returns compared to regular plans.
• Registered Investment Advisors (RIA): Opt for SEBI-registered investment advisors to access direct plans without AMC commissions. RIAs may charge fees and are mandated to provide unbiased advice as per AMFI's Code of Conduct for mutual fund distributors.
• Registrars and Transfer Agents (RTAs): RTAs handle mutual fund transactions for fund houses. Investors can transact in both direct and regular plans through RTAs, simplifying multiple investments with different AMCs serviced by the same RTA. Check the RTA's website to determine which AMCs they cover.
• Online Mutual Fund Investment:

• AMC portals: Invest through online banking on mutual fund house websites, ensuring you understand the difference between regular and direct plans.
• RTA portals: Access online investment options on RTA websites using online banking. This provides a consolidated view of your mutual fund portfolio.
• Distributor websites: Several distributors offer online investing through their websites, providing a comprehensive overview of your mutual fund schemes.

• Stockbrokers: Leverage stockbrokers who offer online trading and demat services for mutual fund investments. As AMFI-registered distributors, they primarily provide regular plans.
• Bank-Enabled Mutual Fund Investment: Explore wealth management services offered by banks, which typically act as distributors and facilitate regular plans through their branches or online platforms.
• Mutual Fund Investment via Mobile Apps: Access mutual fund transactions through mobile apps provided by AMCs or RTAs. These apps allow you to perform various transactions, such as SIPs and redemptions, with ease. You can download these apps from the Google Play Store for Android phones, and some distributors also offer their own mobile apps for transactions.

Types of Mutual Funds

Mutual funds are broadly categorised into three types based on distinct asset classes: equity, debt, and hybrid. Here is an explanation of each type:

• Equity Mutual Funds: These funds invest in equity and related securities, aiming for capital appreciation. They include large-cap, mid-cap, small-cap, large and mid-cap, multi-cap, and thematic or sector-based funds. Each type carries a unique risk-return profile, and a financial advisor can guide you in selecting the right fit.
• Debt Mutual Funds: Debt mutual funds invest in debt and money market instruments, focusing on generating income. They are categorised based on maturity or duration, such as overnight, liquid, ultra-short duration, low duration, money market, short duration, medium duration, medium to long duration, and long duration. A mutual fund advisor can help you choose the appropriate debt funds that align with your risk tolerance and financial goals.
• Hybrid Mutual Funds: Hybrid funds diversify across multiple asset classes like equity, fixed income, gold, or real estate investment trusts. They aim for both capital appreciation and income generation. Types include Aggressive Hybrid, Dynamic Asset Allocation or Balanced Advantage, Equity Savings, Multi-Asset Allocation, Conservative Hybrid, and Arbitrage funds. A financial advisor can tailor a hybrid fund strategy that aligns with your risk appetite and investment objectives.

Mutual Funds for Tax Saving

By investing in Equity Linked Savings Schemes (ELSS) mutual funds, you can claim a deduction of up to Rs. 1,50,000 on your taxable income under Section 80C of the Income Tax Act. However, once you invest, your ELSS units are locked in for 3 years, meaning you cannot withdraw them during this period.

Systematic Investment Plans (SIPs) are a disciplined way to invest in mutual funds regularly. Here are the steps to invest through SIP:

• Choose a mutual fund and the SIP option.
• Set the amount and frequency of your investments (monthly, quarterly, etc.).
• Enable auto-debit from your bank account for seamless investments.
• Use a SIP calculator to estimate the potential growth of your investments and plan your financial future effectively.

Investing a Lumpsum Amount in Mutual Funds

Investing a lumpsum in mutual funds involves putting a larger sum of money into a fund all at once. Here is a simplified process:

• Choose a reputable investment platform and open an account.
• Define your investment goals and risk tolerance.
• Research and select a mutual fund that aligns with your goals and risk profile, considering factors like asset allocation and past performance.
• Deposit your chosen amount into the selected mutual fund through your investment platform.
• Regularly monitor your investment

Investing in real estate

Real estate is a popular investment choice in India, with Indian households allocating 77% of their assets to this sector. While real estate prices have been ever-increasing, there are more profitable investment opportunities in the market.

Traditional Investment Model

The simplest way to invest in real estate is to buy or lease a property, either residential or commercial, and rent it out to tenants. This process requires a significant initial investment and yearly maintenance costs. If it is a commercial property, it must be registered at the sub-registrar's office. Once registered, the property can be advertised on the market, and a lease agreement drawn up for the tenant to sign.

Renting Out a Portion of Your Existing Property

If you don't want to invest in a whole new property, you can rent out a room or a floor of your current house to commercial or residential tenants. This option requires less upfront investment but comes with the drawback of extra traffic and potentially unsuitable living conditions if the tenant is a business.

Fix-and-Flip

This strategy involves buying a property that needs maintenance, renovating it, and then selling it at a higher price. This method requires knowledge of the market and renovation costs but can generate good returns with fewer constraints regarding registration and long-term maintenance.

Exchange-traded funds (ETFs) and mutual funds can be bought that are themselves invested in real estate. ETFs offer high liquidity and low costs, but there may not be monthly dividends. REITs (Real Estate Investment Trusts) are similar to mutual funds, allowing multiple investors to pool their resources and invest in multiple real estate assets through a single fund. REITs offer liquidity, affordability, regulatory protection, and tax advantages, but rarely provide high yields.

Fractional Ownership

Fractional ownership involves multiple investors pooling funds to buy a single commercial property, reducing individual investment costs and risk exposure while allowing for shared rental income. This option provides liquidity and the potential for high annual rental yields and internal rates of return.

Investing in growth stocks

Understanding Growth Stocks

Growth stocks are issued by companies demonstrating a high potential for development. These companies typically grow their sales and profits at a faster pace than the market average. The top growth stocks usually trade at a premium due to higher expected profits. Growth stocks are characterised by a high expansion rate compared to their industry, resulting in larger revenue generation.

Identifying Growth Stocks

When identifying growth stocks to invest in, look for companies that exhibit the following characteristics:

• High Growth Potential: Seek out companies with a history of strong revenue and earnings growth.
• Strong Market Position: Target companies with a dominant position in their industry and a competitive advantage.
• Innovative Products/Services: Look for businesses with a pipeline of innovative offerings that have the potential to disrupt their market.
• Experienced Management: Companies with competent and experienced management teams are better equipped to drive growth and navigate challenges.
• Large and Expanding Market Opportunity: Identify companies operating in markets with significant growth potential.

Advantages of Investing in Growth Stocks

• High Returns: Growth stocks offer the potential for substantial returns on investment due to the company's strong growth trajectory.
• Diversification: Investing in growth stocks can provide exposure to different industries and sectors, helping to diversify your portfolio.
• Hedge Against Inflation: Returns on growth stocks can outpace inflation, providing real income growth and increasing purchasing power over time.
• Long-Term Gains: With optimal market conditions, your investments can grow through compounding, leading to long-term capital appreciation.

Risks of Investing in Growth Stocks

It's important to recognise that growth stocks come with certain risks:

• Volatility: Growth stocks are susceptible to market fluctuations and can experience significant price swings.
• Market Conditions: The performance of growth stocks depends on market conditions, and a downturn can affect their growth potential.
• Possibility of Market Saturation: As competition increases, there is a risk of market saturation, leading to slower growth.
• Overvaluation: There is a risk that a company's stock price becomes detached from its fundamentals, resulting in overvaluation.
• Dependency on Investor Sentiment: Growth stocks are driven by investor expectations, and poor quarterly results or unexpected events can lead to a crash.

Steps to Invest in Growth Stocks

• Traditional Stock Market Investing: Research individual companies that meet the criteria for growth stocks and buy their shares directly.
• Exchange-Traded Funds (ETFs): Invest in growth-oriented ETFs, which provide exposure to a diversified portfolio of growth companies.
• Mutual Funds: Consider mutual funds that are professionally managed portfolios pooling money from multiple investors to invest in a diversified range of growth stocks.

Factors to Consider

• Investment Goals and Risk Appetite: Always align your investment choices with your financial goals and risk tolerance. Conduct thorough research on market and stock performance before investing.
• Fundamental and Technical Analysis: Evaluate the company's financial health, management, and competitive advantage through fundamental analysis. Also, use technical analysis to identify trends and patterns in stock prices.

In conclusion, investing in growth stocks can be a lucrative strategy for long-term wealth accumulation. With the right research and understanding of the risks involved, investors can potentially maximise their returns by capitalising on the growing share price of high-growth stocks in India.

Frequently asked questions