Investing Cash In India: A Guide To Getting Started

India offers a wide range of investment opportunities for those looking to grow their wealth. From traditional options like fixed deposits and government-backed savings schemes to dynamic avenues like stocks, real estate, and gold, there is something for everyone. The key is to understand your financial goals, risk tolerance, and investment objectives before making any decisions.

For those seeking low-risk investments, options such as fixed deposits, government bonds, savings accounts, and various government-backed schemes like the National Savings Certificate (NSC), National Pension Scheme (NPS), and Public Provident Fund (PPF) are available. These provide stability and modest returns while also offering tax benefits in some cases.

On the other hand, high-risk investments like individual stocks, equity mutual funds, and cryptocurrency offer the potential for substantial returns but come with higher volatility.

Additionally, there are medium-risk options that strike a balance between potential returns and moderate volatility, such as mutual funds, exchange-traded funds (ETFs), real estate, and gold.

When investing, it is important to consider factors such as financial goals, risk tolerance, past performance, lock-in periods, and associated expenses. Diversifying your portfolio across asset classes can also help to mitigate risk and improve your overall risk-adjusted returns.

With so many options available, it is crucial to carefully assess each investment opportunity and select those that align with your financial goals and risk appetite.

National Savings Scheme (NSC)

The National Savings Certificate (NSC) is a government-backed savings scheme in India that provides fixed interest rates and a secure investment option. It is ideal for conservative investors and offers tax deductions under Section 80C of the Income Tax Act, making it exempt from Tax Deducted at Source (TDS). The scheme is open to all Indian citizens, regardless of age, who can purchase NSCs in their own name, jointly, or on behalf of a minor. The certificates can be obtained from any post office by submitting the necessary Know Your Customer (KYC) documents and are also transferable between post offices and individuals.

The NSC scheme offers two maturity periods: five and ten years. The interest rate, which is currently set at 7.7% per annum, is compounded annually but paid only at maturity. There is no maximum investment limit, and individuals can start with a minimum investment of Rs. 100 or Rs. 1,000, depending on the source. The scheme allows for the nomination of family members, including minors, who will inherit the scheme in the event of the investor's death.

The NSC serves as a reliable investment option for those seeking guaranteed returns and stable avenues. It is particularly attractive to risk-averse investors due to its government backing and competitive interest rates. Additionally, the NSC provides tax benefits, allowing investors to save on taxes while earning good returns. The scheme also offers investment flexibility, accessible entry requirements, and the potential for loan collateral.

Overall, the National Savings Certificate is a secure and accessible investment scheme that caters to individuals seeking safe and stable investment options with attractive returns and tax advantages.

National Pension System (NPS)

The National Pension System (NPS) is a government-backed pension scheme, introduced by the Government of India, to provide retirement benefits to citizens. The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and is aimed at all citizens, including employees from the government, private and unorganised sectors.

NPS offers a range of investment options to suit different risk profiles and investment horizons. It is based on a unique Permanent Retirement Account Number (PRAN) which is allotted to every subscriber. The scheme is voluntary, and individuals can invest any amount at any time. It offers flexibility, allowing subscribers to select or change the POP (Point of Presence), investment pattern and fund manager. The NPS account or PRAN will remain the same, regardless of changes in employment, city or state.

NPS is also economical, with low service charges and being one of the lowest-cost retirement products available. It offers triple tax benefits, including tax deductions for salaried and self-employed individuals.

There are two types of NPS accounts: Tier I and Tier II. Tier I is a pension account where contributions up to Rs. 50,000 are eligible for additional tax deductions. Withdrawals are restricted and subject to terms and conditions. Tier II is an additional, voluntary investment account where subscribers are free to withdraw the entire accrued corpus at any time. No tax benefits are available for this account.

NPS is a good option for those seeking a regular income post-retirement and is one of the best ways to boost retirement income.

Mutual funds

There are several benefits to investing in mutual funds:

• Risk diversification: By investing in a portfolio of stocks or bonds across many sectors, mutual funds reduce the risks associated with investing in a single stock or bond.
• Professional management: Fund managers are professionals who conduct extensive market research and have years of investing experience. They aim to ensure that the investment objectives of the fund are met.
• Range of solutions: Mutual funds offer a wide range of solutions for various investment needs and risk appetites.
• Tax benefits: Mutual funds offer tax advantages over other investment options.
• Liquidity: Open-ended mutual funds are highly liquid investments.

There are several ways to invest in mutual funds in India:

• Through a mutual fund distributor: AMFI-registered mutual fund distributors provide financial advice and help investors with transactions. Distributors are paid a commission by the fund house and do not charge a fee to investors.
• Directly with the Asset Management Company (AMC): You can invest directly with the AMC by visiting their office or through their online portal.
• Through Registered Investment Advisors (RIAs): RIAs do not receive commissions from Asset Management Companies. You can invest in direct plans through an RIA, who may charge a fee for their services.
• Through Registrars and Transfer Agents (RTAs): RTAs process mutual fund transactions on behalf of fund houses. You can invest in both direct and regular plans through RTAs.
• Online: You can invest through online portals, either through the AMC or RTA websites, or through a mutual fund distributor's website.
• Through a stockbroker: Stockbrokers offering online trading and demat services also often offer online investment in mutual funds.
• Through your bank: Many banks offer wealth management services, including mutual fund investments.

Before investing in mutual funds, there are a few requirements that must be fulfilled, including completing the Know Your Customer (KYC) process and providing necessary documents such as a recent passport-size photograph, proof of identity and address, and a copy of your PAN card.

When investing in mutual funds, it is important to consider your risk tolerance and capacity, asset allocation, and the identification of funds that align with your investment goals. Diversifying your investments is also crucial to maximising returns and minimising risk.

Real estate

Ways to Invest in Real Estate

Traditional/Physical Property Investment

The simplest and most traditional 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 can be done with residential or commercial properties. While this method is simple, it requires a significant initial investment and yearly maintenance costs. It also involves legal procedures and registration at the sub-registrar's office.

Fix-and-Flip

This method involves buying a property that needs maintenance, fixing it up, and then selling it at a higher price. This strategy requires less capital upfront and has fewer constraints regarding registration and maintenance. However, it depends on market demand and supply and requires knowledge of renovation costs.

Fractional Ownership

Fractional ownership allows investors to buy a share of a property rather than the whole asset. It reduces the investment cost and provides access to commercial properties with long-term lease agreements. While it offers rental yields and potential for property appreciation, it may lack liquidity and diversification.

REITs are investment funds that own and manage income-generating real estate assets. They are traded on the public market and offer low investment costs. REITs provide regular income through dividends and professional management. However, they have low capital appreciation, regulatory restrictions, and are subject to market risks.

Exchange-Traded Funds (ETFs)

ETFs are similar to mutual funds but are passively managed and track an index, such as the Nifty Realty Index. They offer low investment costs and high liquidity. However, they lack direct exposure to physical property and are subject to market risks.

Tips for Investing in Real Estate

• Conduct thorough research on the market, location, and property.
• Verify property documents and conduct due diligence to avoid scams and legal issues.
• Stay informed about market rates and talk to neighbours to gain insights into the locality.
• Calculate financial considerations and obtain financing if needed.
• Evaluate risk factors and seek guidance from experienced investors.
• Determine your investment goals and identify the best opportunities based on your objectives.
• Inspect and review properties, consult experts, and secure financing before closing the deal.
• Manage your investment by finding tenants, collecting rent, and maintaining the property.

Government bonds

How to Invest in Government Bonds in India

There are two main ways to buy government bonds in India:

• Primary Auctions: When the government issues new bonds, it conducts primary auctions where it sells these bonds directly to investors. Investors can participate in these auctions through various channels, including banks, primary dealers (PDs), and the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).
• Secondary Market: After the primary issuance, government bonds become available for trading in the secondary market. Investors can buy and sell bonds that have already been issued through stock exchanges, electronic trading platforms, and bond or gilt mutual funds.

Additionally, here are some other methods for investing in government bonds in India:

• RBI Retail Direct: The Reserve Bank of India (RBI) launched the "Retail Direct" platform, allowing individuals to invest directly in government securities in primary auctions.
• Direct Investment: Individuals can buy government bonds directly from banks and main dealers permitted to trade in government securities.
• Stock Broker: Open a Demat and trading account, complete the Know Your Customer (KYC) procedures, research the market, consult your broker, and place your order through the trading account.
• Mutual Funds: Locate a gilt fund, which is a mutual fund that invests solely in government bonds, and invest either a large sum or set up a systematic plan for regular investments.

Frequently asked questions