Smartly Investing 3 Crores In India: A Comprehensive Guide

Investing 3 crores in India is a significant financial decision that requires careful consideration and planning. Whether you're looking to build a corpus for retirement, start a business, or generate regular income, there are various investment options to choose from. In this context, let's explore the question How will you invest 3 crores in India? and discuss some strategies and factors to consider for effective wealth management.

Unit Linked Insurance Plans (ULIPs)

• Dual Benefit: ULIPs provide the dual advantage of insurance and investment. A portion of your premium ensures you are covered by life insurance, while the other part is invested in various funds of your choice.
• Flexibility to Switch Funds: ULIPs don't lock you into one investment strategy. You can switch between different ULIP funds based on your investment objectives and risk tolerance.
• Protecting Your Child's Future: Child ULIP plans come with a "Waiver of Premium" feature. If something happens to the policyholder, such as a critical illness or disability, this feature ensures the child's ULIP policy remains active, future premiums are waived off, and the policy continues as initially agreed.
• Long-Term Investment: ULIPs have a 5-year lock-in period, encouraging disciplined and long-term investment. By staying invested for 5 years, you set yourself up for long-term financial stability and maximize your returns.
• Liquidity: After the initial 5-year lock-in period, you can make partial withdrawals to meet any financial needs.
• Tax Benefits: Investing in ULIP plans can help you avail of tax deductions under Section 80C of the Income Tax Act. The maturity proceeds you receive are tax-free under Section 10(10D).
• Align the ULIP plan with your long-term financial goals and investment horizon.
• Compare the features and benefits of different ULIP plans.
• Evaluate policy tenure flexibility and choose from hybrid, equity, or debt ULIP plans.
• Be aware of various charges, including initial charges, premium allocation fees, and fund management fees.
• Review the historical performance of the ULIP plan over the last three to four years.
• Ensure the insurance company has a solvency ratio of at least 1.5, indicating financial stability.

Overall, ULIPs offer a unique blend of life insurance and investment opportunities, making them suitable for those seeking to secure their financial future while growing their wealth.

Low-risk, government-backed options

If you are looking for low-risk, government-backed investment options in India, here are some suggestions:

Senior Citizen Savings Scheme (SCSS)

The Senior Citizen Savings Scheme is a government-backed option that offers a guaranteed return on investment. This scheme is designed for individuals over the age of 60, providing them with a stable investment avenue and a regular income.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

The Pradhan Mantri Vaya Vandana Yojana is another government-backed scheme that caters to senior citizens. It offers a guaranteed rate of return and provides a monthly/quarterly/yearly pension. This scheme can ensure a stable income for retirees.

Reserve Bank of India Floating Rate Bonds

These bonds are issued by the Reserve Bank of India and are considered a safe investment option. They offer a floating rate of interest, which means the returns may vary but are generally stable and competitive. These bonds are ideal for investors seeking a low-risk avenue with decent returns.

Unit Linked Insurance Plans (ULIPs)

ULIPs are life insurance plans that offer a structured investment framework. They allow you to invest in a mix of equity and debt funds, providing the potential for wealth accumulation. ULIPs also come with a life insurance component, ensuring financial security for your loved ones in case of any eventuality. ULIPs can be an excellent way to build wealth while minimising risk.

It is important to remember that while these options are considered low-risk, it is always advisable to consult a financial expert or advisor before making any investment decisions. They can provide personalised advice based on your financial goals, risk tolerance, and the current market conditions.

Mutual funds

• Risk diversification: Invest in a portfolio of stocks or bonds across many sectors or issuers to reduce risks associated with a single stock or bond.
• Professional management: Fund managers and research teams select stocks and manage the scheme portfolio to ensure investment objectives are met.
• Range of solutions: Consider your investment needs and risk appetite. Equity funds may be suitable for long-term goals like retirement, while debt funds can provide regular income or shorter-term investments.
• Modes of investment: You can invest in a lump sum or through SIPs or STPs, depending on your financial situation and needs.
• Tax benefits: Mutual funds offer tax advantages, especially for investors in higher tax brackets. For example, short-term capital gains in equity funds are taxed at 15%, while long-term capital gains are tax-exempt up to Rs 1 lakh in a fiscal year and taxed at 10% thereafter.
• Liquidity: Open-ended mutual funds offer high liquidity, allowing investors to redeem their units usually on a T+3 (transaction + 3 days) basis.
• Ensure you are Know Your Client (KYC) compliant by providing the necessary documents, including a recent passport-size photograph, proof of identity and address, a copy of your PAN card, and a duly filled KYC form.
• Submit these documents to an Asset Management Company (AMC) or Registrar and Transfer Agent (RTA) for processing, verification, and updating of your KYC status.
• Check your KYC status online using your PAN on the website of the Central Depository Service Limited. If your KYC is verified, the status will show as "MF-Verified," indicating you are compliant.
• Decide how to invest in mutual funds, such as through a mutual fund distributor, directly with an AMC, Registered Investment Advisors (RIAs), RTAs, online portals, stockbrokers, banks, or mobile apps.
• Select a mutual fund scheme that aligns with your financial goals and risk appetite, choosing between Direct or Regular Plans and scheme options like Growth or Income Distribution and Capital Withdrawal (IDCW).
• If investing through SIPs, register by submitting a bank Electronic Clearing Services (ECS) mandate specifying the SIP amount, interval, and date. Ensure you have sufficient balance in your savings account to avoid failed transactions.

Equity funds

Here's how equity funds work:

• Investment Universe: The fund category defines the investment universe, with regulations specifying investment styles or investing universes. For example, Large Cap Funds must invest at least 80% of their corpus in the top 100 companies in India by capitalization.
• Stock Selection: The fund manager and their team of professionals select stocks based on research and analysis of technical and fundamental indicators, such as company profitability, performance in challenging economic phases, and the sector in which it operates.
• Monitoring and Adjustments: The fund manager continuously monitors the performance of the companies, sectors, and the overall economy. If some companies are underperforming, they are removed from the portfolio, and promising companies are added.
• Earnings: Equity funds earn through capital gains and dividends. Capital gains are achieved by buying shares at a lower price and selling them at a higher price. Dividends are distributed by companies when they perform well, and the fund manager decides how to reinvest these dividends.
• Franklin FTSE India ETF: Seeks to track the performance of the FTSE India RIC Capped Index.
• IShares MSCI India Small-Cap ETF: Aims to replicate the investment results of the MSCI India Small Cap Index.
• VanEck India Growth Ldrs ETF: Seeks to replicate the price and yield performance of the MarketGrader India All-Cap Index.
• Wasatch Emerging India Fund: Invests primarily in companies tied economically to India, seeking long-term growth of capital.
• Eaton Vance Greater India Fund: Seeks long-term capital appreciation by investing at least 80% of its assets in Indian companies.
• ALPS/Kotak India ESG Fund: Focuses on long-term capital appreciation by investing in companies that promote environmental, social, and governance (ESG) practices.

Debt funds

When choosing a debt fund, it is important to consider the investment horizon, risk appetite, and interest rate trend. Investment horizons can range from just one day to 10-20 years. For those with a short-term investment horizon, it is better to invest in short-term funds rather than long-term funds when interest rates are increasing.

• BHARAT Bond ETF FOF - April 2032 (G): This fund has delivered a 1-year return of 10.3% and has an expense ratio of 0.1%. It allocates 96.01% to debt and 3.99% to other assets.
• HDFC Overnight Fund (G): With a 1-year return of 6.6% and a 5-year return of 4.7%, this fund has an expense ratio of 0.2% and allocates 6.25% to debt and 93.75% to other assets.
• HDFC Floating Rate Debt Fund (G): This fund has delivered a 1-year return of 8.4% and a 5-year return of 6.8%. It has an expense ratio of 0.5% and allocates 96.96% to debt and 3.04% to other assets.
• Kotak Nifty SDL Apr 2027 Top 12 Equal Weight Index Fund (G): With a 1-year return of 8.8%, this fund has an expense ratio of 0.3% and allocates 98.46% to debt and 1.54% to other assets.
• Aditya Birla Sun Life Savings Fund (G): Offering a 1-year return of 7.7% and a 5-year return of 6.1%, this fund has an expense ratio of 0.6% and allocates 98.49% to debt and 1.51% to other assets.
• ICICI Prudential Overnight Fund: As the top-performing debt fund, this fund offers high liquidity by investing mainly in overnight securities. With a 0.1% expense ratio, it appeals to investors looking for short-term investment opportunities.
• Nippon India Nivesh Lakshya Fund: This fund invests in government securities to achieve optimal returns without high risk. With a portfolio including 96.78% government bonds, it may be suitable for investors looking for long-term investment opportunities.
• Edelweiss Banking & PSU Debt Fund: This fund focuses on high-quality debt instruments from banks, public sector undertakings (PSUs), and public financial institutions. With an AUM of Rs. 281 crores, it focuses on AAA-rated and government securities to provide steady returns.
• ICICI Pru Constant Maturity Gilt Fund: This fund invests in government securities with a 10-year duration. With an AUM of Rs. ₹2,994 crores and an expense ratio of 0.23%, it is suitable for investors seeking long-term returns higher than inflation.

Frequently asked questions