Smart Investment Strategies For 20 Lakhs In India

If you're looking to invest 20 lakhs in India, there are several options to consider. You could invest in stocks, mutual funds, or market-linked plans. For example, investing in stocks such as Dabur, Britannia, M&M, ICICI Bank, and Axis Bank has been recommended by experts. Alternatively, you could consider mutual funds like multi-cap or mid-cap schemes, or balanced advantage funds if you're new to market-linked investments. Another option is to invest in a bank fixed deposit (FD), which could offer a return of around 6% interest. However, it's important to consult a financial advisor to understand your overall financial health and determine the best investment strategy for your specific needs and risk profile.

Lump sum investment in a bank FD or other instruments

Lump-sum investment in a bank fixed deposit (FD) is a popular option in India, offering a guaranteed return on your investment with low risk. FDs are offered by banks and financial institutions and have a fixed tenure, ranging from a few months to several years. The returns are guaranteed and not dependent on market performance, providing certainty and safety of capital. Senior citizens are often eligible for higher interest rates.

While FDs are considered a safe investment option, they may not provide the highest returns, especially for short-term investments. Currently, FD rates are at multi-year lows, and the post-tax returns may not beat inflation. For example, a one-year FD at the State Bank of India (SBI) is offering a rate of 4.90%, and the post-tax returns for those in the 30% tax bracket would be 3.43%.

If you are considering investing a lump sum of 20 lakhs in a bank FD or other instruments, there are a few things to keep in mind. Firstly, the minimum and maximum amount required for FD investments can vary across banks and financial institutions. The minimum amount typically ranges from ₹1000 to ₹25,000, while there is usually no upper limit on the maximum amount. Secondly, FD tenures can be flexible, ranging from a few months to several years, allowing you to choose a maturity term that aligns with your financial goals. Additionally, some FDs offer auto-renewal options, ensuring a seamless continuation of your investment.

When investing a lump sum of 20 lakhs, it is important to consider your risk appetite, investment horizon, and financial goals. If you have a moderate risk profile and are looking for long-term investment options, you may consider investing a portion of your corpus in mutual funds, such as multi-cap or mid-cap schemes. These schemes have the potential to offer higher returns but come with higher risk and volatility. It is recommended to consult a financial advisor to assess your risk profile and determine the most suitable investment options for your needs.

Multi-cap mutual funds

• Nippon India Multi Cap Fund: This fund has delivered strong returns over the past three and five years. It has a minimum investment amount of ₹100 for lump-sum and SIP investments.
• ICICI Prudential Multicap Fund: With annualised returns of 18.45% and 22.27% over the last three and five years, respectively, this fund has a minimum investment amount of ₹5,000 for lump-sum and ₹100 for SIP.
• Invesco India Multicap Fund: This fund has generated annualised returns of 16.37% and 23.48% in the past three and five years, respectively. The minimum investment amount is ₹1,000 for lump-sum and ₹500 for SIP.
• Mahindra Manulife Multi Cap Fund: With annualised returns of 17.35% and 25.99% over the last three and five years, this fund requires a minimum investment of ₹1,000 for lump-sum and ₹500 for SIP.
• Canara Robeco Multi Cap Fund: This fund is recommended by The Economic Times for investors with a good risk appetite and a long-term investment horizon.
• Motilal Oswal Multi Cap Fund: This fund is also recommended by The Economic Times and is suitable for investors with a long-term investment horizon.

Mid-cap mutual funds

When selecting a mid-cap fund, it is important to consider the fund manager's expertise, the fund's historical performance, the expense ratio, and the risk profile of the fund. Some of the top-performing mid-cap funds in India include:

• Motilal Oswal Midcap Fund
• HDFC Mid-Cap Opportunities Fund
• Edelweiss Mid Cap Fund
• Baroda Midcap Direct Fund
• Mahindra Manulife Mid Cap Fund
• Nippon India Growth Fund
• Kotak Emerging Equity Fund
• Invesco India Mid Cap Fund
• Sundaram Mid Cap Fund
• Aditya Birla Sun Life Nifty Midcap 150 Index Fund
• Tata Midcap Growth Fund

These funds have delivered strong returns over the past 3 and 5 years, with annualised returns ranging from 19% to 33%. The minimum investment amount for these funds varies, with some funds requiring a minimum of ₹500 and others requiring ₹1,000 or more.

Mid-cap funds carry a higher risk than large-cap funds but offer the potential for higher returns. They are suitable for investors with a long-term investment horizon of at least 3-4 years and preferably 7-10 years. These funds are also suitable for those willing to accept higher risk and volatility in their investments.

It is important to note that past performance does not guarantee future results, and investors should carefully consider their financial goals and risk tolerance before investing in mid-cap mutual funds or any other investment vehicle.

Equity for long-term financial goals

If you are investing in equity for long-term financial goals, it is important to choose equity schemes that align with your risk profile. While having a "good risk appetite" is beneficial, it is crucial to clearly define your risk tolerance. Consulting a financial advisor can help you determine your risk profile and select suitable investment options.

When investing in equity, consider diversifying your portfolio by investing in a variety of equity schemes. This can include large-cap schemes, large and mid-cap schemes, mid-cap schemes, focused schemes, and flexi-cap funds. These schemes offer varying levels of risk and potential returns, so be sure to understand the risks involved before investing.

Additionally, when investing in equity for the long term, the timing of your investments is important. Some experts believe that the timing of investments is less significant if you are investing for a long period, such as 15 years. However, conservative investors often prefer to stagger their investments to average out the cost of purchase. This can be done through Systematic Investment Plans (SIPs) or Systematic Withdrawal Plans (SWPs), where investments are made at regular intervals over a period of time.

When investing in equity, it is essential to keep a close eye on the performance of your schemes. Review the performance of your schemes at least once a year to get a clear picture of how they are performing relative to their benchmarks and categories. It is also important not to invest in too many schemes, as it can become difficult to manage and track their performance.

• Multi-cap schemes: These schemes invest across market capitalisations based on the fund manager's view of the market. They offer slightly higher returns than large-cap schemes but carry more risk.
• Mid-cap schemes: These schemes are riskier and more volatile than multi-cap schemes but offer the potential for superior returns. However, they may not be suitable for investors who are not comfortable with sharp fluctuations in value.
• Large-cap schemes: These schemes invest in well-established companies and are generally considered less risky than mid-cap or small-cap schemes.
• Focused schemes: These schemes invest in a limited number of stocks, typically within a specific sector or theme. They can offer higher returns but may carry more risk due to their concentrated nature.
• Flexi-cap funds: Flexi-cap funds provide flexibility in investing across market capitalisations, allowing fund managers to shift allocations based on market conditions.

Market-linked investment plans

Balancing Risk and Reward

• Understand Risk Levels: Before investing, assess your risk tolerance and time horizon. Market-linked investments can be volatile, so ensure you are comfortable with potential market fluctuations.
• Diversify Investments: Spread your investments across various asset classes to mitigate risks. Diversification helps to balance your portfolio and manage risk effectively.
• Conduct Thorough Research: Stay informed about market trends and investment options. Researching thoroughly will help you make more informed decisions.
• Monitor Your Portfolio Regularly: Keep track of your portfolio's performance and make adjustments as needed. Regular monitoring helps you stay responsive to market changes.
• Stay Informed: Stay updated on economic indicators and market news that can impact your investments. This will help you anticipate potential risks and opportunities.
• Seek Expert Advice: Consult financial advisors to make more informed decisions. They can provide valuable insights and guidance tailored to your financial goals and risk tolerance.

Categories of Market-Linked Investments

• Equity-Linked Investments: These include investing in companies' stocks, offering high growth potential but also carrying higher risks. Examples include Equity Mutual Funds (Large Cap, Mid Cap, Small Cap), Equity-Linked Savings Schemes (ELSS), ETFs (Exchange-Traded Funds), and Index Funds.
• Debt-Linked Investments: These involve investing in bonds issued by the government or companies, offering regular income and capital protection. They are considered lower risk but also have lower reward potential. Examples include Debt Mutual Funds (Fixed Income Funds, Gilt Funds), Public Provident Fund (PPF), and Debt Index Funds.
• Balanced Investments: This category offers a mix of equity and debt investments, providing a balance between growth and stability. They are considered moderate risk and reward. Examples include Balanced Mutual Funds, National Pension System (NPS), and Hybrid ETFs.
• Insurance-Linked Investments: These plans combine investment and insurance benefits, with growth linked to market performance. Examples include Unit Linked Insurance Plans (ULIPs), Pension Plans, and Child Plans.

When considering market-linked investment plans, it is essential to carefully assess your risk tolerance, financial goals, and investment horizon. These plans offer the potential for higher returns but also come with market-related risks. Diversification and a long-term perspective are crucial to managing these risks effectively.

Frequently asked questions