What are my Choices!!!


Basic Investment Options -
  • Savings bank account
  • Fixed Deposit (FD)
  • Jewellery (Gold, Silver, Diamonds, etc.)
  • Real Estate
  • Mutual Fund (MF) or Exchange Traded Fund (ETF)
  • Stocks

We will briefly take a look at each option mentioned above to get a better understanding...

Savings Bank Account

Benefits:
  1. No risk, safest option (assuming that Bank is doing well and is a safe bet) and money grows very slowly
  2. You earn regular savings bank account interest rate
  3. You can withdraw money anytime, easy accessibility
Disadvantages:
  1. Earned Interest is taxable income
  2. Interest rates can change anytime
  3. Government only guarantees maximum of Rs.1 lakh in the event Bank goes bankrupt (Please check with RBI for regulations)
  4. Without interest rate there is no other way your money will grow in this account

Fixed Deposit (FD)

Benefits:
  1. No risk, safest option (assuming that Bank is doing well and is a safe bet) and money grows very slowly
  2. You earn guaranteed fixed interest rate for the term of the deposit
Disadvantages:
  1. Money is locked in this option and can be withdrawn only at the maturity date, if withdrawn earlier than a fee is imposed in the form of penalty
  2. Earned Interest is taxable income
  3. Government only guarantees maximum of Rs.1 lakh in the event Bank goes bankrupt (Please check with RBI and individual bank for regulations)

Jewellery (Gold, Silver, Diamonds, etc.)

Benefits:
  1. Typically bought during special occasions/festivals/etc
  2. Used as sign of social status
  3. Can be useful during rainy days especially if the underlying commodity has appreciated
  4. No tax related hassles
Disadvantages:
  1. Money is locked in this type of investment and the only way to get money is to sell jewellery
  2. If underlying commodity depreciates in value then you would loose money for holding jewellery (Risk category: low)
  3. Although this option might be lucrative at first, do not forget the other cost such as (jewellery making cost, bank locker cost, etc)
  4. Usually jewellery is very expensive and may not be affordable

Real Estate

Benefits:
  1. Typically considered as a long term investment option (Risk category: low)
  2. Used as sign of social status
  3. Investment tends to appreciate significantly over longer period
Disadvantages:
  1. Money is locked in this type of investment and the only way to get money is to sell real estate
  2. You could loose money if real estate prices drop due to economic conditions

Mutual Fund (MF) or Exchange Traded Fund (ETF)

What is a Mutual Fund?
What is a Exchange Traded Fund?

Benefits:
  1. A simple way to invest in stock market without loosing your sleep
  2. If you hold mutual funds for more than 1 year, you'll only have to pay long term capital gains taxes which might be nothing in some cases
  3. You can withdraw your investment by selling Fund
Disadvantages:
  1. Your invested money may increase or decrease depending on the overall stock market as well as your chosen fund (Risk category: medium)
  2. Capital gains taxes are applicable depending on the chosen fund
  3. You can loose entire investment in a chosen fund if the fund value goes down to zero (very less likely)

Stocks

What are Stocks?

Benefits:
  1. A simple way to invest and own a share in a public business/company
  2. If you hold stocks for more than 1 year, you'll only have to pay long term capital gains taxes
  3. You can withdraw your investment by selling Stocks
Disadvantages:
  1. Your invested money may significantly increase or decrease depending on the overall stock market as well as your chosen stock (Risk category: high)
  2. Capital gains taxes are applicable
  3. You can loose entire investment in a chosen stock if the stock value goes down to zero

Comparison