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:
- No risk, safest option (assuming that Bank is doing well and is a safe bet) and money grows very slowly
- You earn regular savings bank account interest rate
- You can withdraw money anytime, easy accessibility
- Earned Interest is taxable income
- Interest rates can change anytime
- Government only guarantees maximum of Rs.1 lakh in the event Bank goes bankrupt (Please check with RBI for regulations)
- Without interest rate there is no other way your money will grow in this account
Fixed Deposit (FD)
Benefits:
- No risk, safest option (assuming that Bank is doing well and is a safe bet) and money grows very slowly
- You earn guaranteed fixed interest rate for the term of the deposit
- Money is locked in this option and can be withdrawn only at the maturity date, if withdrawn earlier than a fee is imposed in the form of penalty
- Earned Interest is taxable income
- 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:
- Typically bought during special occasions/festivals/etc
- Used as sign of social status
- Can be useful during rainy days especially if the underlying commodity has appreciated
- No tax related hassles
- Money is locked in this type of investment and the only way to get money is to sell jewellery
- If underlying commodity depreciates in value then you would loose money for holding jewellery (Risk category: low)
- Although this option might be lucrative at first, do not forget the other cost such as (jewellery making cost, bank locker cost, etc)
- Usually jewellery is very expensive and may not be affordable
Real Estate
Benefits:
- Typically considered as a long term investment option (Risk category: low)
- Used as sign of social status
- Investment tends to appreciate significantly over longer period
- Money is locked in this type of investment and the only way to get money is to sell real estate
- 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:
What is a Exchange Traded Fund?
Benefits:
- A simple way to invest in stock market without loosing your sleep
- 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
- You can withdraw your investment by selling Fund
- Your invested money may increase or decrease depending on the overall stock market as well as your chosen fund (Risk category: medium)
- Capital gains taxes are applicable depending on the chosen fund
- 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:
Benefits:
- A simple way to invest and own a share in a public business/company
- If you hold stocks for more than 1 year, you'll only have to pay long term capital gains taxes
- You can withdraw your investment by selling Stocks
- Your invested money may significantly increase or decrease depending on the overall stock market as well as your chosen stock (Risk category: high)
- Capital gains taxes are applicable
- You can loose entire investment in a chosen stock if the stock value goes down to zero