Investing for the Long-Term: Best Options for Salaried Person in India

Investing for the Long-Term: Best Options for Salaried Person in India

Investing your hard-earned money is one of the best financial decisions you can make as a salaried person.

It helps you grow your wealth and provides financial security in the long run.

With so many investment options on the market, selecting the one that best meets your needs and goals can be difficult.

We'll explore some of the best investment options for salaried persons in India in 2023.

Best Investment Options for Salaried Persons in India 2023

1) Mutual Funds

Mutual funds are a popular investment option for salaried persons in India. They offer an easy way to invest in a diversified portfolio of stocks, bonds, and other securities. 

Mutual funds are professionally managed by fund managers who invest the pooled money of many investors in a variety of assets. This helps to spread the risk and generate returns.

• Availability: Mutual funds are available through asset management companies (AMCs) and can be purchased through online platforms, brokers, and banks.
• Investment: Mutual funds can be bought with a minimum investment amount, which varies based on the fund house and scheme. Some mutual funds offer the option of investing through systematic investment plans (SIPs), which allow you to invest small amounts of money regularly.
• Maturity: Mutual funds are open-ended, which means that you can buy and sell units at any time. There is no fixed maturity date.
• Taxation: Equity mutual funds held for more than one year are subject to 10% LTCG tax, while debt mutual funds held for more than three years are subject to 20% LTCG tax with indexation.
• Risk level: The risk level of mutual funds varies based on the type of fund. Equity funds are high risk, while debt funds are low risk.

2) Gold ETFs

Gold ETFs are a type of exchange-traded fund that invests in gold bullion. They offer an easy and cost-effective way to invest in gold without the hassle of physical storage.

• Availability: Gold ETFs can be purchased through brokers, online platforms, and mutual fund companies.
• Investment: Gold ETFs can be bought with a minimum investment amount, which varies based on the fund. Some gold ETFs offer the option of investing through SIPs.
• Maturity: Gold ETFs are open-ended, which means that you can buy and sell units at any time. There is no fixed maturity date.
• Taxation: Gold ETFs held for more than three years are subject to 20% LTCG tax with indexation.
• Risk level: The risk level of gold ETFs is relatively low compared to other investment options. They are still subject to market risk and fluctuations in gold prices.

3) Stocks

Investing in stocks is a popular option for salaried persons who are willing to take on higher risks for potentially higher returns. Stocks represent ownership in a company and offer the potential for capital appreciation and dividends.

• Availability: Stocks can be purchased through brokers, online platforms, and banks.
• Investment: The investment amount in stocks is flexible, and you can buy as many shares as you want.
• Maturity: Stocks do not have a fixed maturity date. You can hold them for as long as you want.
• Risk level: The risk level of stocks is relatively high, as the value of the stock can fluctuate rapidly based on market conditions, company performance, and other factors.

4) ETFs

ETFs, or exchange-traded funds, are a type of investment fund that are traded on stock exchanges like individual stocks. They invest in a diversified portfolio of stocks or bonds, similar to mutual funds.

• Availability: ETFs can be purchased through brokers, online platforms, and mutual fund companies.
• Investment: The investment amount in ETFs is flexible, and you can buy as many units as you want.
• Maturity: ETFs are open-ended, which means that you can buy and sell units at any time. There is no fixed maturity date.
• Taxation: Equity ETFs held for more than one year are subject to 10% LTCG tax if the gains exceed Rs. 1 lakh.
• Risk level: The risk level of ETFs varies based on the type of fund. Equity ETFs are high risk, while debt ETFs are low risk.

4) Government Bonds

The Indian government has initiated a direct purchase scheme for individual investors to invest in government bonds to encourage domestic participation in the sovereign bond market. 

These bonds are issued by both the Central and State governments, with State Development Loans issued by State government (Indore municipal bonds, listed in stock exchange and G-Secs or government bonds issued by the Central government. 

• Investment: To purchase these bonds, individuals must have a bank account and can hold the bonds in a demat account. 

The government announces the bond's price at the time of the bond offering, and individuals can invest in G-Secs using the e-Kuber App, commercial banks listed by the government, primary dealers, stock exchanges, or broking platforms. 

• Return on investment: The return on investment for most government bonds is fixed for the entire bond tenure till maturity, and the interest received is half-yearly.

Capital gains or losses when the bond is sold or matures and income from reinvestment of interest payments also affect returns.

• Maturity: The maturity period of government bonds can vary, and tax will be charged according to an individual's income bracket on the income generated by the interest received from these bonds, as well as any price increase in the bond value considered capital gains.

5) Sovereign Gold Bonds (SGBs)

These government securities issued by the Reserve Bank of India (RBI) are denominated in grams of gold, with a minimum investment of 1 gram. 

They can be purchased from banks, post offices, and stock brokerage companies online or offline, requiring a PAN Card for investment. 

SGBs are issued multiple times yearly through auctions announced by the central government.

• Investment: The value of each bond unit is based on the average closing price of gold for the previous three business days, with a maximum investment of 4 kgs for individuals and 20 kgs for trusts.

Discounts of INR 50 per gram are currently available for online purchases. The return on investment is 2.5%, paid twice a year.

• Maturity: The bonds mature after eight years, with an option for early redemption after five years.
• Taxation:  Interest payments are taxed based on the investor's tax slab, while gains made at maturity are exempt from tax. Overall, the risk level associated with SGBs is considered low to medium.

6) Gold Exchange-Traded Funds (ETFs)

Gold ETFs are a convenient alternative to holding physical gold, allowing investors to buy and sell gold units in a dematerialized form. 

• Availability: To invest in Gold ETFs, one must open a demat account, similar to buying shares from SEBI-registered stock brokerage companies or agencies. 
• Investment: Some banks offer gold funds that do not require a demat account. The investment amount starts from as low as INR 500, and there is no limit to the number of gold ETF units one can purchase.
• Maturity: The value of each unit is equivalent to a gram of pure gold and is stored in depositories, with the ETF's performance in the market determining the return on investment. There is no lock-in period, and investors can sell their gold ETF units whenever possible.
• Taxation: Taxation depends on the investment duration, with short-term gains taxed as per the investor's tax slab and long-term gains (after 36 months) taxed at a rate of 20% plus 4% cess. 
• Risk level: The risk level associated with gold ETFs is considered medium to high, similar to equity mutual funds.

Conclusion

Investing is an essential part of financial planning, and various investment options are available for salaried individuals in India.

Evaluating your investment options based on your risk appetite, investment horizon, and financial goals is crucial before making any investment decisions. 

Consult with a financial advisor before making investment decisions to ensure that your investments align with your financial goals and objectives.

FAQs
 

1) Which investment is best for salaried person?
Ans- The Employee Provident Fund holds significant significance as an investment avenue for salaried individuals in India. It serves as a dedicated fund for retirement planning, wherein both the employee and employer contribute 12 percent of the employee's basic salary to their respective provident fund account every month.

2) Which investment is best for long term in India?
Ans - Here are eight recommended long-term investment options in India for 2022:

1) PPF and EPF: The Public Provident Fund (PPF) and Employee Provident Fund (EPF) continue to be highly favored with an attractive interest rate of 8.7%.
2) Stocks: Investing in the stock market offers significant growth potential over the long term.
3) Mutual funds: These professionally managed investment vehicles pool funds from multiple investors and invest in a diversified portfolio.
4) Real Estate: Investing in properties can provide both rental income and potential capital appreciation.
5) Bonds: Bonds offer fixed income and can be a reliable long-term investment option.
6) Gold: Considered a safe haven asset, gold can provide a hedge against inflation and economic uncertainties.
7) ULIPs: Unit Linked Insurance Plans (ULIPs) offer a combination of investment and insurance benefits.
8) Equity funds: Investing in equity funds allows individuals to participate in the performance of a diversified portfolio of stocks.

3) How to invest 25 lakhs for monthly income in India?
Ans - Here are some recommendations on investing INR 25 lakhs in India to generate a monthly income:

1) Determine your monthly income requirements by understanding your financial needs and goals.
2) Explore fixed-income options such as fixed deposits or bonds, which offer regular interest payments.
3) Consider investing in stocks that provide regular dividends as a source of monthly income.
4) Evaluate the possibility of investing in rental property to generate monthly rental income.
5) Bonds can be a suitable investment option as they provide a fixed income over a specific period.
6) Invest in mutual funds that offer regular dividend payouts or invest in income-focused funds.
7) Annuities can provide a guaranteed monthly income over a specified period, so consider them as an investment option.
8) Seek professional advice from a financial advisor who can guide you based on your financial goals and provide personalized investment recommendations.

4) Is it OK to invest 50% of salary?
Ans - Investing 50% of your salary may be considered overly aggressive by some financial experts. While it is generally recommended to save and invest around 10-15% of your income for retirement, the decision to invest half of your salary should be carefully evaluated. Factors such as personal financial obligations, including debt payments and living expenses, should be taken into account before committing to such a high investment percentage. It is advisable to seek professional advice and create a balanced financial plan that aligns with your specific circumstances and long-term goals.

5) How can I invest my salary smartly?
Ans - Popular thumb rules for managing your salary like the 50-30-20 rule of budgeting suggest that you can allocate 50% of your paycheck (₹10,000) to essentials like rent, and food; 30% (₹6,000) for saving & investing in assets like mutual funds, stocks, digital gold, and more; 20% (₹4,000) to wants like dinner dates.