Ways to Invest for Wealth
There can be innumerable ways to invest but there are selected few if you want to invest for wealth.
More often, the focus while investing is on returns and not so much on capital invested. We should realize that higher the invested amount, higher will be the gains. Hence, base should always be considered. Also, investment is about protection of capital first and then gains. If we take high risk for high returns and end up losing our capital, then it’s virtually impossible to make up for it through gains from other investments.
For example,
| S.No | Invested amount | Return % | Amount after one year |
| 1 | 100 | 4% | 104 |
| 2 | 100 | 6% | 106 |
| 3 | 100 | 10% | 110 |
| 4 | 100 | 25% | 0 |
| Total | 400 | 320 |
Here, if an investor takes an extra risk for high return of 25% and ends up losing his capital, then his other investment with returns, will not make up for his original amount. He has to wait for few years now to just recover his original amount.
With this caution, lets explore few ways to invest for wealth:
- Index Funds
Index funds are mutual funds associated with a particular index like,
Sensex
Nifty
Nifty IT
Bank Nifty
International Market, etc.
These funds buy securities in same proportion as they are in the above respective indexes, to create a mirror image of them.
If an investor thinks, that in coming time, NiftyBank will do better than Nifty, then they can go ahead and invest in that particular index rather than investing in entire sectors through Nifty.
Also, risk for the invested amount gets diversified as the amount goes into multiple securities of that index. This means that if one security falters in its earnings and returns, it is made up by others.
They have given close to 12-14% CAGR in the last 10-15 years.
2. Equity Mutual Funds
These collect money from investors and invest them in equity. Here a large pool is accumulated and invested in a basket of stocks to generate returns. There are close to 2000 mutual fund schemes in India which offer multiple options for investors to choose as per their risk appetite and aptitude. The advantage of this option is that returns are at par with equity with no effort by an investor of scanning multiple ideas to invest into. Here a professional expert will manage money by finding companies which offer growth and high returns.
They have given close to 8-12% CAGR in last 10-15 years.
3. Debt Mutual Funds
These are instruments which invest in Debt/ Bonds issued by companies, PSU’s, government to generate returns. They also offer multiple options to investors to choose from a plethora of options like:
- Dynamic Bond Fund
- Short term Bond Fund
- Liquid funds
- Floating rate funds, etc.
They offer consistent and steady returns with very less volatility.
They have given close to 4-10% CAGR in last 10-15 years.
4. Cryptocurrency
Bitcoin, also called a cryptocurrency, has gained and moved from almost no value in 2007 to a high of $60,500 in April’21.
These are the latest options to invest and are immensely popular right now for their ability to give parabolic returns and having highest beta amongst all investment classes.
There are platforms like WazirX, etc. through which an investment can be made into these.
Also, there are many cryptocurrencies to choose from like Bitcoin, Ethereum, Dogecoin, etc.
They have given close to 500-3000% CAGR in last 10-15 years. The returns can vary depending upon the currency chose.
5. Share / Stock Market
Invest in share market is a fancy and dream for virtually every investor and each one of us have taken the plunge at least once in our lives to do it.
Share market, like any other market place, is a common ground for buyers and sellers to meet and enter into a transaction. As long as the fundamentals of trade are followed like valuations, time horizon, limited risk, etc., there will be no challenge in an investment call.
Investment in share market, as the term investment suggests should be done as per the fundamentals and principles of investing.
However, if someone wants to trade and speculate, then it should be done with that strategy, skills and mental approach.
The choice has to be made by you and an apt action can be taken then.
This investment option asks for a lot of effort by an investor to go through various data points like balance sheets, earnings, debt, etc. of a company to decide to invest and stay invested. Hence this option should be made by investors who are ready to put it in this effort and also have time to do so.
They have given close to 0-1000% CAGR in last 10-15 years. The returns can vary depending upon the company chosen and the constructed portfolio.
6. New pension Scheme
This scheme was announced by the government of India in Dec’03. Under this scheme, an individual can choose to invest systematically for a number of years and then on retirement, 60% of the maturity amount can be withdrawn and remaining 40% has to be invested with a life insurance company for an annuity plan. Annuity means that the interest on capital is paid on a monthly, quarterly, half yearly or on a yearly basis. The return that will be given by an insurer depends on the product and macro conditions at the time of investment.
7. Pradhan Mantri Vaya Vandana Yojna
This scheme was announced by central government for senior citizens, above 60 years of age. This came into existence in 2017 and will be available till Mar’23. Under this scheme, an individual can invest a maximum of 15 lacs and minimum amount of approximately 1.5 lacs depending upon the mode of return (monthly, quarterly, half yearly or yearly). Currently, when the interest rates are low and hovering around 5% for most of the investment products, this scheme is still assuring a return of approximately 7.4%. The tenure in this scheme is 10 years. It is one of the great products available for individuals looking for a high monthly return and safety of the invested capital.
8. Bank Fixed Deposits / FDs
Many banks offer products where in you can either choose to invest for a certain period or invest a lump sum for a monthly income. Depending upon the requirement, returns can be immediate or after a certain duration. The frequency of returns can also be chosen out of monthly, quarterly, half yearly or annual options. The interest rates for this product is around 5.2% currently and can vary on a bank to bank basis.
9. Insurance Schemes
These primarily offer protection to an individual in case of an eventuality. Every earning executive should be insured so as to make sure that their family members and dependents don’t suffer a financial loss, in case of a sudden death.
This protection also comes with returns to give value to investors.
However, the primary purpose of these instruments should be to buy life cover.
They have given close to 2-12% CAGR in last 10-15 years.
10. Real Estate
This is very tricky option for investors as it requires a large sum of money compared to above options to invest into and the entry and exit cant be as swift and easy as in the case of other parallel options.
If there is an opportunity where in an investor thinks that returns can be decent as per their expectations, they may take a call in it.
This option also gives you a monthly income if the property is rented out and thus offers consistent rewards along with long term appreciation.
Various options available with-in this asset class are Flats, House, Commercial property, land, etc.
11. Gold
Since 1971, when it was freed from Currency backing by US, gold has given parabolic returns to investors. It’s not an asset class but a currency. It has retained its value from many centuries and is an international play. There are many factors that contribute to fundamentals of gold like inflation, geo political risk, growth, interest rates, real interest rates, etc. In the long run, it has the power to fight inflation and offers a high state of safety to investors in tough economic situations when every other asset class may suffer serious damage.
It has given close to 9-13% CAGR returns in last 10-15 years.
Our Recommendation
It is clear from above options that there are numerous ways to invest basis an investor’s appetite and time horizon.
The tax implications are also very different for various financial instruments and should be considered while choosing them.
We would say that it is still a very custom based approach depending upon an individual requirement.
The aim of this article is to give a fair idea to an investor to understand multiple avenues so that he is well informed before taking any action with his money.
Please read our other inputs on investment: