Investment Options in India: Expectations vs Reality
Investing your savings in today’s day and age can be quite overwhelming. There’s a mind-boggling variety of options to choose from. This can lead to a FOMO(Fear of Missing Out) that has become an integral part of modern life.
You’re constantly wondering if you’re making the best investment decisions or if there’s something better out there that you’re not aware of. In this article, we’ll help you understand the different types of investment products to help you make more informed decisions.
Fixed Deposits (FD)
Expectation
Fixed Deposits are a great way to grow savings at low risk.
Reality
While FDs are definitely a low-risk investment product, they also come with a limited upside.
It’s true that Fixed Deposits are a great way to kickstart your investment journey because they are low-risk instruments. Unlike mutual funds and stocks, they are not subject to market returns and come with a fixed return. If you have a limited amount of money to invest and a low-risk appetite, FDs are probably your best bet.
At the same time, FDs also have a limited upside. The returns from Fixed Deposits can be much lower than market-linked instruments like mutual funds, debt funds, and shares. Plus, FDs are not as liquid as other short-term instruments like shares and mutual funds. If you break your FD before maturity, you have to pay a penalty charge and may even get a lower return on your investment.
In short
FDs are a great idea if you’re looking for a very safe product that yields reasonable return in the medium-term.
P2P (Peer to Peer Lending)
Expectation
P2P lending is extremely risky and not suitable for ordinary or retail investors.
Reality
P2P lending is being supported by extremely trustworthy platforms that make it a fairly safe investment option with the opportunity for risk adjusted returns being higher than traditional investment options.
Given that P2P lending platforms directly connect investors to potential borrowers, investors usually get a much higher rate of return. Given the fact that a number of P2P platforms in India are built on cutting-edge technology, they tend to be very simple and convenient to operate.
However, given that P2P lending is still relatively new in India. You should opt for well-known, technology-centric platforms like Lendbox which offer both transparency and convenience. Along with P2P Lending, Lendbox have multiple investment options such as Lendbox alternative investment where principle is backed by partner making suitable for even amature and small investors to earn better ROI than multiple mainstream investment channels.
In short:
If you have a decent risk appetite and are looking for a high rate of return in the short and medium term, P2P lending is the perfect option.
Mutual Funds
Expectation
I will be able to get very high returns in a short time.
Reality
While mutual funds have higher returns than savings accounts and FDs, it still takes time and patience to get high returns. You also need to be aware of the hidden risks.
The best part about mutual funds is that enables you to invest across a diverse range of securities including stocks, bonds, and commodities. Since mutual funds are managed by professionals, you can rest assured knowing that your investment is in the hands of experts. You don’t need to have a lot of capital to invest in mutual funds; you can start by investing as little as Rs. 500 a month. At the same time, you can easily withdraw money from the fund, which makes it a very liquid investment.
Despite these obvious advantages, Mutual Funds also have certain drawbacks. At the end of the day, they are market-linked which means that they will be subject to market fluctuation and carry some risk. Mutual funds also charge an annual fee, irrespective of how the fund performs.
In short
If you have a reasonable risk appetite and are looking to park liquid funds in a product that gets you a good rate of return, mutual funds are your best bet.
Stock Market
Expectation
Anyone can invest in the Indian stock market and make money.
Reality
Investing in stocks requires a decent knowledge of market trends and industry insights.
It’s relatively easy to invest in the stock market through a demat account. If you choose not to use a broker, you don’t even have to pay a heavy transaction fee. Plus, it’s the best avenue if you’re looking to make quick returns in a short period of time.
However, investing in the stock market is fraught with risk. If you don’t have the necessary expertise, you could end up losing a lot of money in a short time. The tax liability with stock market investments also tends to be high.
In short
This is a great option for people who have an in-depth understanding of stock markets or are willing to put in the time and effort to learn.
Real Estate
Expectation
Real estate is the only way to get massive returns in the long run.
Reality
While real estate is a valuable long-term investment, there are other investment products that yield much higher returns.
Many people still look at real estate as one of the most tangible and valuable long-term investments to have. Since real estate is known to appreciate tremendously over time, a strategic real estate bet can yield very high returns.
At the same time, real estate is one of the most illiquid investment options. You will only be able to sell at a profit after several years have passed. Plus, you will require a significant amount of capital to even make the down payment on a property.
At the end of the day, your investment decisions should be guided by what works for you. This depends on any number of factors, your income, age, risk-appetite, and so on. Hopefully, you now have an overview of the major investment products and are on your way to making a more informed decision.