So, you are earning money and saving a good portion of it, and now you want to start investing. First of all, kudos to you and I am glad that you have taken this decision because most people do it when it is either too late or don't do it at all.
Before going further there is something you should know; The investment industry is the most bullshit filled market place compared to any other industry - with the exception of journalism. The amount of misleading information, misselling of products, fraudulent activities and fake gurus cheating gullible investors is unparalleled. You have to be very cautious and do not place your money in something that you do not properly understand.
When you venture out, here are investment choices that you will come across. You may already know some.
<aside> 💡 I bet that the ones you don't know are probably the better options and the ones you have come across thanks to paid advertisements are the worst.
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We have all heard of this, "Mutual Funds Sahi Hai". But let me tell you, my friend, there is nothing more Galat than mutual funds if you are looking for somewhere to invest your money.
The narrative sold to you is we at XYZ company have experts who know how to invest in the markets better than you do and you can look to earn n% of return yearly. But what XYZ doesn't explicitly tell you is that in case your money is lost, they will not be liable for it (🚩). Furthermore, a standard management fee will apply, and it could be between 1% to 2.5% of your total invested sum. There is risk asymmetry here.
By the way, did I mention to you that on average, over 80% of funds underperform the market benchmark? Please check out the mutual fund scorecard and read about Warren Buffets Wager.
Direct or indirect MF, it does not matter because investing in something where failure rates are at a high of 80% beats the whole point.
There is nothing much for me to say about this. As of 28th, Aug 2020 banks are offering an FD rate of 5% per year. They accept money from depositors and lend it at a higher interest rate of 8% - 12%.
However, something that nobody tells you is that bank FDs also carries a risk. Risk of a bank defaulting like we recently saw with PMC and Yes Bank. If a bank recklessly lends money and defaults happen, it is the depositors who suffer the most. Keep this risk in mind when.
And this becomes a no-brainer considering the inflation factor.
Public provident fund offers a retirement saving plan with interest rates of around 7.10% per annum as of 28th Aug 2020. The scheme is a retirement plan instrument. A major pro is that gains are tax-free under this scheme and cons; restrictions on withdrawals before a specific age limit and max contribution of only 1.5 lacs a year.
Stock investing is probably the most misunderstood and derogated investment option in India. Investing in stocks is thought of as gambling and uncertain. And that is far from the truth.
Let's start by understanding what it means to own a stock of a company. Owning stock is having partial ownership in a publicly listed company. You earn a dividend (part of profit) and benefit from value appreciation in case prices increase. Like any other business venture, before you start a business, you assess the market environment, demand, regulations and other factors before investing your money. However, when it comes to publicly traded companies, this logic goes for a toss and investors start looking at the price of a stock to assess the situation of the company.
This investment option is only suitable if you are willing to learn the skill of investing in stocks just like any other skill you spent 3-4 years learning. The rewards are high in case you are right, and risk is also high where you could lose your money if you do not know what you are doing. Being skillful helps skew the risk reward factor in your favour.
Don't let anyone tell you that investing in stocks is a guaranteed get rich quick scheme.