Investment is something that we do with the hope of achieving numerous benefits on it in the long term. When it comes to managing finances, investment is a matter of purchasing an asset with the expectation of better capital profits, interest and a combination of good returns.
Investments are of several types such as fixed deposits, equities, property and much more. Investors need to identify the risk and manage the same accordingly.
We have always noticed that our parents gave us several examples related to savings. How their hard-earned money helped them in situations when they needed it the most. It is a fact that our parents did a tremendous job by proficiently managing expenses (child education, food, rents) and savings. However, now the whole scenario has changed completely. In today’s world, savings alone are not sufficient to manage expenses such as child education, buying a house, taking care of critical illness expenses or loans as well.
For every person in India, financial stability is a matter of major concern. A person who has a family will work hard to provide for all the basic needs and requirements. A major part of their income is usually spent on fulfilling the needs and expenses.
Financial stability has always been a major consideration of every person but they also want to secure their financial standing in the future. For the same, they take help of several investment options. Depending only on salaries is not a good idea for a financially stable life. That’s why it is essential to make investments for getting better and higher returns.
Unfortunately, there are only a few people who are aware of the importance of making investments. Mostly, they connect investments with high risks where they have more chances of losing money instead of gaining.
Need for Investment for Salaried Person
Money indeed plays a vital role in our life, but how to handle it properly is more important. An investment for a salaried person is a tool for creating wealth and fulfilling future needs as well. It allows you to meet your life goals easily with the help of careful management of money and finances. It is observed that managing money wisely is the first step towards better investment goals.
Expense management is a matter of getting the appropriate returns for every rupee spent and suitable decisions on the payment mode that is cash, cheque, credit card or equated monthly instalments (EMIs). For a salaried person, financial planning is a critical thing. The reason behind the same is the limited and fixed flow of income. For perfect financial independence, a person has to be proactive in taking steps for the same. It is necessary to understand the saving and spending patterns before investing. A person has to fill the gaps by spending prudently for consumption and saving. One of the major advantages of a salaried person in the regular flow of income. It can be used as a tool for systematic investments for the achievement of financial goals. Another advantage for a salaried person is the risk coverage that is offered by employers which may include life insurance and health insurance. However, it is recommended that one has his insurance cover rather than depending only on risk covers offered by employers as the contract of risk cover would stop when the employment contract comes to an end.
Reasons To Invest
Financial Security: Financial security relies on how much a person invests and how efficiently he/she did so. Investments would help in building a corpus that assists in generating a large cash reserve. It helps in providing financial security to the family.
Prepared For Emergencies: A medical emergency can cause a financial crisis. An unforeseen medical emergency can disturb you financially and mentally as well. Investment helps you in creating a financial cushion for your family. It will help you in dealing with all the unwanted situations that can leave a bad impact on your financial and emotional status.
Assists in Achieving Financial Goals: include purchasing a house, car, marriage or something that requires lots of funds. It is really hard to fulfill all the financial goals in today’s world where the expenses are more than income. With the help of a goal-oriented investment plan, you can achieve your financial goals easily.
Wealth Creation: To create wealth you require investment options that act as a factor of growth to your money. Several options assist you in building your wealth over an investment horizon.
Inflation: Inflation ruins your savings completely. With every passing year, prices keep on increasing. Investments assist you in protecting your capital against price rise. A good way to beat inflation is to invest your money efficiently in an option that provides good returns that are higher than the rate of inflation.
You must check a few things before choosing the appropriate investment options.
Investment Options for Salaried Persons
The investment makes things easier for us by decreasing or eliminating the liabilities from our life. The below-mentioned options are the best investment options for a salaried person.
EPF (Employees Provident Fund)
which is popularly known as the employees’ provident funds are the first option for investment when it comes to a salaried person. The Employees’ Provident Funds came into effect on 4 March 1952. Employee Provident Fund is a very vital tool for retirement planning. The tax-free interest (compounding) and the maturity assist in getting good returns of your money. If it continues for a long period, it can help greatly in achieving retirement goals.
ELSS or Equity Linked Saving Scheme is one of the most popular Sec 80C investments wherein investors enjoy the benefits of capital increment and tax benefits as well. In simple terms, ELSS is a beneficial form of investment in which a person can invest 65% in equity related instruments that are liable to get the tax benefits. Investment in such ELSS MFs will offer tax benefits to investors u/s 80C, which is limited to a maximum of Rs 1 Lakh. There is moderately lesser risk in ELSS. It has only a 3-year lock-in period that is lesser as compared to other 80C investments. In the last 5 years, ELSS funds have had a standard 18% p.a. returns.
- National Pension Scheme
NPS provides a wide range of investment options and choices of Pension Fund Manager (PFMs) for planning the growth of your investments in a sensible manner where you can also see the growth of your money. Under the same, a person can change from one investment choice to another or from one fund manager to another. The returns are completely market-related. NPS offers faultless portability across jobs and locations, unlike all current pension plans. It will offer a hassle-free arrangement for individual subscribers. It is regulated by PFRDA, with transparent investment rules, usual monitoring and performance review of fund managers by NPS Trust.
PPF or Public Provident Fund is one of the most tax-efficient tools in India. It is a tax- free savings avenue that was launched by the Ministry of Finance (MoF) in India in the year 1968. The interest earned on deposits in the PPF account is not taxable. All the deposits made for PPF accounts can be claimed as tax deductions. It was introduced to increase savings among Indians in general, particularly to encourage them to make a retirement corpus. The current interest rate on a PPF account for the financial year 2015 – 2016 is 8.7% p.a. You can open a PPF account in authorized banks and authorized bank-branches only.
Life assurance is an agreement between the insured and the insurer. Under the same, the insurance company promises to pay a designated beneficiary a sum of money in return of premium upon the death of the policyholder. Other expenses that occur because of the terminal or critical illness would be liable under this policy, but it completely depends upon the norms of the plan. In this, you need to pay the premium on prescribed time, either regularly or in a lump sum. Other expenses (such as funeral expenses) would all be covered by this policy.
An Exchange-Traded Fund (ETF)
It is a form of investment fund traded on stock exchanges. This form of investment holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the trading day. Mostly, ETFs track an index, such as a stock index or bond index. ETFs are popular investments due to their low costs, tax efficiency, and stock-like features. It started in the late 1980s and rapidly gained fame as investors started looking for options apart from mutual funds. Investors can easily see the benefit of holding a specific group of stocks with lower management fees and many more benefits.