Tips for Choosing Investment Options in India

Tips for Choosing Investment Options in India

As long as you are in college, the common advice you get is: study well. But once you get a job and you start earning, the advice you get changes. Your family members advice you to start saving. Saving is good but it is more important to invest.

But with so many investment options available, it is difficult to zero in on one investment option. Also, what is the right time to invest in a particular avenue?

Well, the answer depends on various factors, one of them being the goals you set in your life. However, your life goals may vary. You may have a set of goals you wish to achieve in the next two, five, 10 or even 20 years. Based on the time limit, your investment goals can be divided into three categories:
a) Short-term goals
b) Medium-term goals
c) Long-term goals

Investment in short-term goals

A short-term financial goal can be something you wish to achieve in the next week or in the next year. Typically, the time span for short term goals is anywhere between one week and two years.

For short-term goals, it is good to earn a steady rate of return. But it is also very important to ensure you don’t lose your investment capital. That’s why investment in equities can be a bit risky as they are generally volatile in the short-term. That’s why investment in debt is quite popular among investors when the time limit is less.

Investment options for medium-term goals

Medium-term goals can range anywhere from 3 to 5 years. For example, you may want to buy a second car in the next three years. For goals like this, it is best to invest in a healthy mix of debt and equity. It is good to invest in balanced fund to get good returns and to protect capital from exposure. Investment in ELSS funds is also a good option. The best part about ELSS investments is that in addition to good returns, you can also avail tax benefits.

Investment options for long-term goals

Life is uncertain and it is always good to plan for the future. That’s why planning for a retirement that is 30 years away is not uncommon among investors.

Buying a house or funding your kid’s college education are some of the common long-term financial goals. These goals may be 10-15 years away but it is important to start investing today.

It is best to invest in equity funds, ULIPs or stocks for long-term financial goals. Investing in these avenues helps investors get great returns. For example, equity mutual funds offer anywhere between 10-15% per annum and stocks have the potential to offer much higher returns.

Investment in stocks is generally considered risky. However, the long time period helps investors to digest risks down the line. Investment in PPF funds and NPS are viable options if saving for retirement and capital preservation are your biggest goals.


With so many investment options available, it can get confusing. So, instead of asking which investment to choose, the better question is: what is the right time to choose this investment. So, based on the time period of your investment goals and your risk appetite, you can make your investment decision.


 Investment in securities market are subject to market risks, read all the related documents carefully before investing.


Step by Step Guide to Investing

“What next?”It is probably the most popular question that you get asked by family members when you go home for holidays. You may have completed your education and have just bagged a well-paying job but your family may always ask: “What next?”Well, the right answer to this would revolve around investment. Not saving, but investment. That’s because investing can help your money grow faster. So, if you want your money to work hard for you, here is a step-by-step guide to help you chart your investment journey:Step 1: Educate yourselfIf you are new to the world of investments, don’t worry. It is not a big deal. The best thing about investing is that literally anyone can do it. Did you know that the famous investment guru Warren Buffett bought his first share at the age of 11!But in order to get started, you may need to educate yourself before investing. There are a lot of different investment avenues such as bonds, stocks, mutual funds, Unit Linked Insurance Plans (ULIPs) and so on. Each of these investment avenues have their own pros and cons. The risks and returns vary. Try to read as much as you can so that you can get a better understanding about these avenues.Step 2: Find out how much you can investEveryone operates on a budget. And whatever remains after the expenditure is labelled as savings. The general formula for most people is: Income – Expenses = Savings However, the ideal formula should be:Income – Savings = ExpensesHow much money you save shouldn’t depend on your expenses. Instead, how much you spend each month should depend on your savings. This small change can help you increase your savings. With more savings in your account, you can invest more. This can help you increase your financial returns later on. So, sit down and draw up your list of financial goals. And based on that, you can figure out how much you need to invest each month in order to reach these goals comfortably.Step 3: Find an investment advisorWhen you invest in the stock market, picking the right stock at the right time can be very crucial. That requires a lot of time and expertise. However, most people who invest in stocks, bonds and other avenues have regular jobs. It may not be possible for them to spend a lot of time researching markets on a daily basis. That’s why an investment advisor can be very helpful. An investment advisor can help you identify the right investment choices based on your short term and long term goals.Step 4: Understand your tolerance for riskWhen it comes to investments, there is always a degree of risk. Whether it is a savings bank account or the stock market, you cannot avoid risk. However, the degree of risk varies from one investment option to another. It is commonly said: higher the returns, higher the risk.It is important for you to know how much risk you are willing to take. This is because each investor has a different risk appetite. For example, if you have a low tolerance for risk, it would be unwise to invest in certain avenues like shares. But remember that if you put your money only in a savings account to play it safe, you can risk losing out on higher returns in the long run. Step 5: Create an investment portfolioFinally, you can start investing. Based on your investment goals and your risk levels, you can chart out an investment plan with your advisor. You can put your money in options like bonds, Public Provident Fund (PPF), National Saving Certificates (NSC), mutual funds, gold or shares. The important thing is to ensure that your portfolio is well-balanced. For example, you may want to invest in equities. But don’t forget to invest a portion of the money in debt options. This is because, if the stock market crashes, your entire investment doesn’t go down at the same time. The debt investments can give you good support at such times.ConclusionInvesting is not a destination. It is a lifelong journey. Follow the above steps and you can kick-start your investment journey on the right foot.   Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

read more


What is debt?

Every company needs funds to grow its business. It can raise these through two kinds of instruments – equity and debt. What is debt?Debt instruments are issued by companies and the government to borrow funds from investors. In addition to financing growth initiatives, issuers use these funds to meet unexpected cash requirements or generally bridge the gap between income and expenses. Debt is generally raised for a very specific purpose that is mentioned in the term of agreement, called the bond covenant. There are several types of debt instruments. They are classified into short-term and long-term based on their maturity.- Short-term debt instrumentsShort-term or money market instruments have a maturity of up to one year. They include Treasury Bills (T-bills), Commercial Papers (CPs), Certificate of Deposits (CDs), Repurchase Agreements (Repo), and Banker's Acceptance.T-bills and CPs are among the most common money market instruments. T-bills are issued by the central government for maturities of three-month, six-month, and one-year. CPs are issued by companies and have a maturity ranging from one to 270 days. - Return on Zero-coupon bondsT-bills and CPs are called Zero-coupon instruments because neither pays periodic interest (called coupon). Instead, they are issued at a discount and redeemed at par. For example, a company may issue CPs worth Rs.100 each (called par value) at Rs.96 (i.e. at a discount of Rs.4). If you invest in it, you will receive Rs.100 each on maturity. The difference of Rs.4 is your return.- Long-term debt instrumentsThis includes bonds issued by companies and the government for a term of above one year. They generally pay a periodic coupon and return your original investment at the end of the term. The coupon rate can be fixed (such as 6%, 8%, 11%...) or floating. The coupon for a floating rate bond depends on another rate and is calculated using a fixed formula every time. For example, a floating-rate bond linked to inflation is called an inflation-linked bond. Its coupon is calculated using an inflation-based formula like [inflation rate + x%]. Why companies raise debt?You must be wondering why companies raise debt when they can raise money through equity. Simple: equity and debt are different products with unique characteristics. The sum of funds raised through these is called the company’s capital. The objective is to weigh the features of these products and decide the company’s ideal capital mix or, formally, capital structure.Debt is a cheaper source of funds than equity because the coupon rate is always lower than what the company pays equity holders. However, unlike equity dividends, the company is legally bound to pay the coupon in every period. Equity dividends can be increased, decreased or even cancelled at the company’s will.Also, promoters have to part with their shares whenever a company raises equity. This reduces their say in the business and they are not always willing to do this.Risks of investing in bondsBonds are considered low-risk investments because they pay a regular coupon and give investors a legal claim on the company’s assets in case their dues are not paid. Although safer than stocks and other instruments, bonds are not completely risk-free. The ability and willingness of the borrower to pay you are the greatest sources of risk for bond investors.Increasing interest rates is another major source of risk because bonds trade on the exchange like stocks. When interest rates increase, new bonds with the same features pay a higher coupon. This reduces their value on the exchange. Let’s look at an example.Suppose you own a bond that pays 9% coupon. When interest rates go up, new bonds with the same characteristics will pay a higher coupon, say 10%. Investors that are holding the same bond as you will sell it and invest in the new bonds. But they can only sell at a lower price because other investors would rather buy the new higher-paying bond for the same price. So, your bond’s price will fall, resulting in a loss. Risk premiumThe government is the safest borrower because it is the most likely to meet its bond obligations. This is why government bonds are called risk-free bonds. All other bonds are considered riskier. However, to compensate investors for the risk they take by investing in their bonds, other bond issuers pay a higher coupon than government bonds. This extra coupon is called the risk premium.To sum upEquity and debt are just as important to your portfolio as to a company’s capital structure. Equity maximizes returns and debt minimizes risk. Your investment strategy should be to optimally allocate funds to debt and equity based on your investment objectives.If returns are more important to you, invest more in equity. But be prepared to incur losses along the way. If security is more important to you, invest more in debt. But don’t expect supernormal returns.       Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

read more

Are you Investment ready?

*All fields are mandatory

related stories view all

  • Value Investing - What is Value Investing & its Fundamentals

    Value investing is the dark horse of stock markets. And this dark horse has created huge wealth for none other than Warren Buffet. Read on to know what value investing is, and what are the critical factors in this strategy. All that glitters is not gold and all that is gold does not always glitter. This holds true for investment decisions as well and forms the core principle of value investing. What is Value Investing? The value investment strategy was popularised by Benjamin Graham along with David Dodd after successfully surviving the period of the great depression. It involves proactively identifying stocks which are trading at a significantly lower value than their intrinsic value. Intrinsic Value refers to the true value of a stock. The two factors behind value investing are market price and value. Price is the amount you pay, and the value is what you get in return. Value investing believes that the stock market does not always remain in an efficient or balanced state. It sometimes overreacts to events such as political announcements, organisational restructuring, economic conditions and results in stock price fluctuations which do not correspond to the company’s actual worth or long-term fundamentals. Hence, there is a good probability that there are undervalued or overvalued stocks in the market. Value Investing and Behavioral Finance Value Investing and Behavioral Finance are two sides of the same coin. Value investing aims to exploit irrational or impulsive behaviour of investors. Emotions heavily influence investment-related decisions. Greed, fear, peer-pressure lead to poor investment decisions. This creates a huge potential for dispassionate or objective investors. Value investors do not get carried away by market sentiments or herd mentality, instead, they look at the real value of a stock in the long run. They also do not fall into a “growth trap” without actually understanding the history or behaviour of stocks. Fundamentals of Value Investing1. Find the intrinsic value Investors who follow value investing strategy are more interested in a stock’s intrinsic value and not just the current market price. There are multiple ways and valuation methods that are used to identify the intrinsic or true value of a stock. Such as discounted cash flow analysis, dividend discount model, Earning per Share valuation, etc. There is also a formula coined by Benjamin Graham to arrive at the true value of a stock. It is:  Intrinsic Value = Earnings Per Share (EPS) multiplied by (8.5+ Twice the growth rate of the company in the coming 7-10 years).  This formula has been now tweaked to reflect the current market conditions correctly. It is now:  Intrinsic Value = [Earnings Per Share (EPS) multiplied by (8.5+ Twice the growth rate of the company in the coming 7-10 years) multiplied by 4.4] divided by current corporate bond (AAA) yield.  4.4 in the above formula referred to the minimum rate of return in the USA in the year 1962. For the purpose of valuation of Indian stocks, 4.4 should be replaced by the corporate bond yield in the same year in India. When the stock’s market value goes below the calculated intrinsic value, investors purchase those stocks. Then they sit back and relax till the time the market corrects itself and the stock price reaches its actual value.  2. Margin of Safety Margin of Safety enables value investors to manage risks and avoid losses. It is also the key element which distinguishes value investing from mere speculation. It refers to the difference between the stock’s current market price and its intrinsic value. Higher the gap, greater is the safety margin. By investing in a stock with an adequate security margin, investors know that any negative event or volatility will not adversely impact the value of the investment. 3. Don’t follow the crowd Value investing is not for those who like to follow the herd. Value investors focus on stocks which are overlooked or avoided by others because of their low valuations but are inherently solid stocks.   Are there risks in Value Investing? Yes. Just like all the other things in our life, there are risks involved in Value Investing as well. One of the biggest risks is falling into Value Traps. All cheap stocks do not translate into good investment decisions. Value traps are stocks which seem to cheap due to low PE multiple or cash flows, but never go up in value. It is important to do full due- diligence before investing. This includes not just financial metrics, but also qualitative aspects such as quality of management, stability, competition, etc. Final Words Value investing is a proven strategy for wealth appreciation in the long run. But it can be an intimidating way of investing without the right support. A partner like IndiaNivesh can make the process smooth and more fruitful for investors. IndiaNivesh is a reputable financial service provider which offers a wide range of services related to Broking, Institutional equities, strategic investments, wealth management, investment banking and corporate finance. With their in-depth understanding of the Indian markets, the organisational experience of three centuries and cutting-edge technological tools, they help investors make well-informed and profitable decisions.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

    read more
  • Online Trading – 5 Essential Tips for Trading Online in 2020

    Technological advancements and digitalisation have changed the online arena for every business, and the online share trading is no exception to the trend. Over the last few years, online trading has become very popular, especially amongst the millennials and generation Y. Prevalence of smartphones, lower costs, opportunity to earn extra income, low entry barriers, ease of access, etc has had a profound impact on online trading. Even though online stock trading today is huge, and many people are motivated to explore online trading for a rewarding career, by no figment of imagination it should be assumed that it is easy, and they can become financially self-sufficient in a short period. Here are 5 essential online trading tips to help improve your chances of success in your endeavours as a trader-1. Do the research and gain relevant information about the markets The economic conditions are constantly changing and it has a significant impact on the stock markets. To be successful in online share trading you have to do your research, collect relevant information and be updated about matters relating to markets. With information being available at the click of a button, it is easy to get access to information from various sources. Keeping your eyes and ears open about the official announcements being made, reading up market-related articles and financial publications can help you ace the game of online stock trading and avoid making whimsical trade calls.  2. Get acquainted with the trading terminologies and tools Getting yourself familiar with various terminologies and trading tools beforehand is extremely important so that you do not falter when you start trading. Clearing your basics about the important workings, different types of trades, important terms are critical. If you are not clear about the basics, then you may end up placing a wrong order. Once you are trading online, you are investing real capital and you cannot undo the trade. So, it is essential that you must be familiar with the features and the functions of the trading platform which you are going to use. Practice trading on dummy versions to get a hang of the trading interface before you can start with online trading. Once you have enough practice you will not be flustered and confused at the time of real trading. 3. Start with small capital and practice risk management There are infinite opportunities in the trading world and you do not want one experience to be the deciding factor for you. As online trading is risky, you should always make a small start in the beginning and invest little capital. Even the most successful traders do not put their entire investible surplus for trading but use only the capital which they have to spare after they have put aside for their long-term goals such as retirement. So, invest only the capital which you can afford to lose and which will not affect your financial planning. Another important thing to keep in mind at the time of executing trades is that the risk associated with trading is high and hence you should take adequate measures to minimise risk. Setting a stop-loss to your order will automatically stop a trade if the losses hit a particular mark and help minimise your losses. 4. Be patient and disciplined Online trading is a great way to make an income and many have successfully made a career out of it. If the success stories of other traders have motivated you to take the plunge, then, let’s be honest, online trading is risky and not for the light-hearted. Moreover, it is not something you can master overnight or become rich overnight on a single trade. To be successful, you need to have the right mindset and should be disciplined in your approach. Make a trade plan and stick to it. Trading out of impulse or greed will not help you become successful but following a plan and trading when you see opportunities can help you achieve the desired results. 5. Select the right broker and trading platform Last but not least, choosing the right broker and opening the best trading account online is important, and hence you should be careful about your selection. Choose a trading platform that best meets your needs and has a user-friendly interface. You should be comfortable using their software. Your success rate would be greatly affected by the timely execution of your orders. Other aspects to consider are a level of customer service and satisfaction, market reputation and competitive fee structure.   Conclusion With the above essential online trading tips, you can give your income a boost. We at IndiaNivesh have one of the best online trading platforms at the most competitive price and also offer expert advisory and research to meet your investment needs.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

    read more
  • Tips on Investing Money in Mutual Funds

    Mutual Funds are the cynosure of the financial world. And rightly so! These investment havens pool in money from multiple investors and then invest the corpus across asset categories in line with the scheme’s objective. They are a great option for retail investors who would otherwise find it difficult to get exposure to such varied investment opportunities. What makes Mutual Funds a good investment tool? ·         Professional Management The USP of Mutual Funds is that they are managed by a team of experts. They are equipped with the necessary resources and information to continuously monitor the markets, analyze market trends and conduct in-depth research. As a result, the fund managers can devise the best investment strategy for the investors and guide them regarding the best mutual funds to invest in. ·         Financial Discipline One of the common problems faced by investors is that they lack the rigour or discipline to stick to their financial resolutions. Mutual Funds take care of this issue easily. Systematic Investment Plans ensure that investors continue to invest regularly. ·         Flexibility Mutual Funds offer a great deal of flexibility to investors. You can choose the frequency of contribution as well as opt to increase or reduce the investment amount as per cash flows. ·         Affordable Systematic Investment Plan (SIP) facility makes Mutual Funds affordable to everyone. One can start mutual fund investments with just Rs. 500. That is basically the cost of one pizza these days! They are perfect for novice investors who are overwhelmed or scared of equities but still want some exposure. ·         Tax savings ELSS are tax-saving Mutual Funds. Investment in these mutual funds qualifies for tax deductions (till Rs. 1.5 Lakhs) as per Section 80C. Owing to their potential of higher returns and shorter lock-in period, as compared to other tax-saving alternatives, ELSS have become a preferred choice for many investors.   Mutual Fund investment tips Now that you know what makes Mutual Funds a great investment tool, here are some mutual fund investment tips to help you make the most out of your hard-earned money. ·         Set a goal It is rightly said that “Dreams do not come true. Goals do”. The same rationale applies to investments too. Investments bring the best results when they have a purpose. So, the first step in mutual fund investments should be setting an investment goal. You should consider factors like budget, investment horizon, financial ambitions and most importantly your risk appetite.  ·         Select the right fund type When it comes to mutual fund investments, one size does not fit all. Just because your friend is investing in a fund does not mean it will benefit you as well.  Mutual Funds invest across a range of asset classes. Hence deciding which mutual fund to invest in can be slightly tricky. It is important to choose a scheme that is in sync with your needs and risk profile. For instance, if you are an experienced investor and can afford to take risks, you can easily go for equity funds. However, if you are a novice then most mutual fund tips for beginners will suggest going for debt or balanced funds. It is important to understand the risk-return relationship inherent in each asset category before making a decision. Rule of thumb being – higher the risk, higher the return! The asset allocation should be in sync with your risk appetite. Also, ask yourselves why you are investing in mutual funds. Is it to save taxes? Then ELSS Funds are your best bet. If you have a short investment horizon and want a fund type with high liquidity, then you can go with Liquid Funds. ·         AMC Credibility Check The right fund house can not only help you decide which mutual fund to invest in but optimize the potential of your overall portfolio. It is important to look at factors such as the credentials of the fund managers, expense ratio, components of the portfolio and AUM (Assets Under Management) of the Fund House. ·         Diversification is the key You should not put all your eggs in the same basket. Diversification across asset categories and investment styles is important. It helps to lower the risk quotient as it gets spread over different investments. Even if one fund underperforms, the other can compensate for it. The value of the entire portfolio is not at risk. ·         SIPs vs Lump-sum One of the best mutual fund tips for beginners is choose the SIP way. Especially if you are venturing into equity or equity oriented mutual funds. A SIP will allow you to spread out your investments over a longer duration of time. You will invest at different points in the market cycle and hence even out the associated risk. Also, the power of rupee-cost averaging in SIPs helps to generate higher returns in the long-term. ·         KYC KYC has become a necessity these days. Government of India has mandated KYC for most of the financial transactions including mutual fund investments. So, ensure that you have documents such as PAN Card, valid address proof, etc. before you venture into mutual fund investments. ·         Have a long-term view Mutual Funds are like a committed relationship and not a one-night stand. You need to remain invested for a longer duration in order to get the best rewards. Especially in the case of equity funds. This is because markets tend to be volatile in the short run but tend to move up in the long-term. The best combination is to invest in a mix of debt and equity to get best of both the worlds. Debt Funds would help to lower the overall risk of the portfolio and could help meet emergency fund requirements in the short run. While your equity funds work on wealth appreciation in the long run. ·         Ask the Expert Just like KBC, Mutual Funds also come with a helpline – Ask the Expert! There are so many options available in Mutual Funds. It can become rather overwhelming for a new investor to select the right mutual fund to invest in. A professional expert will not only help to select the right funds and schemes but will also constantly monitor the market on your behalf. One such expert is IndiaNivesh. They offer a wide variety of financial solutions related to broking and distribution, strategic investments, institutional equities, corporate advisory, investment banking and private wealth management. The team at IndiaNivesh has a combined experience of more than 300 years. With their cutting-edge technological and research capabilities, competent team and “client-first” approach, you can be rest assured that you are in safe hands.   Final Words Now that the mystery is solved about how you can select the best mutual funds to invest in, what are you waiting for? Especially when you know that you have a guide like IndiaNivesh available at the click of a button.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

    read more