Before I answer this, Let’s understand what will happen if we keep our money simply in the bank account.
Lets say you have 1,00,000 rupees in your bank account. If you don’t do anything and just keep it as it in the bank account what will happen after 1 year?
There’s a concept called inflation which increases every year with a percentage of 6-8%.
What does it mean?
Suppose if you buy a product for 100 rupees today and after 1 year and because of inflation let’s say on an average of 6%, the same product will cost you 106 rupees.
So, if you put 1,00,000 rupees in the bank account, after a year, Its value would be 94,000 rupees.
You will see 1,00,000 rupees in bank account but its worth is 94,000 rupees.
Now, by default, the bank pays you some interest for keeping the money in bank account.
That interest rate varies between 3-5%. Ideally it would be between 3-4% and in rare cases they may increase it to 5% to gain more customers in the bank.
If we take the average case which is around 4% interest, you are still behind the average inflation rate per year with -2%.
So, what are the options we have to beat this inflation rate?
1.Fixed Deposits(FD)
Whenever we think about investing or saving money, this is the first option we get in our minds. Why because, thats what our grand fathers and father did.
But, is this a ideal option today? Probably not.
I will tell you why?
FDs has become popular in 1980s. During that time, the country was going through economic crisis. And It was the time, our grand father or fathers prime time of working in jobs.
There were no many options for the investments during that time. So, the banks offered higher interest rates ranging from 10-11% if we keep the money in FD and hold it for a longer period of time.
That’s how FD became popular among our grand fathers and fathers thats why they always tell us to invest in FDs.
But in today’s time, the interest rates in FD gone down, and that ranges in between 5-8% which is near to the average inflation rate every year.
So, if you keep money in FD and hold it for 5 years, its worth would be kinda same or may be a little less.
People who doesn’t want to take risks with their money probably invests in FDs
2. Govt Schemes
We do have a lot of govt schemes like
Public Provident Fund (PPF)
National Savings Certificates(NSC)
Sukanya samriddi Yojana(SSY) etc..
Which gives us the interest rate ranging between 7-8%.
One thing we need to remember while investing in these schemes is
1.These are long term schemes compared to FDs and the maturity period is longer than FDs.
You need to hold the money for more than 10 years in these schemes to get benefitted with these schemes.
3. Real Estate
Real estate is one good option to make investment but it does comes with risk. It can be very rewarding but comes with potential risk. Your profits will depend on the location you are investing. some times, you may see no growth at all in real estate and in some cases you may face legal issues. If you are good enough to handle all these issues. Real estate can be a good option.
4. Gold
Gold is another traditional way of investing in India. Gold comes under commodity and if you see the history for long period of time, the price of gold going up. But there’s a limit for gold holdings per person. If you are man, you can hold up to 100gms, if you are unmarried woman you hold up to 250 gms and if you are a married woman, you can hold up to 500gms gold without documents. If you are holding more gold than this, you have to submit proofs for tax purposes.
5. Mutual Funds
Mutual funds are nothing but investment instruments that pools money from many individual investors like us to invest in stock market.
So here, we are indirectly investing into stock market which gives us return from 8-12% on an average.
If you are someone who is a working professional or a business man who doesn’t have enough time to do research and invest in stocks can opt to this option.
But remember, read the documents properly before investing.
6. Direct Stock Investing
Here we do our own research in stock and do investing. We will either do fundamental analysis or technical analysis on stocks and do investments or trade them based on the analysis. This can be done through our demat account on stock exchanges. Here you have full control over the stock you bought. You can buy and sell when ever you want during market hours.
If our analysis is successful, this can be more rewarding then any of the investments strategies but at the same time if our analysis goes wrong, your money will be completely at risk.
So be careful while doing any investments directly in stocks.
So these are the most exercised options by people in terms of investing or trading to grow their money.