Overview of Indian Economical Instruments
Earning and Saving is the inevitable part of every person’s life.Why not be informed about your decision of savings.Being a long life ahead its necessary for the young earners that they should aware of the various options available for investment and saving. I have seen the people who have invested only in LIC policies throughout his life. In this way definitely, they missed the golden opportunity of earning through other instruments and they failed to exploit the principle of compounding. For such people Income tax saving through 80C is the only way for investment. But remember don’t invest just considering the aspects of Income tax. Investment is a truly a different art which everybody should be aware of leaving wealthy life. A quick guide for Tax saving will tell you the way to save tax but the objective of this article is to present a holistic view of Investment and Saving so that a person can take an informed decision. If you have read this financial guide earlier you already covered a step towards financial literacy.
Broadly we can divide the whole range of the instruments into Risky, and Risk-Free instruments. A typical middle-class man always more tends towards the Risk-free Instrument intern he gets fewer returns.
Risky Instruments :
Instruments whose returns are linked to the performance of Equity market is called Risky instrument and this risk can vary from instrument to instrument.Higher the risk you can take higher the return you may get.These are the instrument which always comes with the well-known disclaimer that Investment is subject to market risk. A list is as follows
- Direct Equity Investment
- Investment in Mutual Funds
- Market linked insurance plan like ULIP (Unit linked insurance plan)
Instruments which are completely market risk-free and since the beginning you know the percentage of return which you will get. Be remember that returns may not be as high but the associated risk is also nil. These kinds of instruments are suggested for higher age people who have retired are going to retire soon.
- Banks Fixed Deposits
- Banks Recurring Deposit
- Corporate Fixed Deposits
- Government and Corporate Bonds
- Insurance cum Investment policies like LIC
- Other Governments schemes like EPF,VPF,PPF,Sukanya Samridhi Account (Employee Provident Fund,voluntary Provident Funds,Public Provident Fund)
- Saving Accounts
Nowadays many financial institutes are offering hybrid instruments which are mixed of both of the above Instrument. Some part of your money will go towards risky instrument and some part will go towards risk-free instruments. Again this parts depends on various factors like your age, your risk appetite and objectives of instruments. some such instruments are
- Other Customized Financial plans offered by various Financial Entity
All above instruments are there for some fixed term, some are short-term instruments while others are long-term instruments. It’s up to you whether you want to save and invest for short-term or for long-term.There is proven methods for contribution towards risky and risk-free instrument which leads you to safe life that is Percentage of risk-free investment should always be equal to your age. In simple words, if your age is let say 30 years and you have 100rs for investment then you should allocate 30% of 100rs that is 30rs towards risk-free instruments and remaining in the risky instrument. In this way, you can manage the trade-off between returns and risk. So keep reading and enjoy the effect financial literacy.
Disclaimer: I am not a certified financial adviser but I am a keen financial observer. Take the advice of your financial expert before investing.