how to invest your money to earn a good return in India

So, are you happy with your investment choice? Do you think your investment decisions are the best for the improvement of your financial health? Do you start your investment? If your answer is NO, then you are in the correct place.

My friend, by the end of this article, you will know the best option for your investment.

I will help you to find out the best investment option for you. No, I don’t want to give you any trash idea. My advice does not make you rich within a day or night. But that will provide oxygen to your financial life.

Let me show you the different ways of investment with my proper suggestion about that ways.

Why Investment is so important

“Save your money”. It is the most common advice from any senior person of your family. Another one is “Don’t waste your time and money”.

And they are right. If you can’t save your money then you can’t create your wealth.

Wealth creation is very much important for your future life. After retirement, your saved money will help you to serve your family as per their needs.

But my friend, only saving is not sufficient for your future. You must invest your saved money. Otherwise, it has no use.

Saving does not mean that put your money in a box or in your wallet/moneybag. In that case, your money becomes idle. Idle money can’t give you any benefit. After a certain period of time, it will be disappeared.

Actually, you have no control over your idle money. You have your personal needs. You have to serve your family. And there are so many responsibilities on your head.

To meet the above responsibilities you will use your idle money. And the result, you know very well, will be ZERO.

And here comes the INVESTMENT. A proper investment should give you everything.

Save your Money- Use Target Costing Method

In this highly competitive market, Companies are always tried to take some smart moves. Target costing is one of them. In this costing method, a target cost is set based on the selling price and the profit margin which they want. So, it can be like this

Target Cost = Selling Price – Desired Profit.

In your day to day life, you have to spend some money for your daily needs. Everybody needs good food, good clothes, and a sweet home. So, in your case, the target cost will be

Expenses = Earnings – Savings

In one sentence, Save First Spend Later.

If you will start your saving habit like this you will be surprised to see the result. You will be amazed to see the actual effect of this formula. Suppose your monthly income is Rs. 20000 and you are 25 years of age. Now you have to decide what will be your percentage of savings. In your early age of life say 25 years, it must be 50% i.e. Rs. 10000. And the balance amount is your expenses. If you decide to save Rs. 10000 per month for 10 years, your total saved amount will be Rs. 1200000.

Gradually, when your responsibility increases, the percentage of the saved amount decreases. When your age will be 35 years, your percentage of savings will be 25% or less. On the other hand, your income will increase. In that situation, you must try to save the same amount as before. You should try to save your money up to the age of 45 years.

Can you imagine, by applying this formula, how much amount you can save in between those days? If you invest that much amount in a proper way then no one can stop you. Remember, it is just an assumption. I have not considered any interest income. Only your saved money is taken into account. If you accumulate both your invested amount and interest amount, the result will be BOOMMMMM.

Don’t waste your time

Yes my friend, otherwise you may lose some good opportunities. You have your saved money. What is the reason for wasting your time? Go and invest your saved money as soon as possible. But it must be in a proper manner. You can understand from the above example that early investment is really beneficial. You can enjoy your money throughout life.

Actually, we are not habituated in investing. If anybody had tried to invest, that also in an improper manner. Very few of us have expertise in the style of investment.

So, you have to make your habit of investment. It must be just like your daily routine. You can’t forget to eat, sleep etc. You can’t avoid them. And that is the point. Investment itself has a great impact on your life. So, you can’t avoid it too. If you wait, you may lose some opportunity to increase your wealth.

No one can say the exact right time of investment. You have to make your plan and take your steps towards the investment world.

Start with small.

If you are a newcomer in the world of investment then you have no experience about this world. So, start with a small amount. Basically, it is very much true for the stock market. If you have no idea then gives your time to gain your knowledge.

Before that don’t take any risk to invest all your money. If stocks will fall, you will lose all your savings.

Emergency Fund is most needed.

You don’t know what will happen in tomorrow. Nobody knows. So, you have to prepare for that. Now the point is how you can create your emergency fund?

You have the idea about your daily needs. You know it much better than anybody. Create your liquid fund which will cover the minimum of your 5 to 6 months daily expenditure. This fund will help you in case of occurrence of an emergency situation.

If there is an accident or illness, this fund will help you. You have to prepare yourself for the unexpected event.

Remember; don’t use this fund for any other silly purpose just like buying a mobile phone or paying your down payment etc.

Don’t take any useless loan

Today, you can buy anything through a loan. You can fulfill your desires by it. But unnecessary will cost you. You have to pay heavy EMI for that. How can you save your money if there is heavy EMI?

Avoid useless loans. Only go for necessary one. And clear your debt as quick as possible.

If you try to reduce your debt so quickly, that will be beneficial to you. Long period EMI means a huge amount of interest burden. So, try to pay your debts quickly.

Don’t forget about inflation

What was the price of LPG gas cylinder 10 years ago? And what is the current price? That is called INFLATION. It indicates the decrease in the purchasing power of consumers.

Today, the costs of living are so high. Now my friend, what will be the cost of living after 10 years? If you make your plan for investment without considering the inflation, your plan is incomplete.

Let us take one example. What is the current inflation rate in India? In October 2018, it is approx 3.31%. Now, if you make your investment in order to get a 9.5% return after 10 years, then your actual return will be only 6.19% i.e. 9.5% minus 3.31%. (It is assumed that the inflation rate will be the same). It is called INFLATION ADJUSTED RETURN.

Now my friend, what will happen if the inflation rate will be higher than the present rate? So, always think about inflation.

Power of Compounding

Do you like MAGIK? Compounding is one type of magic. However, you can see an instant result of any normal magic but to see the result of compounding, you have to wait. It can’t make you rich within a day or night or in a year.

Compounding means to generate income from both principal and interest. You have to start your investment early to see the proper magic of it.

Actually, it works in a proper system. It is a process in which the earnings from any source are reinvested to generate additional income over a certain period of times.

It will generate income from the principal amount as well as from the interest amount both.

Let us take an example. Suppose you are 30 years old. You want to make a one-time investment of Rs. 50000. The tenure of the investment will be 30 years and your expected rate of return is 8%. Now after 1^st year, your interest income will be Rs. 4000. Total amount after 1^st year will be Rs. 54000.

You can’t understand the result of compounding after 1^st year. Now the magic will start. After 2^nd year what will be your interest income? Rs. 4000? No my friend, not like that. Your interest income will be Rs. 54000 X 8% i.e. Rs. 4320. Now the total amount after 2^nd year will be Rs. 58320. After the 3^rd year, the interest income will be Rs. 58320 X 8% i.e. Rs. 4665.60 and so on. What will be the total amount after 30 years?

Your Rs. 50000 will become Rs. 500000 after 30 years.

Can you imagine the result, if you invest Rs 10000 per month for 10 years? Again the result will be BOOMMMM.

Control your spending attitude but don’t be frugal

You know, I hate frugality. Please tell me the name of any rich person who is frugal. Saving is a really important matter but not like a frugal.

A frugal person doesn’t want to touch his “HARD EARNED MONEY” at any cost. I have a doubt that they don’t like investment also.

If you like something and that particular thing is really important to you, GO and BUY it.

It depends on you what are the most important things to you and your life.

There are certain expenses which you can’t avoid like rent, monthly installment etc. On the other hand, there are some avoidable expenses also. If those expenses are not needed, cut them from your life.

If you cannot avoid then try to reduce your expenses. I mean to say if there is any chance to reduce the particular expenses then you should do it. For instance, you can buy some product through online marketing. You can get a discount on your purchase.

Instead of that, use your money for those things which you like most. Don’t be frugal in that case.

I am ready to invest, but where?

Now you can ask me this question. Yes, you are ready now. You know the power of compounding, the effect of inflation, the importance of saving etc. But you have no idea or less idea about the investment areas.

Here I will give you the best suggestion which I believe and follow in my life. Read the following points very carefully:

Life insurance is not an investment

I am really surprised to see that maximum people take it as a tax saving investment. Yes, if you have life insurance then you are eligible for tax deduction under section 80C. If you think only about tax saving and creating wealth then you have no idea about the main purpose of this policy.

Man is mortal. Nobody knows what will happen tomorrow. If you are the only earning member then think about the situation of your family if something happens to you. A good life insurance policy can give you that satisfaction.

However, it is not the best option for tax saving purpose. Only 10% of sum assured is eligible for deduction under section 80C.

Medical insurance is very much needed for you and your family

Medicare or medical costs are rising year after year. For a common man, arranging the fund in a critical situation is not a matter of joke. Health insurance is the only way to survive in this critical situation.

Besides above, the premium paid on health insurance is eligible for deduction under section 80D from your taxable income. It can reduce your tax burden. (You can read – Deduction under section 80D-How can Medical Insurance save your income tax)

Think about Savings Account with auto sweep facility

It is a combination of savings account and fixed deposit account. Any amount above the particular limit (Known as threshold limit) shall be automatically transferred to the fixed deposit account. In that case, both accounts will earn interest according to their interest rate.

You can withdraw your money just like your regular transaction. When the amount goes below the threshold limit, the fixed deposit account will automatically close.

The interest rate of normal savings account is only 3.5% (Depends on the Bank’s policy). But, in case of auto sweep account, it is much higher.

FD vs. PPF

I like Public Provident Fund (PPF) very much. You know why? There are so many reasons and they are:

• You can see the power of compounding.
• You can invest as per your financial condition. The minimum amount is Rs. 500 and the maximum amount is Rs. 150000 per annum.
• The entire amount of your investment is eligible for deduction U/S 80C. (Restricted to Rs. 150000)
• Total income is tax-free. etc

The interest amount of fixed deposit is taxable. However, the lock-in period of PPF is 15 years and that is much higher than FD. Again, only individual and HUF are eligible for PPF account. In the case of FD, there is no such restriction.

ELSS (Equity Linked Savings Schemes)

After PPF, I like it very much. It is another tax saving investment which can give you a high return also. You must remember the following points about ELSS:

• You may want to invest in equities but you have no proper idea about that. ELSS is a great option to get exposure to equities.
• It has the shortest lock-in period, only three years. On the other hand, the lock-in period of PPF is 15 years. However, don’t take it as a short-term investment option. In long-term, you will get a much better result.
• You can start ELSS through SIP also. You can invest Rs. 500 per month. It is easy, right?
• ELSS is an equity-based investment option. So, you can’t forget about RISK. However, no Risk no Gain. Therefore, you must invest in ELSS with a proper plan.
• It is true that you can expect a higher return from ELSS than any other investment option. But you can’t expect any return which is not real. Remember, there are no guaranteed returns from ELSS.
• Invest for the long run. And you know the magic i.e. compounding gives its better result in long run.

Don’t take any wrong step

It is true that the share market will give you an opportunity to get a higher return than any other option. But, investing in the share market is a risky step. You have to do some research work for that.

Again, your research work may be failed. In 90% of cases, investors choose the wrong stock. No one is “expert” in the market. No one can tell you what will be the result of the market after 7 days (Even next day’s result is also unpredicted).

Always starts with a small investment. Don’t put your all eggs in a single basket. And please avoid any guesswork.

Self-investment is the best investment

You must invest in your personal development. Nurture yourself. It will give you proper knowledge about your future steps. Don’t stop reading books. They are the true friend of ours. And don’t be frugal in case of your development.

For a very good knowledge on investment, you can read some good books like “The Intelligent Investor”, “Rich Dad Poor Dad”, ”101 Entrepreneurial Facts about 10 of the most successful Billionaires that can inspire you”, etc. (All the links are affiliate links).

You can also read the following articles

• Why Investment is Important
• Don’t forget to save your money and Invest it in a proper way

Finally, if you like this article, don’t forget to share it on social media and help everyone to learn about investing. Your comments are valuable to me. I am waiting for it. Thank you.

 

 

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