Which is the Best Investment Plan for the Middle Class in India?
Investments act as an umbrella for rainy days. Middle-class people make up for the vast majority of the population in India. One may start by saving every rupee they can for a secure financial future. But having savings is not enough. One must always look at the best investment plan for the middle class that the government specifically introduces.
Investing may keep your earnings safe and increase them over the years, generating passive income for you. Therefore, middle-class investment in various schemes has increased these days.
Before investing in any of the schemes, you must determine what your financial goals are. Whether you are looking for a pension plan or want to save for your child’s future, Is wealth creation your sole goal?
These financial goals will help you pick the right investment venture. The article will look at different investment options for varying risk appetites.
The Best Investment Plans for the Middle Class in India
When choosing the best investment plan for a middle-class family, one must consider their risk appetite. If the investment scheme is related to the market then, there will be risks involved. Market-related schemes fall into the high-risk category, whereas the schemes offered by banks or the government are part of the low-risk category.
Let’s look at the best investment plan for the middle class as per the risk level.
The Best Low-Risk Investment Options
Low-risk investment options are those that ensure stable returns on your investment. There is a significantly lower chance that you will lose your investment capital. Even though these schemes offer security, they yield minimum returns when compared with other schemes. These schemes are either offered by the Government of India or by banks.
When this scheme was introduced, it only catered to the workers of the private sector. However, now anyone can invest in this scheme. The minimum investment requirement for PPF investing is Rs. 500 per year, which makes it a popular choice. In addition, late payments or failure to make payments on time do not incur penalties.
With this flexibility, individuals also get 7.1% of the interest on their invested amount per annum. Individuals also get tax rebates on the deposits made under the Income Tax Act, 1961, Section 80 C. PPF has a lock-in period of 15 years, after which investors get their investment corpus back. There are no tax liabilities associated with maturity amounts.
National Savings Certificate
National Savings Certificate (NSC) is a government scheme that allows investors to save taxes as well as their capital, actively generating interest on them. Indian Post offices issue the NSC. Any Indian adult and adult on behalf of minors can invest in this scheme. The minimum amount required for investing in the NSC is Rs. 1000 or in multiples of 100. NSCs have a 5 year lock-in period, after which you get the maturity amount. 6.8% per annum is the current rate of interest on the NSC.
You get a certificate after you invest. Your certificate will indicate the maturity date and the maturity amount you are eligible to receive. Investments of up to Rs 1.5 lakh in the National Savings Certificate can earn the subscriber a tax rebate under Section 80C.
Bank Fixed Deposits
Bank fixed deposits (FD) are one of the best investment plans for middle-class families. FDs are also one of the most favoured because of their low risk and ease with which they are available. FDs have a lock-in period ranging from 7 days to 10 years.
The minimum and maximum amount of investment differ from institution to institution. Ideally, you can invest from Rs. 5000 to Rs. 50 lakhs. The interest on FDs is the lowest compared to the other low-risk investment schemes. The maturity amount is added to your income and is taxed as per your income tax slab.
The Best Moderate-risk investment options
If you are looking for investment funds with good returns but also want to safeguard your initial investment, explore the different moderate-risk investment options available.
The diverse nature of these investments makes them the best investment plans for the middle class. These options can help you have a balanced portfolio.
Corporate bonds are similar to those of bank fixed deposit schemes in nature. Except here, you deposit in the corporate or private companies and not with the banks. A moderate risk is involved with your investments; however, your returns are slightly higher than what you get with the bank FDs. The maturity period for corporate bonds is between 1 to 10 years. Similar to FDs, the maturity amount is added to your annual income and is taxed as per your tax slab.
National Pension Scheme:
The National Pension Scheme is one of the ideal investment plans for the middle class. This scheme is regulated and offered by the Government of India. You can avail it in banks as well as post offices. Every year you need to make a minimum contribution of Rs. 1000 in the NPS. This scheme keeps your account locked until you reach the age of 60. Before that, you can withdraw up to 25% of your invested amount subject to certain conditions.
After the maturity period, you get a stable income along with the tax benefits for the rest of your life. You get the option to choose between the equity and debt funds in which you wish to invest. The scheme still has a moderate risk because the government regulates it.
Debt Mutual Funds
A debt fund is a Mutual Fund scheme that invests in fixed income instruments, such as Corporate and Government Bonds, corporate debt securities, and money market instruments etc. A few major advantages of investing in debt funds are low cost structure, relatively stable returns, relatively high liquidity and reasonable safety.
The Best High-Risk Investments
These are solely market-related financial instruments; therefore, they are subject to the market’s volatility. As a result, investing in these instruments means that you may get the highest returns on your investment, also entailing a high risk.
Equity Mutual Funds
Some equity mutual funds allow as low as Rs. 100 per month as an investment, making it one of the ideal options for investment for middle-class families. The returns from equity funds are dependent upon their performance in the market. The maturity period of the equity fund ranges from short-term to long-term funds. You can invest in them as per your financial goals.
To invest in equity funds, you need to understand the working of the market. You can opt to invest in the form of a lump sum or a Systematic Investment Plan (SIP). Although high-risk factors are attached to equity funds, you can minimize the risk by diversifying your portfolio and timing the market.
ULIP or Unit Linked Investment plans are also sometimes referred to as dual benefit plans. These are combination plans that offer investment as well as insurance. Here the service provider invests a part of your premium amount in the market. The profit that it earns is offered to you as a sum assured. You also get the autonomy to choose the types of funds you want to invest.
Direct equity refers to directly investing in a company, meaning purchasing the company’s stocks/shares. If you have a high-risk appetite, you should invest in direct equity. Investing in direct equity is not the standard category of middle-class investing; many people perceive it as a form of wealth generation.
Having a deep and comprehensive understanding of the market is essential for investing in the market and minimizing the risk. There is no lock-in period attached to the direct equity. The company’s stock market value determines the investment amount at the purchase time.
By investing your money, you prepare for the future. Therefore, you should be extra considerate and analyze all the aspects before investing. Investments are substantial financial commitments. It would help if you looked at the risk factor involved, the tenure of the investment, your financial goal, and the investment corpus that it would generate. After analyzing all these factors, you can choose between the ideal investment plans for a middle-class family.
FAQs about Best Investment Plan for the Middle Class
What are the types of investment plans?
Investment plans are of varied types. You can choose from retirement schemes like PPF and NPS or tax-saving bonds like NSC. You can also invest in market-related securities like mutual funds or the company’s stock, or you can choose the traditional fixed deposit schemes of the banks.
How will the middle class benefit from a good investment plan?
Following are the benefits of an ideal investment plan for the middle-class family:
> The income generated can be used to secure the future of family members.
> An investment plan may help you get the tax rebates.
> It may aid you in the completion of your financial goals.
> It may offer you flexibility in your finances.
Which investment schemes are exempt from tax?
ULIP, PPF, NPS, NSC, insurance plans, tax-saver FDs and other schemes provide you with breathing room when it comes to income tax. These exemptions are provided under Section 80C of the Income Tax Act.
How to know which is the right investment for you?
The basic factors determining which is the right investment plan for you depend mainly on how much risk you are willing to take and how much returns you are expecting. If you want to avoid risks, then you have to settle for a low-risk investment option like a fixed deposit. If you are willing to take the risk, then you can choose to invest in mutual funds. It is important to remember that higher returns mean higher risk as well.
What is the maximum tax exemption you can get on investments?
The maximum tax exemption that you can avail of on investments is Rs. 1.5 lakhs in one financial year under Section 80C of the Income Tax Act.