While putting your hard-earned money in an investment product, you need to match it with your risk appetite. In the myriad of options, here are some low-risk investments that can help you get rich/good returns over time.
“What makes you rich is not your salary, but your investment habits.” In today’s time investing money is nothing short of a basic necessity, but many of us still find it difficult to pinpoint a few sure-shot ways that can give you excellent returns. The myriad of investment options that are available in the market today can make investing quite an overwhelming process. If you too are looking for low-risk investment plans right now which will make you rich, read on.
Given the thousands of funds available today, finding the right one where you can put in your hard earned money can often be a challenging job. But, before you actually select the right fund, you need to decide if you wish to invest in equity funds or debt funds. The answer may be different for different people depending on their requirements and risk appetite. Therefore,, a deep understanding of the key features and the benefits that it offers is imperative. Benjamin Franklin rightly said, “An investment in knowledge pays the best interest.”
Mutual Funds-Debt or Equity?
Debt mutual funds are regarded to be an appropriate option if you have a lower risk appetite. These funds help in yielding a fixed income security. Say for example: government bonds, commercial paper, company fixed deposits and company debentures. However, it should be kept in mind that even though debt funds are safer, it doesn’t imply that the returns are guaranteed but they are reasonably certain. The returns might not be huge but they are at least in accordance with the rate of inflation. Also, their tax efficiency, when compared to other options like FDs, is much superior. This makes them all the more attractive.
On the other hand, equity funds are considered to be an important class of assets, when you have long-term savings in mind, at least 5-7 years. Also called stock funds, in equity funds, your money, almost 65% of your portfolio, is invested principally in stocks. Considered to be riskier when compared to debt funds, equity funds are quite unstable in nature and depend on factors such as tax rates, bank policies, inflation and also fluctuations in the currency. When the prices in the market change, it has a direct influence on the Net Asset Value (NAV) of the fund.
When it comes to tax liabilities, debt funds, that are held for more than 3 years have a tax indexation at 20%. The capital gains in case of short-term debt is added to your total income and then as per the income tax slab you fall into, you are taxed. Equities on the contrary that are kept for one year or more are exempted from the capital gains tax. In case you hold your equity funds for less than one year, you are taxed at the rate of 15%.
Debt funds have low risk attached to them, therefore, they may offer steady returns but within a limit, whereas equities can offer higher returns but over a period of time. Nevertheless, the chances of losses are also there as the market can often be volatile.
But then there is also a school of thought that believes that successful investing is about managing risk, not avoiding it. So, another option where you can enjoy the benefits of investing in debt, as well as equity funds, is through ULIPs. Unit-linked insurance plans, ULIPs are gradually emerging to be the most popular investment plan. ULIPs are considered to be a very smart choice as they give the customer dual benefits that not only caters to investment but also insurance. This way whilst making profits from debt or equity you also secure the future of your loved ones, in case something uncertain happens to you someday. ULIPs are also considered to be a prudent choice as they not only are free from Long Time Capital Gains Tax (LTCG Tax) but also acts as a wise way to make an entry into the investment market.
The income tax that you pay also cuts a big portion in the take-home share of your salary, which in turn makes a dent in your investments as well. ULIPs prove to be an investment plan that can boost your income. Being an insurance product, it helps you avail tax benefits that helps your money to grow.
Switching of funds is another feature that makes ULIP a great investment plan. It gives you the advantage of tweaking your portfolio to the best of your capabilities and saving your hard-earned money from fluctuations. This switching makes ULIPs very convenient. In case you have made an investment and some of the funds are performing very well as compared to the other funds, you can always shift your investment from that fund to a well-performing fund. Transferring units from equity to debt or vice versa, whether completely or in parts can be done. Another merit of switching is that it does not attract a tax penalty.
There is a lock-in period of 5 years in ULIPs, this helps in inculcating the habit of systematic savings regularly. Investing in ULIPs also brings long-term advantages as unlike ELSS the tax benefit is claimed annually till the time a premium is being paid. With the lock-in period, it doesn’t make much sense to withdraw your money during the first 5 years. It can also prove to be a financially risky step as the premium allocation charges that you would be paying would be very high. As an investor, you would lose from both ends.
Over the past few years, the returns from ULIPs have been rather high, sometimes as high as 20% with an investment of 5 years. This has attracted many first-time investors, who are probably now more open to investment plans apart from RDs and FDs. There are many who are now ready to take a minimal risk and make a choice from this myriad of various investment plans. Regarded to be a great wealth generating tool, ULIPs are an ideal low-risk investment option which will make you rich.
Many of us wish to have investment plans that give us high-returns but also do not wish to undertake too much risk. While selecting an investment product, it is important that you match it with your risk appetite. Also, keep it in mind that the investment you wish to make must be rational, if you can’t understand it, then it is recommended that you take the help of a professional.
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