Almost everyone has contemplated at least once in their lifetime– “What is the quickest way to get wealthy? ”
It is indeed achievable. However, how many of us take the necessary steps to navigate the journey to wealth?
To attain wealth, individuals must establish a detailed financial strategy and learn the art of investing. Once they understand how to make their passive money productive, they will be able to earn income to build wealth over time.
Additionally, one of the easiest methods to become wealthy is to invest early in life. The benefits of compounding will handle the rest and result in a substantial corpus.
Bear in mind that you cannot become wealthy through just one method; you need to broaden your portfolio to reach that goal.
Benefits of Investing Early
⦁ Enhanced Financial Security
A recession negatively impacts the economy, and when the economy falters, it affects everything, including your employment! This is when financial independence proves valuable. A corpus generated through investments serves as a source of such independence.
⦁ Boosted Purchasing Power
By making regular investments, individuals can enhance their income. This directly aids in elevating one’s purchasing power, assists in reaching their financial objectives, and enables them to raise their standard of living.
⦁ Retirement Planning
Investment planning is a tried-and-true method of accumulating a sufficient retirement corpus. It not only empowers retirees with financial independence but also allows them to continue earning from the investments made.
But How to Invest?
The initial step to investing is to identify appropriate investment options. These options are not merely the best investments to amass wealth but also rank among the top choices to gain returns on investments.
Below is a list of the top 10 investment options that can assist you in becoming wealthy:
⦁ Stock Market
To achieve consistent returns through investing in the stock market, individuals should first strive to comprehend the valuation of a stock. This can primarily be learned through the PE ratio. Specifically, the price-to-earning ratio, which indicates whether the investment price of a share is not excessively high.
For example, if the share price of A is Rs 100 and of B is Rs 150, and the PE ratios of both companies are 12 times and 8 times respectively, then acquiring share A for Rs 100 is costly compared to purchasing share B for Rs 150. Thus, you should invest in share B. Why? The potential for price appreciation for the latter is superior to that of share A.
Equity stocks have historically outperformed most asset classes by providing inflation-adjusted returns. Stocks are considered a volatile asset class and come with no guarantee regarding returns, but individuals can mitigate the impact of such risks.
Individuals can spread a portfolio across various sectors and market capitalizations as a means to alleviate the risk associated with stock investments.
Individuals with a high or medium-risk appetite can invest in the stock market through shares. On average, investors typically earn 12%-15% returns per annum in the equity market.
Those with a high-risk appetite looking to achieve returns of 22%-30% per annum may consider investing in high-risk stocks with a longer investment horizon.
Individuals seeking to invest in direct equities can proceed by opening a Demat account.
⦁ Mutual Funds
Currently, Mutual Funds in India are viewed as one of the best options for generating income.
Mutual Funds enable investors to select from a range of categories with different risk levels. Depending on their risk appetite and fund choice, investors can achieve returns ranging from approximately 12%-30% per annum.
With mutual fund plans, investors also have the chance to diversify their portfolio with a smaller investment. Furthermore, individuals can benefit from several tax advantages by investing in tax-saving ELSS mutual funds.
Mutual Funds present various investment avenues with differing risk and returns. It is important to note that risks and returns are directly related. Those interested in lower risk may look into debt fund schemes. The returns in these cases will be generally lower than those in equity mutual fund schemes (where risk is slightly higher, and returns are consequently higher).
It should be noted that mutual funds are market-linked and thus come with a certain level of risk.
To maximize benefits from any mutual fund schemes, it is advisable to remain invested for at least three years.
⦁ Post Office Monthly Income Scheme (POMIS)
The POMIS is considered a viable option for individuals who wish to earn a steady income at a fixed rate. This investment option is most appropriate for those averse to risk.
The scheme has a term of 5 years and yields interest at a rate of 7. 4%. These features make it an ideal investment choice for conservative investors.
Individuals can invest any amount between Rs. 1,500 to Rs. 4,50,000 in a single account. In a joint holding account, they are allowed to invest up to Rs. 9,00,000.
⦁ National Pension System (NPS)
This specific scheme is overseen by the Pension Fund Regulatory and Development Authority (PFRDA).
It is a retirement-focused investment scheme combining fixed deposits, equity, corporate bonds, government funds, and liquid funds.
As a government-sponsored scheme, NPS is deemed a secure investment option. Individuals can determine the amount they wish to invest in this scheme based on their risk tolerance.
Individuals can claim tax benefits of up to Rs. 1. 5 Lakh on their investments in this scheme under Sections 80C, 80CCC, and 80CCD. They are also eligible for an additional deduction of Rs. 50,000 under Section CCD (1B).
⦁ Public Provident Fund (PPF)
Even though there are various methods to invest funds, the PPF continues to be one of the most popular investment options in the market.
People can establish a PPF account at banks and post offices. They also have the option to set up a PPF account online and choose any leading bank for that purpose.
Additionally, the possibility to invest as little as Rs. 500 in a financial year addresses the question – “How can I get rich with no money? ”
The scheme features a tenure of 15 years, allowing investors to benefit from compounding their returns. Upon completion of 15 years, the period can be extended by an additional five years.
Individuals are eligible for tax deductions under Section 80C of the Income Tax Act.
The scheme offers interest at a rate of 7. 1%. The interest accrued from the scheme and the returns gained upon maturity are exempt from taxation.
⦁ Bank Fixed Deposit (FD)
Bank fixed deposits have consistently been the preferred choice for those wondering, “How to create wealth at low risk? ”
A fixed deposit with a reputable bank or NBFC is regarded as a secure investment option. This is due to its low-risk nature and provision of guaranteed capital returns. Typically, FDs generate interest of approximately 6%-7% annually. It attracts conservative investors.
Furthermore, according to DICGC regulations, every depositor is insured for up to a maximum of Rs 5 lakh for both the principal and interest amounts per bank.
⦁ Senior Citizen’s Saving Scheme (SCSS)
This scheme is tailor-made for retirees and seniors aged 60 and over. An individual who has voluntarily retired at the age of 55 can open an SCSS account within a month of receiving their retirement benefits. In this instance, the investment amount should not surpass the corpus received upon their retirement.
The SCSS includes a five-year tenure, which can be extended by three years once it matures.
Currently, the interest rate stands at 8. 2% per annum. Interest is paid out quarterly. The interest earned is eligible for tax exemptions under Section 80C. If the interest earned in a year exceeds Rs 10,000, tax is deducted at the source.
Individuals may invest up to Rs. 15 Lakh in a single SCSS account and are allowed to open multiple accounts.
A penalty rate of 1. 5% is imposed for premature withdrawal of deposits after a year. Penalties will be applied in cases of early withdrawal.
⦁ RBI Bonds
The RBI bonds represent one of the various avenues for investing money. They have a tenure of 7 years and yield interest at a rate of 7. 15%.
The RBI Bonds can be issued in Demat form and credited to the Bond Ledger Account (BLA) of the investor. A Certificate of Holding is provided as proof of the investment.
The fixed and guaranteed returns offer a sense of security, which serves to attract conservative investors to this investment choice.
There is no upper limit on investment, and any resident Indian can participate in this scheme either on their own or together with others. Parents and guardians are allowed to buy these bonds for a minor.
⦁ Real Estate
Investing in the real estate sector is one of the top ways to earn money. Investments made in the real estate sector generally yield returns in two forms – capital appreciation and rental income.
Those who have been contemplating how to quickly amass wealth may consider this investment avenue and lease their investment property.
Based on the location and the potential for price appreciation, investors might anticipate returns as high as double their initial investment. Additionally, the real estate investment is very liquid.
Individuals seeking a long-term investment opportunity should choose the real estate sector.
If investing such a significant amount is not possible, you might also explore Real Estate Investment Trusts (REIT). Embassy Office Park REIT, Mindspace REIT, and Brookfield REIT.
While REITs are akin to mutual fund investments, REITs are traded on equity markets. Currently, there are three REITs available in the market providing a yield of approximately 6-6. 5%.
⦁ Gold
Gold has consistently ranked among the most effective investments throughout history. It has acted as a safe haven for investors even during economically troubled times.
In addition to investing in physical gold and gold coins, investors may also choose a more affordable option by purchasing paper gold or gold ETPs.
Gold ETFs are open-ended Mutual Fund schemes that utilize the funds gathered from investors to invest in standard gold, with holdings represented in units.
Carefully evaluate your options!
Disclaimer: This blog is intended solely for educational objectives. The securities/investments mentioned here are not endorsements.