First job? Curious to invest? Know which investment avenue suits your risk appetite

Best investment options: Are you a first jobber? Wondering where to invest in India's bustling financial markets? With a myriad of options available, making the right choice can feel overwhelming. But fret not!  Experts shed light on top investment avenues for 2024, offering insights into low-risk options for stability, medium-risk investments for balanced growth, and high-risk opportunities for potential high returns.

"Whether aiming for stability, moderate growth, or high returns, tailoring investment strategies to individual risk tolerances is key," said Arpit Suri, CA and personal finance expert. Let's delve into some of the best investment options in India for 2024 across various risk profiles.

Low-risk investments

For conservative investors prioritising capital preservation, low-risk options offer stability and predictable returns. Fixed deposits remain a cornerstone, providing a secure avenue with assured returns and minimal market exposure. The Public Provident Fund (PPF), backed by the government, stands out as a risk-free investment avenue, offering tax benefits and steady returns. Money market funds and treasury bills provide short-term investment opportunities with low risk and liquidity.

All about FD

Fixed deposits (FDs) represent a popular investment avenue offered by banks and non-banking financial companies (NBFCs). Unlike regular savings accounts, FDs typically offer higher returns on the principal invested. 

Characterised by fixed tenures, FDs can range from short-term to long-term investments, with interest rates varying between institutions. However, investors should note that premature withdrawals may incur penalties, though some flexibility exists in emergencies.

FDs are accessible through banks, post offices, and various NBFCs across India. Before opting for any FD scheme, investors are advised to compare interest rates, company reputation, and other relevant factors. 

Types of FDs available cater to diverse investment objectives. Company FDs, standard plans, and senior citizen schemes offer varying features, such as potentially higher returns and flexible tenure options for elderly investors.

Tax-saving FDs serve investors aiming to reduce tax liabilities, with a maximum deposit limit of Rs 1.5 lakh per year and a lock-in period of 5 years. Other types include cumulative and non-cumulative FDs, offering compound or periodic interest payouts, respectively. Flexi FDs provide liquidity by allowing transfers between savings and FD accounts, while NRO and NRE FDs cater to non-resident Indians, facilitating repatriation of earnings.

Interest rates on FDs vary amongst financial institutions and may offer preferential rates for senior citizens. While FDs offer assured returns and lower risk compared to market-linked instruments, they are subject to taxation. 

Interest earnings above Rs 40,000 undergo Tax Deducted at Source (TDS) and are reported as "Income from Other Sources" in Income Tax Returns. 

Form 15G/H can be submitted to declare lower interest earnings or claim exemptions, particularly for tax-saving FDs, which offer tax benefits on the principal amount.

Despite their advantages, FDs have limitations, including comparatively lower returns and restricted liquidity. However, they remain a suitable option for risk-averse investors seeking stable returns and principal preservation.

All about PPF

The Public Provident Fund (PPF) is a favoured investment scheme amongst individuals seeking stable returns and low risk. Mandated by the government, PPF accounts offer guaranteed returns, shielding investors from market volatility.

Key features of PPF include tax benefits under Section 80C, allowing investors to claim deductions of up to Rs 1.5 lakh annually. With a minimum investment amount of Rs 500 and a maximum of Rs 1.5 lakh per annum, PPF accounts have a tenure of 15 years, extendable by 5 years thereafter. 

Investors can avail loans against their PPF investments after the third year, up to 25 per cent of the total balance, with a maximum tenure of 36 months.

Eligibility criteria include Indian citizenship for residents and minors, with non-resident Indians ineligible to open new accounts. Interest rates, currently at 7.1 per cent, are determined by the Central Government and subject to quarterly updates. 

Both offline and online procedures are available for opening PPF accounts, requiring KYC documents, PAN card, residential address proof, nominee declaration form, and passport-sized photograph.

PPF offers tax exemptions on both principal investments and accrued interest, making it an attractive option for tax-efficient savings. 

Withdrawals are subject to a mandatory lock-in period of 15 years, with partial withdrawals permissible after the fifth year, up to 50 per cent of the total balance.

All about money market funds

Money market funds are a popular choice for investors seeking stable returns and high liquidity over short-term periods, typically up to one year. These funds invest in a variety of money market instruments, aiming to offer competitive returns while maintaining liquidity. 

Key instruments in the money market include Treasury Bills (T-Bills), Certificate of Deposit (CD), Repurchase Agreements (Repos), and Commercial Paper (CP). 

T-Bills, issued by the government, are considered very safe but offer lower returns compared to other instruments. CDs, offered by banks, are term deposits with no premature redemption option. 

Repos facilitate short-term loans between banks and the RBI, while CPs are short-term promissory notes issued by creditworthy entities.

Investors with lower risk tolerance and a short-term investment horizon typically opt for these funds, especially those with surplus cash seeking better returns than savings accounts. Factors to consider before investing include risks and returns, expense ratio, and alignment with investment plans. 

While money market funds offer better returns than savings accounts, they carry risks like interest rates and credit risk. Expense ratio, representing management fees, should be considered, with lower ratios maximising returns. 

Investors should also be mindful of taxation rules, with short-term gains taxed as per income tax slabs and long-term gains taxed at 20 per cent with indexation benefits.

Medium-risk investments

Investors seeking a balance between risk and reward can explore medium-risk options offering potentially higher returns. Balanced mutual funds provide exposure to both equities and fixed income, mitigating risk through diversification. Debt funds offer stable returns by investing in bonds and treasury bills, ideal for investors seeking steady income. 

Dividend-paying stocks and exchange-traded funds (ETFs) offer opportunities for growth while maintaining a moderate risk profile. Corporate bonds present another avenue, allowing investors to tap into the corporate debt market for relatively higher returns.

All about balanced funds

Balanced funds, a type of hybrid fund, offer investors a diversified portfolio by investing in both debt and equity segments. Typically, these funds allocate around 40-60 per cent to equities, providing a balance between capital appreciation and risk mitigation. 

They cater to investors seeking a mix of capital appreciation, income generation, and low-risk investment options. 

The equity component helps prevent erosion of purchasing power and targets dividends from larger companies, while the debt segment, comprising bonds and securities, offers stability and income streams. 

Fund managers ensure portfolio rebalancing to manage market volatility effectively. Investors can access balanced funds through fund houses via online platforms, enjoying features like expert recommendations and paperless sign-up.

Taxation rules for balanced mutual funds vary based on their equity or debt orientation. For equity-oriented funds, which allocate more than 65 per cent to equities, short-term capital gains (STCG) are taxed at 15 per cent. Long-term capital gains (LTCG) exceeding Rs 1 lakh are taxed at 10 per cent for holding periods over 12 months. 

Debt-oriented funds, on the other hand, incur a 20 per cent tax on short-term capital gains with indexation benefits, and LTCG taxation applies only after holding for more than 36 months.

All about debt funds

Debt funds are a significant investment avenue for those seeking stable returns with lower risk compared to equity investments. These funds primarily invest in fixed-income securities like treasury bills, corporate bonds, and government securities, offering investors predetermined interest rates and maturity dates. 

Due to their diversified nature, debt funds provide stability to investors, making them suitable for low-risk and short to medium-term investment strategies.

However, they are not immune to risks, including credit risk and liquidity risk. Debt funds come in various types, such as liquid funds and long-duration funds, catering to different investment preferences. Investors can access debt funds through asset management companies or online platforms, benefiting from professional expertise, diverse investment options, and liquidity. 

Taxation rules for debt funds vary based on the holding period, with short-term capital gains taxed according to the income tax slab and long-term capital gains taxed at a flat rate of 20 per cent with indexation benefits.

All about high dividend yield stocks

High dividend yield stocks present an attractive option for investors seeking steady income alongside potential growth. Dividends, distributed by companies from their earnings, provide investors with a portion of profits. Calculated as a ratio of annual dividends to share price, dividend yield reflects the income investors receive relative to their investment. 

High dividend yield stocks typically outperform benchmarks in terms of dividend yield, making them appealing for those desiring regular earnings.

These stocks offer not only consistent income but also the potential for share price appreciation over time. However, investors should consider factors such as dividend consistency, growth, and payout ratio. While high yield dividend stocks offer benefits like regular earnings and less susceptibility to economic cycles, they also come with risks. 

Market fluctuations can lead to reduced dividends or reinvestment of profits by companies, potentially impacting stock prices and investor returns. Despite these risks, high dividend yield stocks remain a viable option for investors looking to balance income generation with growth potential.

All about ETFs

Exchange Traded Funds (ETFs) are investment funds that offer a blend of the diversification benefits of mutual funds with the simplicity of trading individual equities. They typically consist of a collection of investments such as stocks or bonds and allow investors to access a diversified portfolio with lower fees compared to other fund types. 

ETFs are traded on exchanges throughout the day, providing investors with flexibility in buying and selling.

There are various types of ETFs available, including index ETFs, fixed income ETFs, sector-specific ETFs, commodity ETFs, leveraged ETFs, actively managed ETFs, and more. Investing in ETFs involves opening a brokerage account, selecting the desired ETF, and transferring funds to purchase shares. 

While ETFs offer advantages such as intraday trading, transparency, tax efficiency, and order flexibility, there are also risks to consider, including trading costs, bid-ask spreads, tracking errors, and settlement delays. Overall, ETFs provide investors with a versatile and accessible tool for building diversified investment portfolios.

High-risk investments

For those comfortable with higher volatility in pursuit of potentially significant returns, high-risk options may be enticing. Direct equities offer ownership in companies but come with market fluctuations and require active management. Equity mutual funds provide diversified exposure to stocks but carry market risk, suitable for experienced investors. Forex trading presents opportunities in currency markets but requires expertise and risk management. Hedge funds, though offering potentially high returns, demand thorough due diligence and risk assessment before investment.

All about direct equity investment 

Direct equity investment involves purchasing shares of a company directly in the stock market, granting partial ownership and voting rights. It demands a certain level of understanding of market dynamics and company fundamentals. 

Investors must assess risks such as market fluctuations, company performance, liquidity issues, taxation changes, regulatory shifts, interest rates, inflation, credit defaults, and social/political factors.

While offering the potential for high returns and straightforward investment processes, direct equity also entails significant volatility and performance uncertainties. It's essential for investors to evaluate their risk tolerance and market expertise before delving into direct equity, as well as to consider long-term investment horizons for optimal returns.

All about equity mutual funds

Equity Mutual Funds have become a preferred investment tool for many investors due to their potential for greater returns compared to traditional options like term deposits. These funds invest in shares of different companies, aiming to diversify across sectors and market capitalisations to mitigate risks. 

There are various types of equity funds categorised based on investment strategy, market capitalisation, tax treatment, and investment style.

Thematic or sectoral funds focus on specific themes or sectors, while focused equity funds limit investments to a smaller number of stocks. Contra equity funds adopt a contrarian strategy, investing in underperforming stocks with the expectation of long-term recovery. Market capitalisation-based categorisation includes funds targeting specific market cap ranges.

Equity Linked Savings Schemes (ELSS) offer tax benefits under Section 80C, while other equity funds are subject to capital gains tax. Active funds are actively managed, whereas passive funds track market indices. 

Equity mutual funds typically invest more than 60 per cent of assets in equities, with the balance in debt securities or money market instruments. New investors should consider their financial goals and risk tolerance, while seasoned investors can leverage their market knowledge to make informed decisions.

All about hedge funds

Hedge funds represent a unique form of investment, characterised by pooled funds from institutional or accredited investors, often targeting affluent clientele due to high minimum investment requirements. In India, these funds, categorised under Alternative Investment Funds (AIFs) - Category III, operate outside the purview of SEBI registration and NAV disclosure regulations.

They employ diverse trading techniques, spanning equities, debt, and derivatives like futures and options, aiming for diversification and potentially high returns. 

Hedge funds encompass various types, including Global Macro, Relative Value, Activist, and Equity Hedge funds, each employing distinct strategies to capitalise on market opportunities.

Despite their potential for high returns, hedge funds carry significant risks, exacerbated by minimal regulation and high minimum investment thresholds, often exceeding Rs 1 crore. Furthermore, tax implications at the fund level can impact investor returns. 

Consequently, investing in hedge funds requires careful consideration of risk tolerance, financial capacity, and alignment with investment goals, alongside thorough research and potentially the guidance of experienced fund managers.

While savings provide a foundation for financial security, investments play a crucial role in wealth accumulation and long-term planning. Individuals must assess their risk tolerance and financial goals.

Whether opting for low, medium, or high-risk investments, diversification and informed decision-making are paramount. By aligning investments with individual risk profiles and objectives, investors can chart a path towards financial stability and growth in the years ahead.