11 Best Investment Options for Salaried Person in India 2020
Best Investments for salaried people

11 Best Investment Options for Salaried Person in India 2020

Salary lasts only for a few days, leaving you struggling to meet ends (needs). 

The truth is that you have a fixed amount of disposable salary every month. You need to spend, plan, save and invest and fulfil your goals within that only.

You may definitely have life goals like purchasing a car, buying a house, foreign vacation, retirement planning, getting rich (building corpus), child education & marriage. 

One side you have a limited amount of income and on the other, you aspire to meet all the life goals. 

That is possible only when you have a proper investment plan.

I have written this article 11 investment options especially for salaried persons in India. The article helps you with things that you should keep in mind while making an investment and lists eleven best investment options for you.

Things You Should Consider While Making Investment Plan in India

  • The quicker you acknowledge the need for investment to achieve life goals the better you can plan and earn money. 
  • The earlier you start the more you can make your money work. Money works through the power of compounding and re-investment. 
  • Compounding if used properly has the power to generate long term wealth. So start early for the power of compounding to work and keep reinvesting for a longer duration. 
  • Do not withdraw the principal and interest amount. 
  • Next, remember that retirement planning is important because after a certain number of years you will be not earning or earning less. 
  • Set aside a certain amount of money to save and invest in the retirement plan that will help you to maintain your present lifestyle. 
  • Lastly, do not get lured by quick money schemes or overnight doubling of money schemes. 

Check with the rule of 72. The rule shows the approximate time taken for an investment to double. 

For example, if you quickly want to know, how much time Rs. 25,000 will become Rs. 50,000 provided that you invest at an interest rate of 8%.

Then the answer would be, 72/8= 9 years.

Other things that you need to take care before investing are:

  • To have a defined financial goals
  • Know the returns and investment period
  • Your risk-taking capacity

Now let us see the investment options.

Best Investment Options for Salaried Person 2020 India

#1. Investment in Shares

Investment in Shares

If you have just received your first salary and are looking for an investment option then investing in shares is what you should do. You need a demat account to invest in stocks.

I say so because, if you look at the above charts, then you can clearly see that from 16,000 points in 2010 the Sensex has moved to 41,000 points in less than 10 years. More than 2.5X the value.   

Most people fear stock investment because of the lack of knowledge, time taken for research, opening an account and tracking investments. 

Share investment has the potential to generate multifold returns in the long term. Only you should have patience and a disciplined way of investment.

As the market crashed recently to over 10,000 points, it is a golden opportunity to invest in quality stocks. If you invest for long term at least 3-4 years, you can expect better gains than regular returns.

Expected return – 15% and above (annualized)

Tenure – You can keep invested till you want

What I liked 

  • Highest investment returns
  • Helps generate long term wealth

What I didn’t like

  • Market Fluctuations (High risk)
  • Requires time for research, investment and accounting

#2. Mutual Fund

Mutual Fund

Mutual funds come on the top of the list of the best investment option for salaries employees because

  • You do not require investment expertise –  saves you from the hassle of researching, investing, tracking and managing.
  • Have schemes for all of your investment objectives – be it retirement planning, tax savings, vacation, purchasing a car or managing liquid funds.
  • You do need the fortune to get started – you can start by investing in SIP for a small amount of Rs. 500 per month.
  • Mutual funds help you invest in diversified instruments – like equity, corporate bonds, debt, hybrid instruments, government securities, T-bills, CDs, and CPs.

So in short, by investing through a mutual fund you have a diversified portfolio managed by a professional fund manager even with a small investment.

Additionally, depending on the investment objectives you have various types of mutual funds to invest like:

  • Equity mutual fund for long term wealth creation
  • Debt mutual fund for capital protection
  • Balanced mutual fund for both capital protection and healthy returns
  • Liquid Funds to manage excess cash and have emergency funds
  • ELSS for tax savings and planning
  • Funds of Funds for investing in commodities and global investment.

Expected return – 7.5% (approx) from liquid funds to 20% and above for equity funds

Tenure – Flexibility to enter and exit any time. Close-ended funds have a lock-in period. 

What I liked 

  • Small monthly investment through SIPs
  • Professional Fund manager
  • Diversified investments

What I didn’t like

  • Equity mutual funds are subject to market risk
  • Need to pay fees for managing funds

#3. National Pension System (NPS)

National Pension System (NPS)

NPS is a proper retirement planning investment option. The NPS scheme is mandatory for all employees. 

Even if you are not under NPS and looking for retirement planning then you can invest in NPS. The NPS account is portable across jobs and locations.

With NPS you can save Rs. 2 Lakhs in taxes. 

Up to Rs. 1.5 Lakh in Tier I capital is exempted under section 80C. An additional amount up to Rs. 50,000 can also be claimed as tax benefits under section 80CCD(1B)

Expected return – 10% (approx)

Tenure – You can’t withdraw before 60 years of age. Thereafter, you can withdraw only 60% and the rest 40% of the corpus is paid as a regular pension.

Conditions if any – 25% partial withdrawal is possible only after 10 years, that too for a specific purpose like higher education of children, the marriage of children, purchase or construction of a residential house or for treatment of specified diseases. 

What I liked 

  • Additional tax deduction of Rs. 50,000
  • Used across jobs and locations

What I didn’t like

  • No withdrawal option before retirement
  • 40% of the amount goes into purchasing annuities  

#4. National Savings Certificate (NSC)

National Savings Certificate (NSC)

NSC is a fixed income, low-risk, secure instrument which can be used as a medium-term investment. NSC can help you fulfill goals like building a corpus to retire an existing loan.  

NSC helps you save taxes. You can start with a low initial investment of Rs. 100. 

Expected return – 6.8% (as of now)

Tenure –  Fixed 5 years and 10 years

What I liked 

  • Low investment amount of Rs. 100
  • NSC available even in the remote through the post office
  • Can be pledged for loans

What I didn’t like

  • Fixed maturity of 5 and 10 years
  • Low returns

#5. Gold 

Gold

Gold has offered superb returns in the last few years beating inflation.

Gold provides you with an opportunity to invest in precious metal and helps diversify your portfolio. 

Instead of buying physical gold a better way to invest in gold is through:

  • Gold mutual fund
  • Gold ETF 
  • Gold bonds 
  • Sovereign Gold Bond Scheme by RBI

Expected return – 7.7% (approx for 10 year gold ETF)

What I liked 

  • Hedge against inflation
  • Gold offers diversification to the investment portfolio 

What I didn’t like

  • Gold does not help in tax savings
  • Emotional attachment

Best High Return Investment in India for Salaried Person 

#6. Equity Mutual Funds

Equity mutual funds generate higher returns because they invest 65% and above of the funds in shares and equity-related instruments of growing companies. 

Equity mutual funds are best for medium to the long term investment horizon. 

If you fear direct stock investing then “Equity mutual funds” is a better way of investing in stock markets. 

With lots of research and tracking involved, stock investments can be time-consuming and puzzling which can be avoided by investing in equity mutual funds.

For example, below is the screenshot of equity mutual funds offered by SBI Mutual Fund house.

equity mutual funds

Equity mutual funds are exposed to market volatility, have high risk and are suited to risk-taking investors. 

The investment option is best for life goals like buying a house, foreign education of children, building a large corpus of the fund. 

You can start by investing in equity mutual funds through systematic investment plan (SIP). SIP can be started with a small amount of Rs. 500 per month.

Expected return – 20% (approx)

What I liked 

  • Higher returns of 20% and above
  • Helpful in building wealth corpus
  • Dedicated fund manager
  • Rs. 500 minimum SIP amount

What I didn’t like

  • Long investment horizon
  • High market risk

Best Investment Plan for the Salaried Person for 3 Years

#7. Equity Linked Savings Scheme (ELSS)

ELSS Fund

ELSS or tax saving mutual fund helps you plan and save up to Rs. 1.5 Lakhs in taxes under section 80C of the Income Tax Act. 

ELSS investment is for a medium-term horizon. The life goals for which you can invest in ELSS are tax saving, foreign vacation and buying a car.

ELSS not only fulfills your tax-saving objectives by also helps you earn superior returns. That too by a small initial investment of Rs. 500 using the SIP method. 

ELSS is a better investment than other tax saving options like PPF, NPS and FD because it has the lowest lock-in period of three years and generates higher returns.     

Expected return – 12% (approx)

Tenure –  3 years and more

What I liked 

  • Highest returns from other tax saving options
  • Lowest lock-in period of 3 years
  • Investment in the diversified asset class
  • Tax deductions up to Rs. 1.5 Lakh

What I didn’t like

  • Returns over Rs. 1 Lakh are taxable
  • Lock-in period of 3 years.

#8. Short Term (Duration) Debt Mutual Fund 

Short duration debt mutual funds have moderate risk but are a good investment option for generating stable returns. 

Short duration mutual funds invest money in debt and money market instruments. 

An example of short duration mutual funds is “DSP Short term fund” and IDFC Bond fund – Short Term”.

The short duration mutual funds are preferred because the expected returns are more than the traditional bank fixed deposits. 

Short duration mutual funds invest in debt instruments such that the average remaining maturity for the fund as a whole is between 1 to 3 years. 

Expected return – 7% to 8% (approx)

Tenure –  3 years and more

What I liked 

  • Returns more than bank FD
  • Stable returns 
  • Investment through SIP

What I didn’t like

  • Returns are taxable

#9. Savings Account with Sweep in Facility

Savings Account with Sweep in Facility

Savings bank account with a sweep-in facility is not a direct investment option but the facility helps you generate higher returns when compared to the savings account.

The facility can be leveraged to better utilize surplus cash flows. The sweep-in facility can be used to build risk-free funds. 

Expected return – 5% to 6.5% (approx)

Tenure –  No fixed tenure

What I liked 

  • Returns higher than the savings account
  • You get the combined benefit of savings and FD

What I didn’t like

  • Transaction charges for making and breaking FD
  • Available mostly with private banks

Best Secured Investment Options for the Salaried Person

#10. Tax Saving Fixed Deposit (FD)

For a risk-averse salaried person, a tax-saving fixed deposit is a secured investment that fully protects the principal amount and helps you earn decent interest. 

Tax saving fixed deposit helps you save taxes under section 80C of the Income Tax Act.

The investment option serves medium-term goals like purchasing a high-end dream bike, car or loan closure. 

The drawback is that the returns are taxable. There is no option to prematurely withdraw money in case of need. Apart from that, you need to invest in a lump sum amount upfront. 

Expected return – 6.5 to 7.5% depending from bank to bank

Tenure –  5 years

What I liked 

  • Safe investment with a fixed maturity value
  • Available at banks and post offices
  • Tax savings under Sec. 80C

What I didn’t like

  • Lock-in period of 5 years
  • Returns are taxable

#11. Public Provident Fund (PPF)

Public Provident Fund (PPF)

PPF is a government of India backed, tax-free, risk-free, debt-based investment option. 

The investment not only helps you save taxes but accumulate a corpus of wealth. The best part is that you can start with a small investment of Rs. 500. 

PPF can be best utilized for long term life plans like retirement planning or children’s education. 

Expected return – 7.1%

Tenure – 15 years 

What I liked 

  • Investment amount qualifies for a tax deduction
  • Small investment amount of Rs. 500
  • Can be opened at any bank
  • Returns are tax-free

What I didn’t like

  • Withdrawal possible from the sixth year
  • Low returns than mutual funds

Conclusion

All the above investment options have their own set of risks and returns. As a salaried investor, you do not have vast resources, so it prudent that every penny you save and invest earns you the best of returns.

Before making any investment, you should first check your investment objectives, risk-taking ability and the time period and then pick the investment options accordingly.

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