Knowing which investment plan to use based on your risk appetite and investment horizon is crucial to achieving good returns on investments. The first step in choosing the right investment strategy or SIP investment plan is to think about your preferred timeline. There are three main categories to consider: short-term, medium-term, and long-term. You can choose the best investment options from the three categories once you know your time horizon.
The most straightforward way to begin investing is through mutual funds, which are managed by a professional. The good news is that mutual funds come in all shapes and sizes, so you’ll almost certainly be able to find one that invests in the assets you believe are best for you based on your risk tolerance and time horizon. Other investment options, such as bank fixed deposits and pension schemes, may also be beneficial.
What Are the Best Long-Term Investment Strategies?
Long-term financial goals are those that you want to achieve in the next 7-10 years.
- Equity Mutual Funds: With the help of professionals, equity mutual funds allow you to reduce risk and diversify your invested capital. The best mutual funds to invest in are those that allow you to diversify your holdings across multiple stocks from various sectors and sizes.
- Real estate: Real estate investments are very promising, but they come with their own risks, such as a lower likelihood of selling your property in a short period of time or having to sell it at a huge discount, resulting in a loss. Real Estate Mutual Funds are another option.
- Gold: While gold may not offer the best long-term returns, it is an excellent hedge against inflation and stock market volatility. Small Savings Schemes: The Indian government has introduced a number of small savings schemes, such as the Public Provident Fund (PPF), that provide investors with relatively low but consistent returns while also mitigating the effects of inflation.
- NPS: The National Pension System (NPS) is a long-term investment vehicle that combines assets such as corporate bonds, government bonds, and equities in order to focus on retirement funds.
- A Unit-Linked Insurance Plan (ULIP) is a type of insurance that combines investment and life insurance into one package. A portion of your insurance premium is invested in bonds or stocks to generate returns, while the rest is used to cover your insurance needs.
What are the most effective medium-term investment strategies?
Medium-term goals are those that require a three- to five-year investment. For such purposes, you’ll want to put your money into something that can outperform inflation while also not being dangerously volatile.
- National Savings Certificates (NSC): An NSC is a government-backed post office savings instrument that works similarly to a five-year FD and pays 6.8% annual interest.
- Post Office Time Deposit: Post offices also have their own fixed deposit programme known as Post Office Time Deposit. You can invest in a post office time deposit for a short to medium term and receive returns that are typically higher than those offered by banks, with no additional risks because the government backs them up.
- Debt Funds (Medium-Term): Debt funds are divided into sixteen different categories, each with its own return rate and risk. Corporate bond funds, banking and PSU funds, and short duration funds are the three debt mutual fund classes that are best for the medium term. Debt funds are some of the best mutual funds to invest in because they provide consistent returns while posing fewer risks.
- Hybrid Mutual Funds: As the name implies, hybrid mutual funds invest in a variety of asset classes. The most popular combination is probably equity and debt funds, but gold and real estate are also common in hybrid funds. Hybrid funds also made it into the top ten mutual funds to invest in SIP in 2021.
What Are the Best Short-Term Investment Options?
Risk minimization and easy access to your investments (i.e. liquidity) are critical considerations when planning for short-term goals.
- Bank Fixed Deposits (FDs): Because of the guaranteed returns they provide, FDs are a very popular investment in India. Simply deposit a certain amount in the bank, and you will receive guaranteed returns on your principal investment at maturity. However, post-tax gains are ineffective at combating inflation, which can be costly to your finances in the long run.
- Debt Funds (Short-Term): Ultra short duration funds, liquid funds, and money market funds are the three types of debt funds that work well for shorter periods. All three are low-risk and easier to obtain than options such as FDs.
Choosing the Best Investment Strategy
There are numerous investment products available on the market, each tailored to a specific goal and risk profile. Every investor is different, and the best investment for you is determined by your time horizon, the amount of capital you are willing to invest, your risk tolerance, and your willingness to diversify your portfolio. Fortunately, there are plenty of resources available to assist you in finding your investment match.