Top Five Investment Options For Salaried Workers

If you are a salaried individual unable to decide where to invest, read on! In this post I will talk about top five investment options for salaried workers. There are various investment vehicles that one can opt for. Each of them comes with its own set of risks, return potential, tax liabilities etc. For now, we will just focus on five simplest and efficient options that you can opt for. You may also check out my detailed post on factors to consider while choosing right asset class.

Let’s get started and discuss top investment options for salaried workers –

Bank Deposits (Recurring Deposit / Fixed Deposit)

Bank Deposits are the safest investment choices in India and almost every bank offers different fixed term products that one can opt for. If you are a young salaried kid who just started with your first job, bank deposits are the best options for you. Some NBFCs (Non Banking Financial Company) also offer fixed deposits with higher interest rates as compared to bank deposits. You can go with one of these options to start saving and build your emergency funds or initial capital for your investments.

Opening a bank deposit is fairly easy and can be done using an internet banking account. Your returns will be taxed as per your tax bracket.

Equity / Stocks

You can invest in stocks or shares of top companies listed in stock market. Investing in stocks gives you an equity or ownership in the company. This means as the company grows, your investment grows. Stocks as an asset class are highly volatile as profitability of companies or businesses can be affected by lot of internal and external factors. It can be quite difficult for a common investor to identify right companies to invest in. Stocks as an asset class requires dedicated research and constant review of investments. It may not be everyone’s cup of tea as there is always a chance of capital loss.

You need to have a demat account to invest in equities and returns are taxed according to short-term capital gains or long-term capital gains taxation rules.

Mutual Funds

Mutual funds come to rescue of common investors who do not have time or expertise to do research and invest in direct equities, bonds and other securities. A pool of money is collected from various investors and a professional fund manager invests that money in a pool of well researched stocks, bonds and other money market instruments and tries to maximize the returns. In turn they charge a fee for managing your money on your behalf which may range from 0.5% to 2.5%. Risk is bit less as compared to direct equity since money is distributed across different stocks and bonds.

Good news is you don’t need any dedicated demat account to invest in mutual funds. You just need to be CKYC compliant and you are good to go. Long-term gains up to Rs. 1 Lakh per financial year are tax exempted.

Gold / Sovereign Gold Bonds

Gold has been favorite asset class of Indians! Most of you would have seen your parents buying gold jewellery for investments. Gold has provided constant returns over long periods of time and has been a traditional investment choice and remains one.

You may also consider investing in Sovereign Gold Bonds or SGBs issued by Government of India which are issued time to time. A demat account to buy SGBs. You get a definite interest upto 2.5% per annum as well as appreciation of invested capital. On top of it, there is no capital gains tax on redemption (as per current guidelines)! You may read more about SGBs here.

Real Estate

Real estate can only be considered as an investment if you are not using it. A home that you are living in is not an investment, it’s a basic need.

You can invest in secondary properties (other than your home) which can be residential or commercial. Real estate can be a great source of passive income. The returns from real estate can be in form of rental income as well as capital appreciation over a period of time and this will highly depend on the location of your property. Always look for areas which are growing and have good appreciation potential over a longer period i.e. 5-10 years. Real estate may be a difficult option for new or young investors due to lack of upfront capital. They may use first four asset classes mentioned above to build their initial capital for real estate investments.

Summary

This post gives you an overview of five simplest and most efficient asset classes you must consider for your investments as a salaried worker and especially as a beginner. There are some other options such as retirement specific asset classes like VPF, PPF or NPS and fixed income instruments like National Savings Certificates and RBI Taxable Bonds. However, I personally prefer one of the five discussed in this post which can help you achieve all your financial goals with relative ease. Mutual funds and especially index funds can be answer to most of your investment needs and I’ll be writing a detailed post on that very soon. Stay tuned!

Your feedback, comments and questions are most welcome!