The golden rule for a successful, secure, and growth oriented financial future is consistent investment in best products for a long term and depending on the risk appetite.
Now investments can be made in zero risk or high/medium/low risk avenues. And both have its own advantages and disadvantages. Risk and returns are the top features to be taken into account while investing. Risk here means the money is not guaranteed to provide you positive returns.
Zero risk, as the name suggests, carries absolutely no risk but gives lower returns whereas high risk investment products has risk associated with them but claims to offer high return on maturity. In case of no risk instruments, your invested money is absolutely safe and you are assured of returns. In fact, you can easily estimate your returns since the interest rates are fixed. Although in some products, the rates keep on varying but estimates are easy to calculate. However in case of risky products, the returns are not easy to estimate. This is because depending on the product, the returns fluctuate.
Now depending on the risk appetite of the investors, money can be put in either of the above mentioned categories or mix of both as follows:
Risk Free: Best recommended for conservative investors wanting guaranteed returns. Public provident fund, Sukanya Samriddhi Yojana, Fixed Deposit are few examples of safe investment options.
|Investment Product||Investment Tenure (Years)||Current Interest Rate||Monthly Investment Amount (Rs.)||Total Invested Amount (Rs.)||Return Amount (Rs.)|
|Sukanya Samriddhi Yojana||14||8.3%||10,000||16,80,000||56,18,575|
|Public Provident Fund||15||7.8%||10,000||18,00,000||34,58,202|
|Fixed Deposit||5||6.5%||Lump sum investment for 5 years||2,40,000||3,40,563|
Risky Assets: This category of investment Equities, Mutual Fund, Company Fixed Deposit, Non-convertible debentures, (NCD) and Bonds, Real estate before launch.
|Investment Product||Investment Tenure (Years)||Expected Annual Returns (%)||Monthly Investment Amount (Rs)||Total Invested Amount (Rs)||Expected Return Amount (Rs)|
|Equity Linked Savings Schemes||3||15%||10,000||3,60,000||4,56,794|
|Equities||5||-||Bought 1000 RIL shares in Jan'13 & sold in Jan'18||4,40,000||9,50,000|
In the above table, for investments associated with risk, the estimated returns are calculated on the basis of historic returns of each product or fund or equities. And there is no guarantee that the investor will earn similar returns in the future.
Calculating equity returns is very difficult as it depends on which company’s share purchased, quantity bought, price at the time of buying, and at the time of selling. So someone who had purchased 1000 RIL shares in January 2013 at the price of Rs. 440/share (i.e. total investment of Rs. 4, 40,000) and sold all 1000 shares in January 2018 with current market price of around Rs. 940/share, would have earned Rs. 9, 40,000. This is almost a 113% increase in 5 years which beats any other investment products (except real estate). Investing in equity can be done by putting all eggs in one basket or eggs in different baskets. It’s all about timing the market, at the right time, and at a right price.
Similarly returns from mutual funds depend on invested amount and the fund. Every fund gives varying return depending on the fund performance over a period of time.
Always remember to invest depending on the risk appetite and never get attracted towards quick get rich money making schemes/products. There is no investment product which will make you enormous amount of money in short span of time. It takes years of efforts to generate wealth ethically.