header Investment Plans

Best Investment Option for Salaried Person

By Admin
11 June 2022, 1:22 PM
best investment options for salaried person

Investment plannings normally depend on 4 chief factors—the risk-taking tendency of the individual, liquidity, tax factor, and time frame.

Based on variable financial needs, an investor can choose several types of investment plans for a healthy and secured financial base. People with a fixed job with a fixed salary can plan in a secured manner for safe financial investment. 

There are primarily 8 best investment options suitable for salaried people.

1. Equity Mutual Fund

This investment option possesses the potential with high-return prospects. Moreover, this type of investment has the capacity to overcome inflation. This is a very important aspect in the case of long-term financial planning. The equity mutual fund can be divided into several varieties:

  • Multicap Fund - This sort of fund invests widely in all sorts of market capitalisations, themes, etc. without any restriction or imposition from SEBI funds. It depends on the will of the fund manager to choose the type of market exposure it wants to maintain, as per the financial needs and demands of the ever-changing market. The policy is to invest 65% of the total assets in equity-linked instruments and equity.
  • Large Cap Fund - These funds principally invest in large-cap companies. A company is classified as a large-cap in terms of the market capitalisation of 100 companies, as per the SEBI guidelines. These funds need to invest at least 80% of the total assets in equity-linked instruments and equities of classified large-cap companies.
  • ELSS or Equity-Linked Savings Scheme - Popularly called tax-saving mutual funds, this type of scheme qualifies to be tax deductible up to INR 1.5 lakh every financial year as per Section 80C of the Indian Income Tax Act. They have a lock-in span of 3 years, the shortest among all the other options of the genre under Section 80C. These sorts of funds have the potential of high return with a long-term financial goal.
  • Midcap Funds - According to SEBI norms, mid-cap funds are eligible to invest at least 65% of the total assets in equities and equity-linked policies of mid-cap companies. The companies that rank between 101st and 250th position in terms of market capitalisation as per SEBI guidelines are classified as mid-cap companies.
  • Large and mid-cap funds - This is basically a juxtaposition of both middle and large-cap companies. The ‘large and mid-cap funds ‘ need to invest at least 35% of the total assets in both mid-cap as well as large-cap companies.
  • Small Cap Fund - At least 65% investment of total assets is required in equities and equity-linked policies of small-cap companies. The companies ranking below the 250th position as per the SEBI policy, are termed as small-cap companies.
  • Value Fund - The funds which follow the trend of value investment approach at the time of stock selection. Effective recognition of the stock-pricing anomalies and setbacks is a strong feature of this sort of scheme. SEBI guidelines prescribe that at least 65% investment of the total assets is essential in the equity sector.
  • Contra Fund - Those funds that allow contrarian investment policy are termed as contra funds. Very good market speculation and foresight are needed in this type of investment. SEBI says that at least 65% investment of the total assets is essential in the equity sector for contra funds to function.
  • Focused Fund - As per the SEBI guidelines, focused funds cannot invest in more than 30 stocks. These funds must have an investment of at least 65% of their total assets in the equity sector.
  • Thematic/Sectoral Fund - Funds that follow the trend of investing in one or more fixed sectors are called thematic funds. SEBI prescribes a minimum investment of 65% of the total assets in the dividend-yielding stock sector.

2. International Fund

This is an investment in equity as well as equity-linked funds as well as debt securities of companies that have overseas enlistment, beyond the geographical boundaries of India. These are normal fund schemes with overseas investment.

3. Debt Mutual Funds

These funds mostly invest in certain guaranteed or fixed income instruments like government bonds, corporate securities. Debt Mutual funds are comparatively less volatile than other types of funds.

There are various types of debt funds—liquid fund, overnight fund, corporate bond fund, ultra-short duration fund, low or short-duration fund, medium duration fund, long to medium duration fund, dynamic bond fund, long-duration fund, PSU and banking fund, credit risk fund, gilt fund as well as floater fund. Depending on the time limit and varying investment percentages, these funds are designed to meet various sorts of financial requirements of an individual.

4. Hybrid Mutual Fund

Equipped with a risk-adjusted return policy, hybrid funds are capable of investing in debt, equities, or any other asset class. Some of the types of hybrid mutual funds include—conservative as well as aggressive hybrid funds, balanced advantage fund, balanced fund, arbitrage fund, multi-asset allocation fund, as well as an equity savings fund. All these investment plans have been individually designed as per the SEBI guidelines for the best interest of the investor as well as the company.

5. Bank Fixed Deposit (FD)

One of the most conventional methods of savings and investment, there is no risk of loss with bank FD. For earning maximum profit through bank FD, it is advisable to spread the savings across several banks, offering different rates of interest. The maximum limit is INR 5 lakh for a single investor in any particular bank. There are even options for tax-saving FDs.

6. Public Provident Fund (PPF)

Considered as one of the safest and most secure methods of investment, it encourages tax-free income. But the basic drawbacks of this scheme include a long lock-in period of 15 years with a lack of liquidity. Except for certain pre-laid situations, partial loans or premature closure of loans against PPF, are not allowed.

7. National Savings Certificate (NSC)

Equipped with a lock-in period of 5 years and tax deduction facilities under Section 80C, NSC is also considered to be a safe investment option with a sovereign guarantee. But the interest received from this is taxable. Therefore, when compared to bank FDs, NSCs are more tax-efficient.

8. Voluntary Provident Fund

Considered to be an extension of the EPF scheme, it allows the investor to invest up to 100% of the DA and the basic salary apart from the compulsory EPF contribution. For safe players, this scheme is ideal with a tax-saving facility and sovereign guarantee. 

From the above discussion, a clear picture is presented of the pros and cons of some of the most popular investment schemes which are considered to be suitable for salaried individuals. Depending on the financial goals and the time frames, one can select one or more of these schemes to ensure better financial security with tax-saving benefits and assured returns.