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Insurance Article

Indian Households - Good Savers Bad Investors

August 17 2015

Money matters: Save or grow?

Gold is considered a safe investment

Gold is considered a safe investment

Low-risk investments to grow your money

Low-risk investments to grow your money

Stock market: Tempting and risky

Stock market: Tempting and risky

Plan investments well

Plan investments well

 

Is a penny saved really a penny earned?

 The study on the investment patterns of the middle class was conducted in Nagpur and published in the International Journal of Social Sciences and Interdisciplinary Research.

Traditionally, Indian working class has invested solely with the purpose of saving. However, the younger generation is gradually warming up to the idea of investing to gain higher returns.

A booming economy, a majority of population in the working age-group and a consistently rising income has resulted in a new-found interest in investing. A few of the most commonly used tools for saving are listed below.

  • Fixed deposits at banks
  • Gold
  • Life Insurance Policies
  • National Savings Certificate
  • Provident Funds
  • Pension Funds
  • Real Estate Investments

The trend amongst Indian investors has been to play it safe. Save for the future, save for unforeseen events, save for retirement and so on. Although this is not completely erroneous, this low-risk, stick to saving policy, brings you minimal gains for your money. The expected returns on the principal you invest are less than optimal. The primary mistake here is the absence of a risk-return balance.

Although investing in equity is a risk, there are a lot of options that an investor can choose from to make a profit from investment.

Mutual Funds

A mutual fund, as the name suggests, invests money pooled by many investors. It provides the investors with a good risk/return balance while keeping the investment principal low. An added advantage is of having an expert financial advisor who invests the pooled amount.

Money is invested in diverse portfolios, resulting in good returns. The investors can pick and choose the portfolios to invest in and reduce the risk involved in investing directly in stocks.

Stock Market Investments

Investments in the stock market are one of the high-risk options for investors. They can be categorized as:

  • Direct trade - Investing in stock exchange, i.e. buy and sell stocks.
  • IPOs (Initial Public Offerings) - Invest in a company's stocks that are open to general public.

However, higher the risk, higher is the gain. Investing in stock markets can gain investors high returns in a considerably short time period. On the downside, investing in the stock market does not assure you of any returns and a naive investor might even lose the principal amount.

Private Equity

Investors can also buy equity in operational companies that are not listed on the stock exchange and are not publicly traded. Investors can buy this through private equity firms, angel investors or venture capital firms.

The investment is primarily to nurture an upcoming company or to fuel its expansion. This private equity can be a beneficial investment for long-term investors, as they can enjoy good returns as the company prospers. These investments are not subject to the traditional stock market risks and are therefore safer than direct market investments.

Although investing in equity is riskier than traditional 'invest and save' avenues, they are a viable option to grow your money rather than just store it. The keyword here is planning. A lot of Indian households do not have a systematic plan to save and grow their earnings. Invest wisely to ensure financial security as well as stable growth. Remember, your money can make you money!

 

 

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