Most Common Investment options and how they are taxed

Investors always want the “best” companies and funds to invest for the best returns, but what most of them forget is that there is no such thing as best investment. Every type of investment includes some risks and benefits, the higher the risk, the higher the benefit. It really depends on your expertise in a particular area that defines how you’ll perform there. As for those who are new to the investment scene, below is a list of the most common niches for investing for you to start your investment journey.

1. Direct Equity

Investing in stocks is not for everyone, it’s classified in the volatile asset class and has no guarantees of returns. Furthermore, picking up the right stock and the right entry and exit time demand tons of experience as well as luck. The only good thing about stocks is that Equity over time has shown higher values of return than any other class. It is recommended that you use the stop-loss approach while investing in direct equity so that you incur the minimum possible loss.

Taxation: STCG 15%, LTCG 10% (Long Term is applied after a minimum of 1 year)

2. Debt Mutual Funds

Ideal for those who want long-term stable returns, debt mutual funds are open-ended funds and are considered less volatile than equity, therefore they give a more stable return that equity. There are various types of debt mutual funds like liquid-funds, short-term funds and corporate bond funds which are managed by special debt fund managers and are invested in various classes with varying rate of risk.

Taxation: STCG- Added to Income, LTCG- 20%

3. Bank Fixed Deposits

Bank Fixed deposits are a popular investment option as they offer fixed as well as stable returns after a fixed amount of time. FDs vary in varies depending on their type and tenure. Most Banks offer an option of premature withdrawal by paying a penalty. Banks offer both cumulative and non-cumulative FDs. In Cumulative FDs the interest is re-invested and is payable on maturity, while in non-cumulative the interest is added to your salary and is taxed together with your salary.

Taxation: Interest is taxable as per income slab

4. Public Provident Fund (PPF)

With a lock-in period of 15 years, this is one of the most popular investment options in India. Investment in PPF offers tax benefits under article 80C and the interest earned on maturity is also exempted from tax. What’s more, you can even extend your account post maturity in slabs of 5 years for n number of times.

Taxation: Interest is Tax-free and has EEE status

5. Gold

A person can buy gold in numerous forms like jewelry, bullion, gold bonds, and even digital gold. One of the most common investment options all over the world, the returns in past 10-20 years have crossed double digits but in recent times have diminished.

Taxation: STCG is added to income while LTCG is 20%

Investing Mistakes that people should stop Making

business investmentInvesting is an art and not any magic trick that can make you rich overnight. People generally have a laid-back approach towards investing where they think that whatever they invest in will turn to gold and make them rich overnight, such people are deemed to lose money and even get indebted. It should be understood by those new to the stock market that nothing comes off easy, though it can’t be denied that you need luck in the investment business that comes after you have the desired skills, just like any other profession. After carefully analyzing the investment scenario of the country we have come up with a list of mistakes that people need to stop committing in order to have a chance at getting some positive output from your investment. So here is the list:-

1. Investing in a business you don’t understand

Perhaps one of the silliest mistakes that people make is investing in a business they don’t understand. It should be understood in clear terms that if you don’t know how a business works and what factors it depends on, you won’t be able to predict how its stocks will perform and 99% of the times you’ll end up losing all your money. Just don’t decide where to invest without properly knowing the business you are investing in.

2. Using the money you can’t afford to lose

Sometimes out of emotions or greed people invest more money than they can afford to part with which creates debt problems. It is to be understood that you need to understand your monetary limit before investing in a particular fund or business so that you don’t have to face additional financial problems even if that money is lost as an unsuccessful investment.

3. Being driven by impatience

Nothing comes off fruitful if you are impatient, even an ancient proverb says that patience is the key and that’s precisely the key in the investment market is. You should clearly know when you need to enter or exit a stock in order to ensure that you don’t lose money just because you were impatient about the lack of returns. Returns can sometimes and you should not depend on your impulsiveness, rather study the situation and react accordingly.

4. Following the Crowd

One more silly but common mistake people make is following the crowd. It should be remembered at all times that being in majority doesn’t mean that you are right and that applies to stocks too. Instead of following where the crowd is going, you should first analyze the situation yourself and equate it to your own situation and then take a wise and informed decision. This is one single biggest thing that differentiates big investors from small ones.

5. Shifting from a diversified funds to Indexed funds

Another common mistake that people make is shifting from diversified funds to indexed funds. It should be remembered that you should always maintain diversity while investing so that when one sector/company/fund fails to deliver, you have others to cover your losses. This thing ensures that no single trading day comes with a loss of your investment and even if that happens, then its occurrence is rare.