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%

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