With the evolution of the financial markets, investors today have a wide range of investment options to choose from. However, to make an informed investment decision, one must carefully evaluate the different options available out there. This article aims to discuss different broad categories of investments as below:
Fixed Deposits
In a fixed deposit, the investors deposit the amount with a commercial bank for a fixed term and, in return, get fixed returns on deposits over the tenor at the maturity. One may also prematurely withdraw the fixed deposit, but such premature withdrawal may incur an exit cost
One can also set the maturity instructions to reinvest the matured amount at the end of the tenor. The interest income from fixed deposits is taxed at the marginal tax rates applicable to the investor. However, senior citizens age 60 or more are allowed to deduce under Section 80TTB of the Income Tax Act for the interest income from savings and deposit accounts up to a maximum of Rs. 50,000.
Corporate Bonds
One can invest in Corporate Bonds by purchasing them through stock exchanges or by investing in public issues for debt securities offered by the Companies, subject to meeting the criteria of minimum application amount. While generally such bonds also offer fixed returns, the interest rates may also be kept floating, wherein the interest rates are linked to external benchmarks.
Since such bonds are listed on stock exchanges, the valuation of such bonds may increase or decrease, and the liquidity of such bonds is subject to prevailing market price.
Real Estate Investment Trusts (REITs)
Real estate investments are generally of higher ticket size and relatively less liquid due to the same reason. To overcome these disadvantages, one can consider investing in REITs, wherein the real estate investments are represented by units of small face value/ lot size. This lowers the investors' requirement on investment size and aids liquidity since such units can be traded over stock exchanges.
Gold
Indians tend to be perennially inclined towards investing in Gold, for such investments carry emotional and social utility in Gold jewellery. However, Gold as an investment carries several disadvantages, including storage costs, risk of purity, safety risk, etc.
One may invest in Gold Funds, Gold ETFs or Sovereign Gold Bonds for similar investment exposure but eliminating all the risks associated with physical gold. Sovereign Gold Bonds also provide nominal interest for the investment and carry preferential tax treatment for the investors with a tax exemption for the capital gains from such bonds upon maturity.
Stocks
One can directly invest in stocks and take investment exposure in equity markets. However, such investments tend to demand lots of effort and time to track the companies on regular basis. Further, direct equity investment is generally not advised for someone who does not understand the markets environment and fundamentals of the businesses.
Suppose one has transacted equity shares through stock exchanges, the gains from shares held for less than 12 months are taxed at 15%, while gains from shares held for 12 months or more are taxed at 10% (post exemption of Rs. 1 lakh in a year for long term gains from equity shares and equity funds taken together).
Mutual Funds
Mutual funds offer a convenient option to the investors to have a diversified portfolio that can be spread across different asset classes, different types of securities, etc. One can choose to invest in equity schemes, debt schemes, hybrid funds, solution-oriented schemes, and other schemes. Different type of mutual funds investing in different asset class may carry different degree of risk, reward and trade-offs. An optimal balance of schemes can help the investors align the portfolio risk profile in line with their risk appetite.
Further, capital gains from equity funds are taxed in the same manner similar to equity shares traded on stock exchanges. Long Term Capital gains from other than equity-oriented funds are taxed at a rate of 20% with indexation benefit. Indexation refers to adjusting the cost of investments with the prevailing inflation over the period calculated in a specified manner.
The above discussions are aimed to provide a broad overview of the available investment options. However, the above list is only indicative and not exhaustive. Make an informed decision by evaluating all the available investment options.
Note: The tax provisions, as mentioned in the article, are for illustrative purposes only and are as per the prevailing tax laws/ provisions of the Income Tax Act, 1961 for FY 2022 and are subject to amendments, from time to time. The taxation of income from different investments may be subject to specific provisions of the Income Tax. Consult your professional tax advisor for a personalized tax opinion.
Disclaimers:
UTI AMC Ltd is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. UTI AMC Ltd or UTI Mutual Fund (acting through UTI Trustee Company Pvt. Ltd) accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents or associated services.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully
This material is part of Investor Education and awareness initiative of UTI Mutual Fund.
The information herein should not be considered as 'investment advice'. Reader is requested to make informed investment decisions and consult their Mutual fund distributor or financial advisors to determine the financial implications with respect to investing in Mutual Funds
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