Modules for Personal Finance
Portfolio Management
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Glossary of Different Portfolio Investment Options
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Different portfolio investment options
1. Direct equity
Direct equity investment involves the purchase of shares of a company through a stock exchange.
- Investment horizon: No limit to the tenure
- Risk: High
- Liquidity: Generally high (varies from one stock to another)
2. Non-convertible debentures (NCDs)
Debentures are fixed-interest debt instruments issued by companies to raise long-term capital from the public.
- Investment horizon: Ranges from 90 days to up to more than 10 years
- Risk: Moderate to high
- Liquidity: Moderate
3. Equity mutual funds
Mutual funds are investment vehicles that essentially pool the funds of numerous investors and invest them in various asset classes. Equity mutual funds are investment vehicles that invest in the equity stock market by purchasing the shares of various companies.
- Investment horizon: No limit to the tenure
- Risk: High
- Liquidity: High
4. Hybrid mutual funds
Mutual funds that invest in a mix of asset classes such as equities and debt instruments are known as hybrid mutual funds.
- Investment horizon: No limit to the tenure
- Risk: Moderate to high
- Liquidity: High
5. Bank FDs
A bank FD is a financial instrument where you deposit funds with a bank for a specified tenure. The bank, in exchange for depositing your money, gives you an interest on your investment.
- Investment horizon: Generally 7 days to up to 10 years
- Risk: Low
- Liquidity: Moderate to high (since you can liquidate your FD whenever you wish to)
6. Tax saving fixed deposits
This is similar to a bank FD, except that here, your investment is locked-in as a fixed deposit with a bank for a period of 5 years. In addition to receiving an interest on your investment, you also get to enjoy tax benefits on the amount of the deposit. The maximum amount of investment under this scheme is Rs. 1.5 lakh, which you can then claim as a deduction from your total taxable income.
- Investment horizon: Lock-in period of 5 years
- Risk: Very low
- Liquidity: Nil
7. Corporate FDs
With corporate FDs, you deposit your funds with a company rather than a bank, for a specified tenure. The company, in exchange for depositing your money, gives you an interest on your investment.
- Investment horizon: Ranges from 1 year to up to 10 years
- Risk: High
- Liquidity: Low
8. Insurance
Insurance is an investment option that comes with an added benefit of a protective life cover. To keep your insurance policy active, you are generally required to make periodic premium payments to the insurance company throughout the tenure of the policy.
You receive maturity benefits along with bonuses and loyalty additions at the end of the policy tenure. In the event of your death during the insurance policy tenure, your beneficiaries receive a certain sum of money as a death benefit.
- Investment horizon: Generally ranges from 10 years to up to 30 years (varies depending on the insurer and the policy)
- Risk: Very low
- Liquidity: Low
9. Unit Linked Insurance Plans (ULIPs)
ULIPs are hybrid investment options that combine both insurance and investment aspects. Similar to a regular insurance policy, you’re required to make periodic premium payments here as well. However, a portion of the premium that you pay is invested in various assets.
- Investment horizon: Has a minimum lock-in period of 5 years.
- Risk: Moderate to high
- Liquidity: Low
10. Public Provident Fund (PPF)
Public Provident Fund is an investment scheme that is backed by the government of India. It is a long-term investment option that provides you with reasonable returns along with several tax saving benefits. Investments made in PPF of up to Rs. 1.5 lakh in a year can be claimed as deductions from your total taxable income.
- Investment horizon: Has a minimum lock-in period of 15 years.
- Risk: Very low
- Liquidity: Very low
11. Real estate
Real estate investments involve the purchase of properties such as land and building. Due to the ever-increasing demand for real estate, you can earn a significantly higher return on your investment in the medium to long-term. And, with real estate properties, you can also earn income by renting them out.
- Investment horizon: No limit to the tenure
- Risk: Low to moderate
- Liquidity: Low to moderate
12. Gold
A very popular investment option in India, investment in gold involves the purchase of the yellow metal with the objective of selling it for a profit when the prices rise in the future.
- Investment horizon: No limit to the tenure
- Risk: Very low
- Liquidity: Very high
13. Equity Linked Savings Scheme (ELSS)
Similar to mutual funds, ELSS are investment vehicles that invest a large portion of the pooled funds into equity and equity-related instruments. The primary difference between an ELSS and a mutual fund scheme is that the ELSS gives you the ability to save tax.
- Investment horizon: Has a minimum lock-in period of 3 years
- Risk: High
- Liquidity: Low
14. National Pension Scheme (NPS)
A savings scheme launched by the government of India, the NPS provides retirement benefits to investors by way of a monthly pension after retirement. Similar to PPF, investments in NPS are also eligible for tax deductions of up to Rs. 1.5 lakh in a financial year.
- Investment horizon: Till the investor attains the age of 60
- Risk: Very low
- Liquidity: Very low
15. Treasury bills
Treasury bills (T-bills) are short-term debt securities issued by the government of India. Unlike other investment options, T-bills are issued at a discount and then redeemed at face value upon maturity.
- Investment horizon: Comes with three different maturities, namely 91 days, 182 days, and 364 days
- Risk: Nil
- Liquidity: Very high
16. Government securities
Similar to T-bills, government securities are also debt instruments issued by the government of India. However, they have much longer tenures and deliver either a fixed or a floating interest on your investments. This interest is credited to you on a half-yearly basis.
- Investment horizon: Ranges from 5 years to up to 40 years
- Risk: Nil
- Liquidity: Very high
17. National Savings Certificates (NSCs)
The NSC is a fixed-income savings bond where you deposit your money for a specified tenure in exchange for a fixed rate of interest on your investment. This scheme is backed by the government of India and also offers tax deductions of up to Rs. 1.5 lakh in a financial year.
- Investment horizon: 5 years
- Risk: Very low
- Liquidity: Very low
18. Exchange traded funds (ETFs)
An exchange traded fund is essentially a pooled investment fund that consists of assets such as stocks, bonds, and commodities. Just like stocks, ETFs are also listed and traded on stock exchanges.
- Investment horizon: No limit to the tenure
- Risk: High
- Liquidity: High
19. Post office monthly income scheme (POMIS)
The post office monthly income scheme is another one of the government funded small-savings schemes. It is offered by India Post and allows you to get a fixed monthly income each month from your investment. The minimum investment amount is Rs. 1,500 and the maximum is capped at Rs. 4.5 lakh.
- Investment horizon: 5 years
- Risk: Very low
- Liquidity: Low
20. Kisan Vikas Patra
The Kisan Vikas Patra is a savings certificate scheme that’s similar to the NSC. Sponsored by the government of India, the scheme offers a fixed rate of interest in return for your investment. Although the scheme doesn’t come with any tax benefits, it is still eligible to be held as a collateral for a loan.
- Investment horizon: 113 months, but withdrawable after 2 years and 6 months
- Risk: Very low
- Liquidity: Low
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