The majority of the population in India falls under the middle-class category. You can classify these families under the additional categories of the upper middle class and lower middle class, but we want to define them differently. Middle-class families can be from service or business backgrounds and try to save as much as possible for their aspirations and goals. Usually, there are one or two earning members in these middle-class families. We get a lot of questions regarding the investment options for middle-class families, which is why we decided to compile this page.
Before we begin, we would like to mention that most middle-class families already have a discipline of investing. However, as per our observation, their assets are allocated to just one or two types of assets. This is not the right thing to do. The investments should always be split into low-risk, medium-risk, and high-risk buckets. Most of the investment should go into low risk bucked, and a minimum percentage should be allocated to high-risk investments. Again, there can be changes to it, which totally depends on your goals and risk appetite.
With this, let us move ahead and look at the various investment options available for the middle class in India in 2023.
Low Risk – Low Return
The most important investment category is always a low-risk – low return category. Remember that the returns are directly proportional to the risk. So, the investment options that we are going to discuss in this bucket are low-risk, but they will offer you a fairly stable return irrespective of market and economic conditions.
- Bank Deposit and Post Office Deposits – Here, deposit means fixed deposits and recurring deposits. You can start a fixed deposit for the money you have accumulated, and with the monthly interest, you can start a recurring deposit. In addition to this, you can also set up a recurring deposit, and the monthly amount can be paid just like your EMI. Recurring deposits are the best way to accumulate money and get into the habit of investing. Moreover, banks, as well as post offices, offer these schemes, and they are very stable.
- PPF and NPS – No matter if you are salaried or self-employed. You can go ahead and start investing in PPF. PPF has a long lock-in period of 15 years, but it can be used for long-term goals like a child’s marriage or education. The minimum investment allowed in PPF is Rs 500 annually, and the maximum is Rs 1.5 Lakh annually. In addition, you can also explore NPS if you want to get a pension after your retirement. This is more like an annuity plan for the years when you won’t be working.
- Sovereign Gold Bonds or Gold – You must accept that middle-class families are obsessed with investing in gold. Many families prefer buying physical gold, but what if we tell you that your investment in gold can yield you returns? If you want to invest in something like that, you can opt for sovereign gold bonds. These bonds offer you the advantage of the appreciation of the gold price, and at the same time, you get a return of 2.5% semi-annually.
Medium Risk Investment Options
The next type of investment can be classified as medium-risk investments. These have a slightly higher risk, but they can yield better returns. For example, the fixed deposit returns will be around 7% per annum. However, mutual funds can yield around 10%-12% per annum, which is much better than risk-free assets. So, a portion of your monthly savings should also be invested in medium-risk investment options.
- Index Funds – The first option here is the index funds. These funds mimic the asset allocation of the market index like Sensex and Nifty. Looking at the historical trend, you will realize that the market indexes have grown in the long term. In such a case, allocating money to index funds can be a good idea. You can invest in index funds using your DEMAT account. The risk is not very high, but over a long period, the index fund’s returns can be phenomenal.
- Mutual Funds – Another popular option is the mutual fund. Different types of mutual funds are available, and you can check their ratings and risk profile. You can opt for blue chip mutual funds or balanced mutual funds. Again, instead of investing lump sum money, we recommend investing a monthly amount. These can be purchased by setting up a SIP. Under SIP, a monthly deduction is made from your account and allocated to your desired mutual fund.
- Real Estate – Sometimes, the investment has an emotional value and an aspiration attached to them. If, as a middle-class family, you are living in rented accommodation, then you must also consider investing in real estate. This can help you eliminate the rent and build a property for the next generation. This can be a reasonable consideration, but this is a long-term commitment.
High-Risk Investment Options
High-risk investments can yield much better results when we compare them with medium-risk investments. However, remember that since the risk is higher, you also have a higher chance of losing money. So, you can try to balance the medium and the high-risk investments.
- Mutual Funds – The first option under this bucket is mutual funds. You can invest in pure equity-based mutual funds, which will prove beneficial. You don’t need any experience in investing here since a central agency regulates mutual funds. In addition, professional investment advisors are taking care of your funds when it comes to mutual funds.
- Stocks – If you are fond of the stock market and good at analysis, you can also consider investing in the equity market. However, remember to set stop-loss so that you don’t lose money and don’t let emotions or market trends drive your investment decisions.
This was all about the investment options for the middle class in India in 2023. If you have any questions, please feel free to connect with us. In addition, you must analyze your financials and the risk before investing in any asset. We have shared the investment options here, which should be used only for informational purposes.