What Is Investment And Importance Of Investment

What Is Investment

Investment is the tool to make money using money. It starts growing your money as soon as you buy a monetary plan according to your capability and need but there is a time limit attached with every plan before that you cant use your invested money or interest earned on that money.

How should I plan my investments?

Making the wrong investment choice can lead to financial losses, which is something that no one wants. This is why, you should use the following factors to decide where to invest your money. The first step in planning your investments is to figure out the right investment that fits your profile and needs. Here are a few things to keep in mind when planning your investments:

  • Choose investments carefully after doing adequate research
  • Don’t fall for quick-buck schemes that promise high returns in a short time
  • Review your stock and mutual fund investments periodically
  • Consider the tax implications on returns you earn from your investments
  • Keep things simple and avoid complicated investments that you don’t understand


Typically, younger investors have fewer responsibilities and a longer time horizon. When you have a long working life in front of you, you can invest in vehicles with a long-term view and also keep increasing your investment amount with an increase in your income. This is why equity-oriented investments like equity mutual funds would be a better option for young investors, as compared to something like fixed deposits. But on the other hand, older investors can opt for safer avenues like FDs.


Investment goals can be either short-term or long-term. For a short-term goal, you should opt for a safer investment and use the return-generating potential of equities for long-term goals. Goals can also be negotiable and non-negotiable. For non-negotiable goals like children’s education or down payment for a house, guaranteed-return investments would be a good choice. But if the goal is negotiable, which means that it can be pushed back by a few months, then investing in equity mutual funds or stocks can be beneficial. Plus, if these investments do really well, then you can even meet the goal before time.


Another thing to think about when choosing an investment option is your own profile. Factors like how much you are earning and how many financial dependants you have are also critical. A young investor with a lot of time on hand may not be able to take equity-related risks if he also has the responsibility to take care of his family. Similarly, someone older with no dependants and a steady source of income can choose to invest in equities to earn higher returns.

This is why it is said that when it comes to investments, one size doesn’t fit all. Investments not only have to be chosen carefully, but also planned properly to get the most out of them.

Why Investing is Important  

Investment is the way to create extra income with your savings if done smartly. For investment it is necessary to save money from your income but saving isn’t exactly your favourite word. How about big returns? You like the sound of that, don’t you? Well, investing becomes fun when you know you are going to reap big time.

In today’s world, just earning money is not enough. You work hard for the income you earn, but that may not be adequate for you to lead a comfortable lifestyle or fulfil your dreams and goals. To do that, you need to make your money work hard for you as well. This is why you invest. Money lying idle in your bank account is an opportunity loss. You should invest that money smartly to get good returns out of it.

Good investment is a skill that is essential for everyone to learn. We must create a diversified investment portfolio. Selection of correct mix of investment options in ones portfolio is essential. Later we will see what are the top investment options are available how and where to invest money in India.

Investment Can Help You Save Big On Taxes

A lot of us know about section 80C and its importance in reducing tax liability. But there are other ways to reduce the amount of tax you pay. Section 24, for example, will allow you a deduction based on the interest you are paying on your home loan.

Know your tax slabs

The amount of tax you have to pay depends on your yearly income. If you are under 60 years of age and your annual income is less than Rs2 lakh, you are exempted from paying tax. However, if you earn over Rs2 lakh and up to Rs5 lakh a year, you have to pay 10% on the amount you earn above Rs2 lakh. If you earn between Rs5 lakh and Rs10 lakh a year, you are required to pay 20% on any sum exceeding Rs5 lakh. All earnings over Rs10 lakh are charged at 30% when paying taxes.

Section 80C

The maximum that can be deducted from your taxable income under section 80C is Rs1 lakh. It makes sense to invest in the public provident fund (PPF) to the limit – Rs1 lakh – since it comes under the exempt-exempt-exempt (EEE) system, which means it is exempt from tax at the time of investment, during the period of investment as well as when it matures.

The interest you earn from the PPF is not taxable. So even though it offers a lower interest rate than a standard bank fixed deposit (FD), you earn more in total returns than the bank FD at the end of the term, since bank FDs follow the EET (exempt-exempt-tax) system and returns are taxable. See the table below.

Interest component of home loan (section 24)

The deduction can go up to Rs1.5 lakh if you are living in the house for which you have taken a loan or if you live or work in another city. However, there is no maximum limit to the deduction you can

claim if the property is not self-occupied.

 Rajiv Gandhi Equity Savings Scheme (section 80CCG)

Under this scheme, you can claim a 50% tax break, subject to a few conditions. These are: your annual income must be less than Rs10 lakh; you must invest in IPOs, certain eligible mutual funds, exchange-traded funds or shares listed on the BSE 100 or CNX 100; it should be the first time you have invested in shares, and you can only claim this deduction once in your life.

 Health insurance (section 80D)

Premiums up to Rs15,000 are permissible for a tax deduction. If you or your spouse is a senior citizen, this goes up to Rs20,000. In addition, if you are paying the premium for your parents’ health insurance, you can claim Rs15,000 as an additional deduction.

 Medical treatment (section 80DDB)

A tax break of up to Rs 40,000 can be claimed if you have paid for any medical treatment for yourself, your spouse, your children, your parents or your siblings. If you are a senior citizen, the amount you can claim goes up to Rs60,000.

 Interest on education loan (section 80E)

Under section 80E, the interest on an education loan is completely exempt from tax. You can claim this deduction only on full-time graduate or postgraduate courses or on vocational studies after the senior secondary exam, and up to a maximum of 8 years.

 Donations (section 80G)

You are eligible for a deduction of part of the amount (if not the whole amount) paid as a donation to a trust, charity or an approved educational institution.

 House rent allowance (section 80GG)

If you rent accommodation but aren’t given house rent allowance (HRA) you can claim a deduction. How much you can claim is the least of the following three: Rs2,000; 25% of your total income; or excess rent paid over 10% of your salary.

If you receive HRA from your employer, the deduction would be 50% or 40% of your salary (depending on whether you live in a metro or not, respectively), or the actual rent you are paying minus 10% of your salary.

 Political/electoral donations (section 80GGC)

Contributions to electoral trusts or political parties qualify for a complete tax deduction and there is no limit on how much you can claim.

 Disease/disability afflicting a dependent (section 80U)

You can claim a deduction of Rs50,000 if a dependent suffers from 40% or more of the following diseases: hearing impairment, blindness or mental illness. If the disability is severe, the deduction will be Rs1 lakh.

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