Best Investment Opportunities
What is actually the need and importance of Investment ? If this question bothers you then first go through -> Importance Of Investment
The Indian investor has a number of investment options to choose from. Some are traditional investments that have been used across generations, while some are relatively newer options that have become popular in recent years. Here are some popular investment options available in India.
Stocks, also known as company shares, are one of the most profitable investment options. But what comes with this profit is huge risk of losses. When you buy a company’s stock, you buy ownership in that company that allow you to participate in the company’s growth. Stocks are offered by companies that are publicly listed on stock exchanges and can be bought by any investor.
The expertise that one requires to invest in stock market is not possessed by majority. The risk associated with stock market is because of the price volatility. The short term volatility of stock market is absolutely unpredictable. If someone is doing it, this is only speculative approach not investing. But in long term the way stock behaves is strictly as per the linked business fundamentals.
Investing directly in the stock market, i.e., purchasing stocks of publicly-listed companies, offers the highest returns but comes with an equally high risk. Direct equity purchases are made through a Demat account opened at a depository participant (DP) which includes private stock brokerage firms and public and private banks. This type of investment is purely speculative and hence requires a thorough understanding, and constant tracking, of the stock market.
It is profitable only for long-term investments and typically recommended only for seasoned investors with disposable income. If you don’t fit this bill but are still yearning for high returns, this investment option is what you should look at.
2. Mutual Funds
Mutual Fund is a scheme which collects the savings of large number of investors and then reinvests those funds in different investment option for earning profits and then distributes the profit among the investors. In return for such services, companies charge small fees.
If you are a beginner in investment who wants to know how and where to invest money then mutual fund should be the first choice.
Different types of mutual funds invest in different securities. Equity mutual funds invest primarily in stocks and equity-related instruments, while debt mutual funds invest in bonds and papers. There are also hybrid mutual funds that invest in equity as well as debt. Mutual funds are flexible investment vehicles, in which you can begin and stop investing as per your convenience. Apart from tax-saving mutual funds, you can redeem investments from mutual funds any time as well.
Mutual fund companies have fund manager who collects money from citizens and invests this pooled money in different investment option. The option in which the pooled money is invested depends on the objective of the mutual fund. If one is not aware about different investment options then mutual fund becomes the obvious choice. Once the pooled money is generated it starts making loss or profit depending on the situation. The income gets shares between the investors who have invested in that mutual fund.
Mutual fund investments provide the best balance of return and risk. They’re ideal for people who want higher returns than those offered by recurring deposits but can’t be bothered to regularly follow the stock market.
MF investments come with several options for lock-in periods ranging from ultra-short-term (up to one year) to long term (five years or more); naturally, longer investment periods offer higher returns. Deposits can be made either in lump sums or through SIPs. Also, investing in liquid funds allow investors to make withdraws before the maturation date. One can invest in mutual funds through banks or private firms that take total care of their investment portfolio.
Mutual funds can be growth focused, income focused or a mix of growth and income which is called as balanced funds. Growth focused funds mainly invests in equity and hence holding time shall be long term. Income focused funds invests in securities that are risk free like bonds or debentures. These risk free options generate regular income which is paid as dividends among unit holders. As the name says, balanced funds invests in both equity and risk free securities. The return of balanced fund is between long term returns of growth and income funds.
3. Fixed Deposits
These are investment vehicles that are for a specific, pre-defined time period. Fixed deposits offer complete capital protection as well as guaranteed returns. They are ideal for conservative investors who are risk-averse. Fixed deposits are offered by banks and for different time periods. Interest rates change as per economic conditions and are decided by the banks themselves. Fixed deposits are typically locked-in investments, but investors are often allowed to avail loans or overdraft facilities against them. There is also a tax-saving variant of fixed deposit, which comes with a lock-in of 5 years.
This has been the favourite and very old investing vehicle and the reason is its ease with which people can put money in it. Using your online banking account, transfer money from saving account to fixed deposit account in few seconds. This investment option is liked by all range of investors starting from new to a pro, the reason being its suitability as low risk investment option. When we are thinking about several, low risk investment options then probably fixed deposits of banks will rank highest. Here we lock our money for a predefined period and in the gross interest we earn is very reasonable.
A bank fixed deposit as it’s often called is a good choice if your investment period is 6-24 months. It is very common and simple product which does not need much explanation. Also the rules vary from one bank to another. Typically, smaller banks offer higher interest rates. The minimum investment period is 30 days.
Private Sector Banks typically pay lesser interest. So better interest can be earned by investing in Public Sector Banks especially medium-sized banks.
- Easy availability and ease of operation/withdrawal
- Good interest rate
- Safety of capital
- Usually early withdrawal has a penalty
- Lesser interest compared to Corporate Deposits
4. Recurring Deposits
A recurring deposit (RD) is another fixed tenure investment that allows investors to put in a specific amount every month for a pre-defined period of time. RDs are offered by banks and post offices. The interest rates are defined by the institution offering it. An RD allows the investor to invest a small amount every month to build a corpus over a defined time period. RDs offer capital protection as well as guaranteed returns.
It is a type of term deposit offered by nearly every major bank in India, a recurring deposit (RD) helps people with regular incomes deposit a fixed monthly amount and earn interest at a rate that, on average, ranges from five to eight percent. An RD is a stable, low-risk investment option with variable minimum deposit amounts (dependant on the bank) and lock-in periods that range from six months to 10 years. One cannot withdraw the deposit amount before the maturation period without incurring a penalty.
A similar investment option, especially suitable for low-earning professionals, is offered by the Post Office Recurring Deposit scheme. A PORD account can be opened by Indian citizens at any post office and has a fixed lock-in period of five years. The scheme typically offers an interest rate above seven percent per annum and has a minimum deposit amount of only Rs 10 per month (there is no maximum limit) payable through cash, cheque or bank transfer. This type of investment is completely risk-free and, since it is backed by the government, the capital completely secure. Withdrawals prior to the maturation date can be made subject to certain conditions and penalties.
5. Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a long-term tax-saving investment vehicle that comes with a lock-in period of 15 years. Investments made in PPF can be used to earn a tax break. The PPF rate is decided by the Government of India every quarter. The corpus withdrawn at the end of the 15-year period is completely tax-free in the hands of the investor. PPF also allows loans and partial withdrawals after certain conditions have been met.
Pubic Provident Fund (PPF) is among my favourite long term investment options. It allows me to lock my money for period of 15 years with full security as this option is backed by government of India. I do try to contribute maximum to PPF but the maximum contribution per year is limited to Rs 70K. The advantage of PPF is that after 3 years of starting this account I am able to take loan against it. If one does not want to opt for loan then premature withdrawal is also possible from 4th years of starting the PPF account.
Well this was a no-brainer. If you belong to the salaried class or are a small business owner, you should consider the PPF as your first option. You do not need to explore other options before you consider this.
Benefits Of PPF Account
- Minimum investment of Rs.500 and maximum investment of Rs.1,00,000(if you’re considering tax deduction under 80C).
- Tax free interest and maturity amount.
- One of best interest among fixed income products – 7.1% p.a in 2021.
- Free from creditors, loan sharks and court attachments.
- Public Provident Fund offers almost 99% security being operated by the government.
There is practically no disadvantage in PPF investments. If you have any remaining benefit under 80c after paying term insurance & children tuition fee you should definitely invest remaining in PPF. You can use a PPF or an EPF (Employee Provident Fund) to add fixed income to your portfolio and maintain stability.
It is the best investment option if you’re in high tax bracket. PPF is so far the best low risk long term investment in India.
6. Employee Provident Fund
The Employee Provident Fund (EPF) is another retirement-oriented investment vehicle that earns a tax break under Section 80C. EPF deductions are typically a part of an earner’s monthly salary and the same amount is matched by the employer as well. Upon maturity, the withdrawn corpus from EPF is also entirely tax-free. EPF rates are also decided by the Government of India every quarter.
7. National Savings Certificate (NSC)
The interest offered by National Savings Certificate (NSC) is 8.8% (compounding half yearly) which keeps changing as per government regulations. Investment in NSC can be done in multiple of Rs 100, Rs 500, Rs 1000, Rs 5000 & Rs 10,000 with no upper limit of investment. The minimum tenure of investment in NSC is five years. The income generated in tax exempted under section 80C.
NSC is a popular choice among rural Indians. The minimum investment is Rs.100 and one has option to choose 5 or 10 year period. The current interest is 8.5% for 5 years and 8.8% for 10 years.
Just like PPF, the Indian government fixes the interest rate for NSC each year.The recent issues of NSC are NSC VIII(available for deduction under 80C) and NSC IX.
However, one needs to pay interest on interest earned from National Savings Certificate. The section 80TTA removed the tax benefits of interest from NSC. That’s why we advocate to make use of PPF instead of NSC.
Tip: Re-invest the interest from NSC to get 80C benefit. For eg., you receive Rs 8,800 as interest from Rs 1 lakh investment in NSC. Instead of withdrawing and paying tax, you can allow it to accumulate and show this 8,800 as re-investment next year and claim tax deduction under 80C .Cool, isn’t it?
8. National Pension System
The National Pension System (NPS) is a relatively new tax-saving investment option. Investors in the NPS stay locked-in till retirement and can earn higher returns than PPF or EPF since the NPS offers plan options that invest in equities as well. The maturity corpus from the NPS is not entirely tax-free and a part of it has to be used to purchase annuity that will give the investor a regular pension.
National Pension System(NPS) has got way more attractive than it was earlier and become one of best investment options now. Broadly, All individuals between age of 18 to 60 can join the NPS.
You get tax benefit for investment upto Rs 50,000 under section 80CCD(1B) in addition to Rs 1.5 lakh under section 80C.
The investments are regulated by PFRDA and hence considered a safe investment option. You can choose the percentage exposure you want to equity.
The minimum investment is Rs.500 per month and fund management charge is very low at 0.01%. Another long term safe investment for conservative investors.
9. Gold and Commodity investments
If any investment option can compete with stocks that it is gold. Returns of gold in last one decade is better than stocks. But it must be admitted that gold in itself carries no fundamentals. It is purely a speculative asset. The price appreciation of gold is totally dependent on increase in demand. As population of this world is ever increasing so demand will also go up. Unlike stocks gold cannot generate any assured income for you (like dividends or interest income). To make profit you must sell-off your investment holdings (gold). I personally consider gold as a better emergency saving option. This is one reason why I do care to keep at least 10% in my portfolio as my emergency savings. We can buy gold as physical gold (bullions, coins & bars) or in Electronic form (mutual fund or ETF). Other form of precious metal that is available for investing is SILVER.
Gold has formed the major portion of assets in Indian household. From analyzing our clients and studying wealth reports, we find Indian hold their assets primarily as real estate and gold ie., average Indian’s assets 80% is made of gold/realty. Gold has been considered as a hedge against inflation for long time.
It’s good to have gold but make sure it doesn’t form more than 10% of your overall assets. Why? Because it has no utility(other than as jewellery which makes it primarily fashion accessory than an investment option).
You buy with a notion there will be someone else to buy at higher price in future. Indians also don’t buy other commodities much, so we better avoid them as it’s not for the ordinary investor.
If you consider gold as an investment option, then the best way to invest in gold is Gold ETFs. You store it in paper format. So there are no making charges,damages, theft issues or storage hassles.
11. Real Estate Investments
Investment in real estate properties like land, residential apartments, commercial buildings etc can be very profitable. Investment in real estate properties generates the reliable form of income called as rental income. Like stocks generates dividend income real estate generates rental income. But you can buy stocks any day but real estate cannot be bought as easily like stocks. The main reason being high capital requirement, real estate properties are very capital intensive. This is one reason why majority of invests in real estate by taking loans. The loan drastically reduces the profitability of real estate properties. In addition to rental income, real estate investment can also give substantial capital appreciation.
It’s a dream for everyone to buy their own home. In a country like India it makes sense too. Our land is limited but the population is ever-growing. Everyone wants a piece of land parcel and driving up prices.
Buying land in some remote corner where there is no job activity is not good investment. It may take years for this investment to bear fruit. So make sure you buy in places where people want to buy (i.e., where life is easier and jobs get created).
You need to be very careful with realty investment options. It is one of the easy investment plans where you can be cheated with fake documents, false promises.
- You fulfill long time goal – Own a home
- Get a safe place for your family to stay
- Good appreciation in India
- Can be financed with low-cost housing loan
- A self occupied house is not an investment – As it does not return you any income unless you sell it.
- Tough to buy and the process is detailed. Too many points to be careful about.
- Prices of some places are artificially driven up
- A lot of black money involved
- You can’t sell it that easy. If you’re in hurry, be ready to sell at a discount.
Unit Linked investment is slightly a newer form of investments than what we have discussed till now. People invested in Unit linked plans (ULIP’s) very heavily in early 2000 when it was first released. It was marketed as ‘safe equity linked investment’. But later when people realized the extra cost that goes into ULIPs, and as a result low net profitability, they shelved ULIP’s. Now ULIP’s marketing strategy has changed and even people’s expectations have evolved post 2008 financial crisis. ULIP’s are investment opportunity which is a combination of a insurance plan and equity. ULIP is more of a insurance plan than investment, hence people must not invest in them with expectation bug returns.
13. Equity Linked Savings Scheme (ELSS)
An Equity Linked Savings Scheme (ELSS) is a tax saving mutual fund which allows investors to claim deductions from their taxable income under Section 80C of the Income Tax Act. This is a diversified equity mutual fund with a fixed lock-in period of three years — which is the least among other tax saving instruments. Investors cannot withdraw their money before the maturation date unless they opt for a dividend scheme which grants them a regular income whenever dividend is declared by the fund.
Investments in an ELSS can be made either in lump-sums or through systematic investment plans (SIPs) — the minimum investment amount is Rs500 and there is no maximum limit — and are subject to market risk since they involve the stock market. ELSS funds generate an interest rate higher than bank fixed deposits but lower than diversified equity funds.
Equity Linked Saving Schemes belong to mutual fund class. You also get the added benefit of tax saving. Most Indians do not explore this investment option much. It is a plain simple product to get exposure to equity as well save some tax under 80C. The Government of India specifically has ELSS to encourage investments by common man into equity.
Contrary to popular perception ELSS funds have generated good returns in last 5 years. Well you can’t expect them to perform like Diversified Equity funds or Thematic funds.
Why? Because they take comparatively lesser risk. It has only 3-year lock-in period which is shorter compared to other 80C investments.
ELSS funds have an average 18% p.a returns in last 5 years. The DTC draft has a proposal to remove ELSS from 80C bracket. So make hay while the Sun shines
It’s that dreaded time of the year when the tax man does his rounds; so you are hurriedly rustling up money to make a few unplanned investments. That’s the worst financial mistake you could ever make! Tax-saving is meant to be done keeping your financial goals in mind and not just to save a few pennies.
While National Savings Certificate and Public Provident Fund are good tax-saving instruments, tax-saving mutual funds (ELSS – Equity Linked Savings Schemes) are a better option.
1) They are proven to give higher returns in terms of long term averages ie up to 15 to 18 per cent per annum. On the other hand, NSC and PPF will give you about 8 per cent per annum.
2) The lock-in period for these mutual funds is 3 years where as the lock-in for NSC and PPF is 6 and 15 years respectively.
14. Life insurance
If you have a family that is dependent on you, whether it’s your parents or your spouse and child, buying a life insurance plan is not only a good investment option, but a crucial one.
Keep in mind that there are three kinds of life insurance — ‘term’, ‘whole’, and ‘universal’ — each with their own advantages and disadvantages. All types require you to pay premiums, either monthly or yearly, which can be increased as your income increases. Life insurance as a pure investment option is not a good idea because it offers the lowest rate of return compared to all the aforementioned options. But if you’re in a situation where being safe is better than sorry, getting a life insurance can save your family from financial troubles in case you aren’t around to help them any longer.
In conclusion, remember that it’s better to choose safer options if you have short-term responsibilities whereas you can take the high-risk path if you’re only looking at long-term returns.
Whether or not you are a working woman, know this – your husband’s insurance policy is not sufficient! You need one too. God forbid something should happen to you, there would be added financial load on your husband.
15. Senior Citizen Savings Scheme (SCSS)
Probably the best investment option plan if you’re above 60 years. The rate of interest for Senior Citizen Savings Scheme is nearly 9.2% now. Usually the interest is around 1% above the 10 year government securities yield.
So for eg., if the 10 year yield is 8% in a year, the SCSS interest will be 9% give or take 10 basis points.
- High interest rate
- Tax saving under 80C
- Provided liquidity as interest is paid quarterly
- 15 lakh maximum investment limit
- Interest is taxable
- Tax saving limited to Rs 1 lakh
- Some bank FDs offer higher returns for Senior Citizens
16. Atal Pension Yojana
Atal Pension Yojana is a recent investment option launched by Modi government. Here any Indian between 18-40 years can join the scheme.
The government will contribute 50% of your contribution for 5 years or Rs 1000. Whichever is lower is applicable.
But this government contribution is only for non income tax payers. If you want monthly pension of Rs 5000, then your monthly contribution starting from age 20 years is Rs 250 approx.
This is safe investment option for lower income people for long term investments. You cannot withdraw before attaining 60 years unless exceptional scenario.
17. Savings Accounts
Savings accounts are different in each of the banks. The banks provide you with an option for children above the age of 10 to use a functional account with of course a withdrawal limit.
These accounts include a debit card, free internet banking but you will need to maintain a minimum balance in each of the banks. Parent accounts are compulsory in opening a new child savings account.
Most of the banks require a minimum balance to be maintained in the child’s account, if it goes below it, the parent account will be debited with the penalty.
18. Post Office Accounts
There are various options such as the general savings accounts at the post office and the Sukanya Samriddi account for a girl child.
Post Office Savings Account
- Minimum deposit of Rs 20 with a rate of interest at 4 %
- Account can be opened only with cash unless the deposit is above Rs 500 which can avail a cheque facility
- Tax free interest up to Rs 10,000
- Deposit must be done at least once every three financial years
- Only one account can be maintained at one post office but it can be transferred to another branch.
Sukanya Samriddi Account
- 2 rate of interest per annum
- Minimum deposit must be Rs 1000
- Age limit to open the account is 10 years of the girl child and the account can be closed at 21 years of age
- The girl child can withdraw upto 50% of the balance money when she attains 18 years
It is with sole aim of saving for your daughter’s long term future whether it is for marriage or education purpose.
Some salient features of this investment product is the high interest rate @ 9.2 % in 2015 (may change in future). This shows the importance of the products in government’s scheme of things.
You can invest as less as Rs. 1000 in a year. The investment plan period is maximum of 21 years from date of opening or marriage date whichever is first.
You can open maximum 2 accounts one for each daughter. You can check more details from our detailed post below.