When it comes to investing, many first time investors want to jump right in with both feet. Unfortunately, very few of those investors are successful. Here, in this article, I am going to share the best investment options in India.
Investing in anything requires some degree of skill. It is important to keep in mind that few investment options are a sure thing there is a huge risk of losing your money!
So, before you start investing, it is better to find out more about investing, investing options in India and how it all works, but you should also have to determine what your investing goals are.
Define Your Goals For Investment
Before you invest a single rupee, really think about what you hope to achieve with your investment. Knowing what your goal is, will definitely help you to choose better investment options & make smarter investment decisions along the way!
Too often, people start investing money with dreams of becoming rich overnight. This is impossible, am I wrong?
It is really a very bad idea to start investing in hopes of becoming very rich overnight. It is safer to invest your money in such investment options that will give you returns slowly over time and can be used for retirement or a child’s education.
However, if your investment goal is to get rich quickly, you should learn as much about high-yield, short term investing before starting with investments.
Type of Investment Options in India
Before you start investing, it is very important that you learn about the different types of investment options in India, and what those investments can do for you. Understand the risks involved, and pay attention to past trends as well. History does indeed repeat itself, and investors know this first hand!
Overall, there are three different kinds of investment options in India. These include:
- Bonds and
Sounds simple, right? Well, unfortunately, it gets very complicated from there.
You see, each type of investment has numerous types of investments that fall under it.
Best Investment Options in India 2020
There is quite a bit to learn about each different investment types. The stock market can be a big scary place for those who know little or nothing about investing.
- Direct Equity
- Equity Mutual Funds
- Debt Mutual Funds
- National Pension Scheme
- Public Provident Fund
- Bank Fixed Deposit
- Senior Citizens’ Saving Scheme
- RBI Taxable Bonds
- Real State
1. Direct equity
Investing in stocks may not be everyone’s cup of tea as it’s a volatile asset class and there is no guarantee of returns either. Further, not only is it difficult to pick the right stock, timing your entry and exit is also not easy as well. The only silver lining is that over long periods, equity has been able to deliver higher than inflation-adjusted returns compared to all other investment asset classes.
At the same time, the risk of losing a considerable portion of capital is high unless one opts for the stop-loss method to curtail his losses. In stop-loss, one places an advance order to sell a stock at a pre-specified price. To reduce the risk to a certain extent, you could diversify your capital across sectors and market capitalizations. To invest in direct equities, one needs to open a Demat account through Broker.
I’ve listed all Stock Brokers with their features and trading platforms. You can find a list of Best Brokers in India here.
Presently, the 1, 3 and 5-year stock market returns are around 13 percent, 8 percent and 12.5 percent, respectively.
2. Equity mutual funds
Equity mutual funds mostly invest in equity stocks. As per the present, Securities and Exchange Board of India (SEBI) Mutual Fund Regulations, an equity mutual fund scheme must invest at least 65 percent of its assets in equities and equity-related instruments. An equity fund can be divided into two types one is actively managed and the second is passively managed.
- Actively Managed Fund: In an actively traded fund, the returns are mainly dependent on a fund manager’s ability to generate better returns.
- Passively Managed Fund: Index funds and exchange-traded funds (also called ETFs) are passively managed funds, and these track the underlying index.
Note: Equity schemes are also categorized according to market-capitalization or the sectors in which they invest. Further, they are also categorized by whether they are domestic (investing in stocks of only Indian companies) or international (investing in stocks of overseas companies).
Presently, the 1, 3 and 5-year market return is around 15 percent, 15 percent, and 20 percent, respectively.
3. Debt mutual funds
Debt funds are ideal for investors who want steady returns with less risk. They are less risky compared to equity funds because Debt Mutual Funds are less volatile. Debt mutual funds mainly invest in fixed-interest generating securities just like corporate bonds, government securities, treasury bills, commercial paper and other money market instruments.
Presently, the 1, 3 and 5-year market return is around 6.5 percent, 8 percent, and 7.5 percent, respectively.
4. National Pension System (NPS)
The National Pension System (NPS) is a long term retirement-focused investment instrument managed by the Pension Fund Regulatory and Development Authority (PFRDA). The minimum annual (April-March) contribution for an NPS Tier-1 account to remain active must be Rs 1,000 which has been recently reduced from Rs 6,000. It is a mix of equity, fixed deposits, corporate bonds, liquid funds and government funds, among other instruments. Based on your risk appetite, you can decide how much of your money can be invested in a different type of instruments like equities/FD through NPS.
Presently, the 1, 3 and 5-year market return for Fund option E is around 9.5 percent, 8.5 percent, and 11 percent, respectively.
5. Public Provident Fund (PPF)
The Public Provident Fund (PPF) is one product a lot of people turn to from starting. Since the PPF has a long tenure of 15 years, the impact of compounding of tax-free interest is big, especially in its later years. Further, since the interest earned and the principal invested is backed by a sovereign guarantee, it makes it one of the safest investments.
Presently, the interest rates on PPF is 8.5% per annum on actual contribution towards PPF.
6. Bank fixed deposit (FD)
A bank fixed deposit (FD) is a safe choice for investing in India for most of the peoples. Under the deposit insurance and credit guarantee corporation (DICGC) rules, each depositor in a bank is insured up to a maximum of Rs 1 lakh for both principal and interest amount of FD. As per the need, one may opt for monthly, quarterly, half-yearly, yearly or cumulative interest options in Fixed deposits. The interest rate earned is taxable & added to one’s income, which will be taxed as per one’s income slab.
7. Senior Citizens’ Saving Scheme (SCSS)
Probably the first choice of most retirees in India, the Senior Citizens’ Saving Scheme (SCSS) is a must-have in their investment portfolios. As the name suggests, only senior citizens or early retirees can invest in this scheme as per existing rules. SCSS can be availed from a post office or a bank by anyone above the age of 60 years. SCSS has a minimum of five-year tenure, which can be further extended by three years once the scheme matures. The upper investment limit is Rs 15 lakh for this scheme, and one can open more than one account.
Presently, the interest rate that can be earned on SCSS is 8.3% per annum, payable quarterly and is fully taxable.
8. RBI Taxable Bonds
The government has replaced the erstwhile 8% Savings (Taxable) Bonds 2003 with the 7.75% Savings (Taxable) Bonds. These bonds come with a minimum tenure of seven years. The bonds can be issued in Demat form and credited to the Bond Ledger Account (BLA) of the investor and also a Certificate of Holding will be given to the investor as proof of investment.
9. Real Estate
The house that you bought for a self living can not be considered as an investment. If you bought it with no intention to live in, then it can be considered as an investment.
The location of the property is the single most important factor that will determine the value & return of your property and also the rental that it can earn. Investments in real estate can deliver returns in two ways – capital appreciation and rentals. However, unlike other investment asset classes, real estate is highly illiquid. The other huge risk is with getting the necessary regulatory approvals, which has largely been addressed after coming of the real estate regulator.
Having gold in the form of jewelry has its own concerns like safety and high cost. Then there’s the ‘making charges’, which typically range between 6 to 15 % of the cost of gold and may go as high as 25 percent in case of customized orders & designs. For those who would want to buy gold coins, there’s still an option for good returns. One can also buy ingeniously minted coins in India. The best way of owning paper gold in a more cost-effective manner is through gold ETFs. Such Gold investment (buying and selling) happens on a stock exchange (NSE or BSE) with gold as the underlying trading asset. Investing in Sovereign Gold Bonds is another better option to own paper-gold.
Thank you for reading.