In India, most investors want to invest in a manner that they get high returns as fast as possible with minimum risk of losing money. And this is the reason why most of us always looking out for best investment instruments to invest in. We just don’t want high returns, but to double our money in a few months or a year with little or no risk. We may not say that out loud. But, it is what we mostly dreamed of. Isn’t that right? Anyways, there is no investment in this world where you could just remove risks to yield high returns. On the contrary, there is a correlation between risks and market returns. There are many investment products where risks and returns are correlated with each other. Means, the higher the returns, higher is the risk, and vice-versa.
There are plenty of investment instruments available to invest in. And in our opinion, all these investment instruments are really great. It’s just instruments varied with their nature of risks and returns. One who is proficient in the equity market doesn’t mean he/she will also be proficient in day trading. Similarly, a person whose expertise area is real-estate can’t expect to be expert in commodity trading.
So, while choosing Investment Avenue you have to be thorough and select the appropriate one which matches your own risk profile. There are some investment instruments which have the potential to generate high inflation-adjusted returns than other asset class but required high-risk tolerance. Similarly, there are some instruments which may not generate high returns but give steady average returns at limited risk.
Let’s take a look at the top 10 investment options/instruments in India where most Indians look to achieve their financial goals.
Direct equity means investing directly in the stock market. But, if anyone holds the basic financial knowledge then you know that direct equity is not everyone’s cup of tea. It is a highly volatile asset class where there is no guarantee of returns. This volatility can be triggered by any major or minor announcement, events, or performance etc. Those who invested in direct equities do regular monitoring of stocks and keep close track of the companies they have invested in.
So, it is not easy to pick the right stocks, timing the market, and enter and exit the position. But, nobody can also deny the fact that in long-term, equity has been a very successful asset class which succeed to deliver higher than inflation-adjusted returns compared to other asset classes. Similarly, you can lose a considerable portion of your capital if portfolio not handled carefully.
Equity Mutual Funds:
Equity mutual funds are the funds that invest principally in stocks. Equity mutual funds are usually of two types – Actively or Passively managed MFs (index funds and exchange-traded funds (ETFs)). As per the recent Securities & Exchange Board of India (SEBI) mutual fund regulations, an equity mutual fund (stock fund) scheme must invest at least 65% of its assets in equities or related instruments. These equity mutual fund schemes are classified according to market-capitalization or the sectors in which they invest. Volatility in equity mutual funds is comparatively low to direct equities. One who invests in mutual funds, instead of a single stock, buy a bucket of stocks called portfolio.
If you don’t have much time to monitor your investments and holds average financial knowledge then investing in equity mutual funds would be the best decision. You don’t need to bear the market volatility. Choose the systematic investment plans (SIP) are the best way to do a long-term investment in creating wealth with minimal risks.
Debt Mutual Funds:
Instead of stocks, the debt mutual funds mainly invest in a mix of debt or financial securities such as Treasury Bills, Corporate Bonds, Money Market Instruments, and Government Securities. Due to a fixed maturity period and rate of interest, debt funds are ideal for investors who have a low tolerance for risk and want steady returns.
National Pension System (NPS):
The National Pension System (NPS) is a pension scheme launched by the Government of India and managed by the Pension Fund Regulatory and Development Authority (PFRDA). This long-term retirement – focused investment product is a mix of equity, fixed deposits, liquid funds, government funds, and corporate bonds among others. The NPS is available to all citizens of India, thanks to PFRDA. Now PFRDA has launched a separate model to offer National Pension System (NPS) to the employees of corporate entities, including PSUs.
Public Provident Fund (PPF):
Public provident funds in short PPF is a scheme very popular among Indians which is fully backed by the Government of India. The specialty of PPF scheme is attractive interest rate and returns that are fully exempted from tax. It is one product which residential Indian individuals turn to. The tax-free returns backed by Sovereign guarantee makes it the safest investment plan.
Fixed Deposits (FDs):
Fixed deposit is one of the most traditional investment options in India. It has a fixed tenure and average interest rates. Unlike stocks and high-risk investment options, FDs are quite safe and are not subject to fluctuations of market rates. The add-on benefit of fixed deposit is the availability of a loan. One can take a personal loan for instant money which can be approved of up to 90 percent of the total FD value. Moreover, the loans availed on FDs have low-interest rates as compared to other unsecured personal loans.
But, there are some disadvantages of FDs which made people choose for other investment options. For instance, withdrawing money before tenure may lead to a penalty or low-interest rates. Speaking of interest rates, the interest earned on FD is not tax-free.
Senior Citizens’ Saving Scheme (SCSS):
As the name suggests, the Senior Citizens’ Saving Scheme (SCSS) is only for senior citizens or early retirees. SCSS can be availed by the post-office or a bank by anyone who is above 60. SCSS has 5-year tenure which can be further extended by three years once the scheme matures. SCSS has better interest rates than FDs of 8.3 percent per annum, payable quarterly and fully taxable.
RBI Saving Taxable Bonds:
RBI saving taxable bonds are best suited for conservative investors who prefer to lock their returns in bonds till maturity. The bond may be issued in Demat form and credited to the Bond Ledger Account (BLA) of the investor. Certificate of Holding has provided to the investor as a proof of the investment in RBI Saving taxable bond.
Real estate is another very popular investment option in India which is common to see in every class. However, investing in real estate requires a serious commitment. In India, the most common reasons for investing in real estate are as follows:
- General Income
- Capital appreciation
- Personal use
Real estate property has a value which should be appreciated over time which people get in return by selling the property at a higher price. Also, by putting on the lease, one can get regular income period. Overall, real estate can be a good alternative to direct equities in long-term investments. However, the major drawback is its non-liquidity. In case of emergency, it is not easy to sell the property for instant cash.
There was a time when the possession of gold in the form of jewelry shows the status of an individual. But, there are the ‘making charges’ which cost around 6-14 percent of the cost of gold which limits the returns. So, if somebody is planning to invest in gold, the best approach is to buy the gold coins. It is an alternative way of owning paper gold in a most cost-effective manner is through gold exchange-traded funds.
Final Thoughts: –
In a nutshell, we can say that we have two kinds of investment options – fixed-income and market-linked investments. The fixed income investments help in preserving the capital as a long-term investment where one can have above-average returns. It is suitable for conservative investors who have a low risk of tolerance. However, the market-linked investments are suitable for people who want to outperform the market and want higher-returns. This best suited for people with a high risk of tolerance.
Nevertheless, you should decide this yourself. Just make sure, whichever investment instrument you pick, suits your investing style and can help you in meeting your financial goal.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.