When it comes to investment, everyone looks for the best ways to invest money in India and get maximum returns from it. But where to invest? That’s the million-dollar question. Let’s tell you about the different ways you can find the best investment in India.
Best ways to invest money in India
Read on to know about the various and best investment options in India. We recommend that you also do your own detailed research on each before investing.
- Stock Market Investments:
Stock market investment is getting increasingly popular. Stocks denote a share of ownership in a company or an entity. It is considered the stocks are best long-term investment option. The stock market can generate great returns for investors, but the risks are also the highest for this asset class.
Investors should do a through research before trading in stocks, and not blindly follow a “hot tip”, or copy someone else’s portfolio. A good analysis of the company, market conditions, business outlook and the economy can help you choose the right stocks. Stock with a low beta value is comparatively a better choice for investors. It protects your portfolio against market downturns and potentially performs in the broader market.
- Invest in Mutual Funds
India has witnessed a steady growth in mutual fund investment. It is one of the simple and easy ways of investing money for wealth creation. A mutual fund is an investment product that gathers money from a group of people to purchase various securities.
A mutual fund can be considered a trust that gathers money from multiple like-minded investors. Based on the fund’s objectives, the funds collected from the investors are placed in various avenues like stocks, gold, etc. The biggest advantage advantage of investing in a mutual fund is that it is handled by well-trained and skilled portfolio managers, so you don’t have to worry about everyday management.
Moreover, mutual funds are a diversified pool of carefully managed stocks, making them less volatile than individual stocks. Specific mutual funds can be selected for a specific goals, such as retirement, children’s education etc. You can also save tax by investing in ELSS mutual funds.
- Initial Public Offerings (IPO)
Initial Public Offering (IPO) defines as the process of offering shares of a private company to the public in a new stock issuance. It helps the company to raise capital from public investors. A lot of people invest in IPOs anticipating bright prospects for the company. Investing in IPOs has the potential to offer good returns. But before buying into an IPO, make sure you do a thorough research on the company to understand the current business and future prospects.
- Unit Linked Insurance Plan (ULIP)
Unit Linked Insurance Plans combine both insurance and investment in a single product. ULIPs are getting popular because of their “multiple benefits under single roof” offering. ULIPs have a 5 year lock-in period. Under ULIP, a part of the premium is operated for insurance coverage, and the remaining premium is invested in the shares, bonds, etc.
ULIPs have certain advantages. Because they are a relatively long term investment, there is a lesser risk of market volatility. ULIP investments also give you tax benefits. You can also do tax-free partial withdrawals after the lock-in period, provided these withdrawals don’t exceed 20% of policy’s fund value.
It is also important to also know the drawbacks of ULIPs. These products mix insurance and investing, making the premium for insurance much higher than a regular term insurance. The fee cost structures of ULIPs are expensive, complex and quite opaque.
- Bank Fixed Deposits
Indians have been used to fixed deposits for long years. As the name says, fixed deposits ensure fixed and consistent returns to the investors. Based on the bank policies, the interest payment could be monthly, quarterly or yearly. FDs offer cumulative and non-cumulative options.
In case of a cumulative fixed deposit, the interest component gets added to the principal in every cycle, and gets compounded over the term of the deposit and paid at maturity.
In non-cumulative fixed deposits, the interest accrued is periodically paid out to the investor. This gives the investor an advantage of a regular income. The principal amount remains the same throughout the tenure.
FDs ensure financial security and is a great way to invest your contingency fund, or if your financial goal is less than 3 years away.
In addition to banks, there are a number of NBFCs (non-banking financial companies) that also provide FD products.
- National Pension Scheme (NPS)
National Pension Scheme is a government-backed and secured investment option that offers pension solutions. One can open an eNPS account from the NSDL portal itself. Salaried employees have an option to open it through their employers as well.
With NPS, you can avail tax benefits under various sections of the Income Tax Act, 1961. Section 80CCD (1) is a specific section dedicated to NPS contribution. Under this section, you may avail tax deduction of up to ₹1.5 lakh against self-contribution to NPS account. The sub-section 80CCD (1B) makes you eligible for availing an extra Rs 50,000 tax deduction against self-contribution to NPS.
If you are a salaried employee, you get some additional tax benefit under Section 80CCD (2). This section pertains to employer’s contribution to your NPS account.
The maximum tax deduction permissible against NPS contribution is 10% of the annual basic salary + Dearness allowance. And for Self-employed people, the limit is 20% of their gross annual income.
The significant advantage of NPS is that it allows the investor to choose between active and auto options; it also allows the investors to withdraw a partial amount of money. Retired individuals can lead a financially independent life with the help of NPS.
- Real Estate Investment
Real estate is one of the fast-growing sectors in India; hence the opportunities are enormous. Buying a plot or a flat is the preferred way for many to invest their money. Long term returns of real estate are similar to stocks, but it is not as easy buy and sell, and liquidity is lower. On the positive side, unlike cash, MFs or stocks; you can actually live in the asset (house) you buy.
Types of Investment Options Based on Risk Level
Before investing, it is mandatory to know more about the different types of investment plans based on the risk level. Most investors prioritise the risk level as low, medium, and high. Here is a complete description of the types of investment options based on risk level.
- Low-Risk Investment
The low-risk investment ensures fixed returns regardless of the fluctuations in the market or the business. This category includes investment plans like debentures, bonds, and fixed deposits. Other options like EPF (Employee Provident Fund), PPF (Public Provident Fund), etc., give low-risk investments.
The returns guaranteed by these investments are predetermined and periodic. Investors searching for no volatility in their portfolios and who cannot tolerate high-risk investments can choose these options.
- Medium-Risk Investments
Even though a certain percentage of risk is involved in this investment, this can give the investor a high return. Investors who have a medium-risk appetite and want to gain high returns and a regular flow of money can choose this type of investment.
Under this, balanced mutual funds, debt funds, and index funds will fall. An element of stability and debt is involved in the medium-risk investment. The market-linked volatility can impede the principal amount; hence, regular and fixed returns are not possible.
- High-Risk Investments
High-risk investment could potentially offer very high returns on investments while the risk involved is also high. It includes equity mutual funds, stocks of companies, and derivatives. Before investing in high-risk investments, the investors need to make a roadmap on when to invest, where to invest, and when to stop and withdraw the money to avoid certain risks.
Best Investment Plans for Long-Term
Investors who are having good patience level can choose a long-term investment. It is all about getting into a suitable investment and waiting patiently to get the return on investment. If you plan to invest for more than 5 years, it can be considered a long-term investment plan. Mutual funds, FDs with 5+yearsof tenure, EPF, PPF, and ULIP are included in the long-term investment plans. There are a few more best investment options for the long term.
- National Savings Certificate (NSC)
NSC is a feasible long-term investment option extended by the Indian post offices and selected banks. The tenure period is 5 years, and it can be started with rupees 100. The remarkable advantage of this investment plan is that it is affordable and applied to all investors from all economic statuses.
- National Pension System (NPS)
The Indian government introduced a pension scheme as a long-term investing option. It provides a regular income to investors after their retirement. A person can invest in this plan until 60 years of age, and later, after 60, a minimum of 40% of the fund will be used to buy an annuity plan that can ensure a regular income. The investor can withdraw the remaining 60% as a lump sum amount.
- Gold – A Valuable Long-Term Investment
In India, gold has considered the best way of investing money. Years ago, Indians started this practice; it continues even now. Gold is one of the long-term investments. Investing in gold can be of any type, such as buying physical gold, gold deposit scheme, gold ETF, and gold mutual fund. Since the gold price skyrockets every day, investing in gold will not disappoint someone.
Best Investment Plan for Short Term
If you are looking for a short-term money investment plan, then better you avoid investing in equity options since they are volatile. Hence, you have to choose the best investment options that will not affect by the market fluctuation and can ensure high returns. Here is a few best investment plan for the short term.
- Fixed Maturity Plans
Fixed maturity plans are close-ended mutual funds in which the investment is mainly made in fixed-income securities with connected maturities. The maturity period can range from one month to 5 years. The main advantage of a fixed maturity plan is that it can give a steady return after a period.
- Debt Mutual Funds
It is an ideal short-term investment plan. These are open-ended funds and are suitable for low-risk appetite investors. Debt mutual funds are the safest money investing plan which promises high returns on investment. The money is mainly invested in high-rated debt instruments such as corporate bonds, government securities, and treasury bills. The debt mutual funds can ensure investors a high return compared to any other savings bank account. The investment in debt mutual funds is always made in securities that get matured in 6 months to 1 year.
- Post-Office Term Deposits
It is one of the safest short-term money investment plans in India. The tenure starts from 1 year, and it has a tenure of 2 years, 3years, and 5 years. In this method, the government plans the rate of returns every quarter and assures back the investment. Indeed, any individual who is 10 years and above can start investing in this POTD.
- Recurring Deposits
It can be considered the best investment plan for 1 year for investors looking for a safe investment type and who want to invest a small fixed sum with a bank regularly. Here, the investor obtains the lump-sum amount with interest at the end of the policy tenure. The recurring deposit helps develop a healthy saving habit, and it is a lucrative investment choice.
How Should You Plan Your Investments?
Here are the comprehensive steps to plan your investments.
- Set Specific and Realistic Goals
Define your requirement and set a realistic goal. For example, you need enough money to lead a secure retired life, and here you have to decide the exact amount. If you have various goals and categories, it is long term and short term to prioritize and choose the right investment plan.
- Analyse Your Risk-Taking Ability
Understanding your risk-ability is the primary step. If you are a beginner or just started to earn, the risk-taking appetite is low. Investors with a low-risk-taking appetite should choose fixed return investments. Investors who have ample money can choose a high risk-taking appetite. Before deciding, it is significant to educate yourself about investing plans.
- Make a Savings Portfolio
Creating a savings portfolio helps the investor to diversify the portfolio. One can invest in many options such as stocks, gold, fixed deposits, real estate, etc. A diversified portfolio diversifies the risk connected with the investments. A few investment vehicles are less liquidated than the others. Hence, even if an emergency financial requirement comes, you can take out money from the liquidated investment vehicle.
- Calculate Your Asset Allocation
Investors should develop an asset allocation strategy to plan the investment. Select from various asset classes from the financial market and distribute in a way that can achieve optimum diversification when targeting the expected returns.
Investors can assign a percentage to different asset classes like stocks, gold, FD, etc., on the basis of the range of the volatility of their portfolio. While planning an asset allocation strategy, analyze the financial situation and goals of the investors.
The trump card of winning in the investment game is none other than a deep understanding of various types of investment options. Analyzing the purpose of investment and planning the investment strategy is mandatory to get optimum returns on investment and a diversified portfolio. Each investor will have a variety of goals for the investment. It will depend upon the financial state of the investor, period of the investment, risk level, etc. Hence, developing a clear roadmap is essential to choosing a brilliant investment plan.
FAQs
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When should I start investing money?
Start investing at the earliest to get more return on investment. The long term investments will help more by achieve and build a more diversified portfolio.
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Which kind of investment is suitable for a beginner?
If you are a beginner, go for Equity Mutual Fund investments through SIPs. The advantage is that a professional is managing your investments, and you don’t have to worry about everyday tracking. If you invest in ELSS, you can also save tax. When you start early, you have the advantage of time, and equity mutual funds usually give good returns over a longer time horizon. We advise beginners to not go for direct stock investing, because trading in stocks needs a lot of investment in time and research. If you still want to, put in a very small amount and start learning the basics.
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