–Updated 12 Mar 2016–
The average Indian is always on the lookout for Best Investment Options and Plans to park his money. He wants to save his hard earned money. The smart Indian also wants his money to work for him.
While Indians have been traditionally conservative in their decisions (which is wise sometimes), they are also beginning to open up. As the financial market matures, the investment options and plans are available in plenty.
One of my clients- Mr.Jagan(of course name is changed Nobody likes to admit they lost money. But the client is real) invested his money in a chit fund . They promised him 30% interest. And just like many, he too made investments with them. He was getting his interest for almost 15 months and suddenly BAM!. The fund closed shop and he is stuck in a long legal battle in the courts.
It’s wise to earn money but one should also be prudent enough to optimize the returns from it without risking the capital.
And this incident prompted to write this post. We present some of the best investment options and plans in India where you can earn without throwing your capital away. Check them out and choose the one best suiting your financial needs.
Best Investment Options, Plans in India
Conservative Investment Options
1) Public Provident Fund – PPF
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.
Public Provident Fund offers almost 99% security being operated by the government. You already would know the benefits of PPF like
- 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 – 8.7% p.a in 2014
- Free from creditors, loan sharks and court attachments
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.
Tip: The best investment option if you’re in high tax bracket. Gives you total savings of 11% which is the best if you’re in 30% tax bracket. Do not consider other investment options like stocks until you have maxed out your 80C with term insurance, PPF if you’re retail investor. PPF is so far the best low risk long term investment in India.
Definitely read: For complete details on PPF, check out Public Provident Fund -PPF
2) National Savings Certificate (NSC)
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?
Check out the Indian post link for details: NSC through Indian post
3) 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
4) Money Market Funds
Money Market Funds are ideal as short-term investments options. These also called Liquid funds. As the name suggests, liquidity is the primary motto. These offer slightly higher returns than Savings Accounts.
The returns range from 5.5 to 9% based on the period and risk category. Liquid funds are fairly safe investments as they invest in fixed income securities of governments and corporates.
Money market funds are one of largest pie of mutual fund industry. ICICI Pru Liquid Plan and HDFC Liquid Fund are some of best liquid funds to consider for investment in India
Tip: If you have surplus money for 2-10 months, then consider investing in a money market fund. Earns better interest than Savings Bank Account. The withdrawal money is usually credited the next day or two. Also look for liquid funds with total assets managed more than Rs.300 crores
Related Wikipedia article: Money Market Funds
5) Bank Fixed Deposits (FDs)
A Term Deposit or 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.
- 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
Tip: Private Sector Banks typically pay lesser interest. So better interest can be earned by investing in Public Sector Banks especially medium-sized banks.
6) Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana is a must-have investment option in my opinion if you’re risk averse.
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
7) National Pension System
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.
8) Atal Pension Yojana
Atal Pension Yojana is a recent investment option launched ny 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.
Aggressive Investment Options
9) Tax saving mutual funds – ELSS plans( Equity Linked Saving Scheme)
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
Tip: Invest in SIP or in staggered manner than a lump sum(unless market is extremely down). You’ll get the benefits of Rupee Cost averaging and long term compounding.
Related : Best tax saving mutual funds in India
10) Diversified Mutual Funds Investments
Why are we discussing Mutual Funds if we already discussed ELSS? Well, they are for different purposes. While the primary aim of ELSS is tax saving, the goal of diversified mutual funds is wealth creation to meet goals.
Did you know that if you had invested Rs.1,00,000 in HDFC Top 200 fund in 1996, your corpus is worth nearly Rs 23,00,000 now. That is staggering 2200% return over 20 years. You can easily marry your daughter, put you kid through college with this fund.
Mutual funds are ideal for an individual investor who can’t follow the market regularly. It allows a professional to take care of your investments. You should invest with/for some long-term goals in mind. It provides you with diversification.
Tip: Try to invest in a low-cost Index fund, if you want to keep your costs low. Yes, you can dabble in active funds but the risk is also higher. In an index fund, the only risk is the risk of stock market. The chance of all top 50 India companies failing at same time is highly unlikely.
Best Equity Mutual Funds in India
11) Direct Equity/Stock Investments
If you’re a seasoned investor or one who doesn’t like mutual funds, then direct equity is best for you. You make direct stock purchases of companies which you feel will do well in the future.SEBI regulates the stock markets.
Equity Stocks have the best possibility to return the most returns if chosen wisely. All the billionaires in the world are rich because they have either stocks or real estate as one of investment options.
You can only save money with conservative investment options. If you’re serious about getting rich, then majority of portfolio should be towards high quality stocks and real estate.
It has been proven world over that equity/shares in quality companies is the best investment option for long-term returns. You don’t need to restrict to Indian Equity. You can also buy shares in US and other countries or invest in some international equity funds.
Definitely Read: How to choose good quality stocks for investment
12) Real Estate Investments
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.
The most important thing to consider in realty as investment option is LOCATION, LOCATION,LOCATION.
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 (ie., where life is easier and jobs get created).
However, you need to be careful with realty investments. It is one of 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
- Can be an illiquid option. You can’t sell it that easy. IF you’re in hurry, be ready to sell at a discount
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13) Gold/Commodity investments
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.
Tip: 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.
14) Corporate/Commercial Deposits (CDs)
Corporate deposits can be good investment options. They offer slightly better interest rates than Bank FDs. As in any investment, the interest rate goes up with the risk. A medium risk short term investment option.
Small companies offer higher interest while big reputable companies offer lesser interest. Why? Because big companies can easily mobilize funds and people are more ready to invest with them even at slightly lower rates. In most cases, it’s rightly so.
HDFC, ICICI Bank, SBI, L&T, Shriram Transports all offer corporate deposit options from 8.5-11%. You must make sure the company you invest in
- Doesn’t have a lot of debt in balance sheet
- Has been around for long time
- Has good ratings (atleast AA+ ratings) from Credit agencies like ICRA, CRISIL
- Have good free cash flow so that they can service your debt
15) Other investment Options & investment plans –
We have not considered the below as investment options and investment plans
1) ULIPs – Unit Linked Insurance plans are not good products. They neither cater to your insurance needs nor investment needs. You’re better off investing in mutual funds and buying term insurance instead.
2) Endowment/Money Back Insurance Policies – They have low coverages and provide sub-optimal returns ranging from 5.5 to 7% returns. When you can good returns from PPF with same safety ,why should we consider these low-income investment plans.
Related Read: Most Common Investment mistakes by Indians
3) Art/Wine investing – This is for the high income bracket. How many Indians can accurately estimate what will be the value of a painting or a wine bottle in future . We should always know what we do and stay away from unknown. When you gain sufficient knowledge and have surplus money, you can consider them as one of your investment options.
4) Private Equity – This is a high risk game. New companies do not have regulated procedures and it’s hard to predict how they’ll grow. It is for seasoned investors and professionals. There are a lot of variables to consider which is beyond scope of average Indian investor. Note: Private Equity can give highest returns but also carry highest risk. This is not an investment plan but a business venture.
5) Chit Funds, Deposits from Gold Loan companies – Not properly regulated
No one approach fits all. Making shrewd investments and growing your money is your responsibility. Consult a fee based financial planner whom you can trust if you can’t make the decisions yourself. You should have a fair mix of conservative investment options and aggressive investments options.
Too much conservative gives you low returns and being too aggressive can erode wealth in a downfall. The thumb rule is the younger you are the more aggressive your investment options must be.
If you’re nearing retirement or have short-term responsibilities then be more conservative. You should try to maintain an ideal asset allocation by optimizing it to suit your goals through ideal investment plans.
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