Everyone want their money to be invested in best investment plans. But they are only few who are able to make more than inflation from their investments. In India, we have lots of investment opportunities, but few of them are worth making investment in. In this article, we are going to talk about some of the major investment opportunities available to investor in India.
Below are 9 investment options which you can opt for. All the options are discussed in detail below
Aggressive Investment Options
If you are under 45 years and have a high risk appetite, you should think about the 5 options mentioned below. They can actually help to grow your investment in long term but there could be some volatile years if you invest in these asset class.
1.) Stock Market: This is one the largest wealth creator for Indians in the last 20 years but still many people are afraid of investing. Some of them have heard stories from their parents that no one can earn from market, it is a playground for big people and small investor only lose money in this and all type of negative stuff. Most of it is not true but there have been time like 1992-93 when people like Harshad Mehta manipulated the market and lots of ordinary investor lost their hard earned money. But now the market has matured a lot and lots of safeguard are in place to safe retail investors.
With all the caveats, if you have been an investor for last 10 year in broad sensex, the earning you would have earned post-tax were impressive 17%, higher than any asset class. But there are few things which you should remember if you are a new investor never buy small cap stock, don’t follow any advice until you have checked it yourself. If you follow some basic rules while investing you can end up making decent return from the money invested in stock market. Also while trading in stock, remember that you will need a good and reputed broker who can take care of your needs. You can find the latest list of best stock broker in India here. Do remember that the returns of Stock market is volatile and in case you are investing for less time, you may have to cut your position at loss.
2.) Mutual Fund: In case you think that stock selection is not for you and you cannot monitor the sensex all the time, don’t worry, you can still take part in stock markets by purchasing Mutual funds. Through this you can purchase broad indexes or buy sectorial mutual funds. Rest assured a qualified person in managing your money full time and should be able to beat inflation by a wide margin. Just remember to select a fund which have historically given good returns and where Asset under management (AUM) is at least more than 1000 crore. You can find historical info on mutual funds at valueresearchonline.com. You should also take use of systematic investment plan (SIP), which is nothing but investing a fixed amount of money every month. If you do this, the price you buy is averaged over a long term rather than when you purchase in lump-sum. SIP historically has given better returns that one time investment in mutual funds.
Another thing to keep in mind with stock investment is if you keep it for more than 1 year, the return is tax free and in case you sell it in less than 1 year, you will be charged a flat tax of 15% irrespective of the tax bracket you fall under. This means that any profit you make after 1 year is tax free.
3.) Tax Saving Options: For getting best use of tax saving scheme u/s 80C, you can invest up to 1,50,000 in Equity Linked Saving Scheme (ELSS) mutual fund. In this kind of fund you have to invest money for minimum 3 years. It is the lowest time for which you can invest in any of the tax saving options available. Even ELSS mutual fund gives you opportunity to earn better return than the other tax saving options. This return from this scheme is also exempt from the income tax and the money is locked in only for 3 years compared to 15 years for the PPF.
4.) Gold: In our country on every occasion we see the charm of gold among the ladies and we heavily deal in physical gold. From the investment perspective one must compare the return from gold with above options available. As far as actual returns are concerned, it is fully taxable as per your tax bracket. In India, it is used more as something to keep in the family rather than an investment class. Below is the graph of historical Gold prices and its return compared to stock market and you can see how stock market beat it handsdown.
5) Corporate Deposits: This is another options in which investor can purchase fixed deposit from companies which want funds to grown their business. Most of the private companies pay in the range of 10-11% and the interest is fully taxable as per your income tax slab. What it means it you earn an extra 1% more than the Fixed deposit by buying CD, but remember that there is a lock in period in most of the CD’s and the interest is fully taxable. Also there is a chance of default in case the company cannot pay its debt. So these are good for someone who understand this well and I would not suggest retail investor to dabble in this.
Conservative Investment option
If you don’t want to invest in stock markets or you are just 10-15 years away from retirement and want to save for it with assured returns, below are the options which will help you do that. Remember that the returns from this would be on the lower side but you can be sure that the returns are assured and you wouldn’t lose any money in this.
5.) Public provident fund: PPF is a provident fund insured by government of India. You can save a maximum of 1,50,000 u/s 80c by investing in this. The return are in the range of 8.55% tax free which makes is one of the best investment you can do for long term. The investment can be used after 15 years only, partial withdrawal is available as soon as 5 years. This is one of the most conservative investment option you have and millions of Indian have invested in PPF as a retirement fund. Below is the PPF returns for the last 20 years
6.) National Savings Certificate (NSC) : NSC is a popular choice among rural Indians and you will see most of them opening account in their post office to invest in them . 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 making use of PPF instead of NSC. As the interest is taxable in this compared to PPF in which the interest is also tax exempt, it makes lot of sense to invest in PPF than in NSC.
7.) Bank Fixed Deposit (FD)/Recurring Deposits (RD): If you want to go for the safest bet, then you can go for the FD or RD. They will give you lesser return as compared to above mentioned options. People generally think that if the bank is giving 8% return, it is better to invest in this as it is a secured investment. But they should keep in mind that the interest earned through bank is taxed as per the bracket you are in and if you are in 30% bracket you end up getting an actual return of just (8-(8*.3)) ie. 5.6% which is much lower than what the bank given you.
8.) Tax Free Bonds: Public sector companies like BHEL, NTPC keep on coming up with tax free bonds which pay a fixed interest rate on their bonds. Just to give an example, NTPC has come up with a tax free bond paying 7.62% for 20 years, 7.53% for 15 years and 7.36% for 10 years. These bonds are very safe as GOI guarantee these bonds, so there is little chance of default happening. As these are tax free bonds, effective yields for someone in 30% bracket is 10.65% which is much higher that 5.6% which you receive from your FD’s. But remember with these bonds, liquidity is sometimes an issue and you may have to keep them till the maturity.
9.) Real Estate: This is another investment asset class which Indian people love to invest in. There is a strong believe in the real estate investor that the price of real estate only go up and beat inflation easily. This is not the case mostly though. Also the gains from the sale of real estate is taxable upto 30% in case of short term (less than 1 year) while long term is taxed (more than 3 years) is charged at 10%. One thing to remember from tax point is interest paid upto 200,000 is deductible under section 24. This could be a major saving for someone who is in 30% tax bracket.
Historical Returns of the major asset class
Below charts shows the historial returns of various asset class and you can see that Equity hands down beat there major competitor in the long run.
*data by Morgan Stanley
I hope that this exhaustive list will help you in deciding the best asset class which is fit for you to invest in. Always keep an eye on actual return which is net of tax as most of the time people forget about the tax angle while investing which makes a big difference. In case of any questions about the investment options discussed above, feel free to ask any question you may have.