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Best Investment options in India

Mr. C.S. Sudheer | Updated On Tuesday, September 04,2018, 10:00 AM

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Best Investment options in India

 

 

 

Investment options are the instruments, where one can invest his money to earn profits, interests, dividends and bonus depending upon the nature of the investment made. investment options have got lot of demand in the market, because the inflation rate, GDP growth and economic growth of the country have made it a need of everyone.

But unfortunately, most of us are not aware of all the investment options available in the market. I think this made the portfolio allocation improper. A portfolio will become effective and profit oriented, only when it considers all the investment avenues available in the market.

To give you a clear picture of different investment options available in the market, I am writing this article with lot of new stuffs and research I personally experienced. Get more information on investment planning.

There are large numbers of investment options available for investment to you. These can be classified as:-

a) Real Assets: bullion, real estate, paintings, antiques, gems etc.
b) Paper Assets: equity shares, debt instruments, bank deposit etc.

Best Investment Options In India

  1. Employee Provident Fund
  2. Public Provident Fund
  3. National Savings Certificate
  4. Long term Government Securities
  5. Bank Deposits
  6. Infrastructure Bonds
  7. Life insurance Products
  8. Pension Products
  9. Mutual Funds
  10. Stock Market
  11. IPO’s
  12. Commodity Market

Employee Provident Fund (EPF):

EPF take care need of fund for Retirement, Medical emergencies, House purchase, family obligations, education of children and buying an insurance policy. Your contribution in EPF scheme, which is 12% of basic salary generally, builds a fund available when you retire. The fund is available for some other specific purposes also like, purchasing land or house repaying loan for the same, children education and marriage etc. Employer contribution is also 12%, a part of which goes towards pension fund. An employee can contribute more than 12% also towards building up the fund.

See Also: How to get Loan Against EPF?

Public Provident Fund:

Public provident fund or PPF offers good returns with safety and flexibility that is why it is one of the most popular tax saving product.

PPF account can be opened with specified branches of post office or nationalized bank on self or family members’ name. Account has 15 years term that can be extended in the blocks of 5 years after completion of the term. It offers 8% per annum yearly compounded interest. Contribution can be minimum Rs.500 to maximum of Rs.70000 in a year; that can be deposited monthly or yearly.

Apart from qualifying for section 80C, interest earned is free, maturity withdrawals are tax-free and it cannot be attached under the decree of any court of law.

From PPF, Loan can avail from the third year to sixth year up to 25% of the amount available in the preceding second year. Partial withdrawals can be made once every year at any time after sixth year. The amount of withdrawal is limited to 50%of the balance at credit at the end of 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower.

National Savings Certificate

National savings certificate (NSC) remains the on shelf tax savings product. Investment in NSC can be made at specified post offices, in denomination of Rs.100, Rs.500, Rs.1000, Rs.5000 and Rs.10000 without any upper cap on investment. The certificate matures in six years and pays 8% half yearly compounded interest. Maturity proceeds of NSC are completely tax free. Premature encashment of NSCs are not allowed, however these can be kept as security to avail loan from banks. Interest earned on NSC is also an investment under section 80C.

Long Term Government Securities

Government securities (G-secs) or gilts are sovereign securities, which are issued by the Reserve Bank of India (RBI) on behalf of the Government of India (GOI). The GOI uses these funds to meet its expenditure commitments.
Treasury bills are short-term money market instruments, which are issued by the RBI on behalf of the GOI. The GOI uses these funds to meet its short-term financial requirements of the government. 

The salient features on T-Bills are:

  • These are zero coupon bonds, which are issued at discount to face value and are redeemed at par.
  • No tax is deducted at source and there is minimal default risk.
  • The maximum tenure of these securities is one year.

The different types of Government Securities are:

a) Dated securities:

 These securities generally carry a fixed coupon (interest) rate and have a fixed maturity period. E.g., an 11.40% GOI 2008 G-sec. In this case 11.40% is the coupon rate and it is maturing in the year 2008. 

The salient features of Dated Securities are:

  • These are issued at the face value.
  • The rate of interest and tenure of the security is fixed at the time of issuance and does not change till maturity.
  • The interest payment is made on half yearly rest.
  • On maturity the security is redeemed at face value.

b) Zero coupon bonds: 

These securities are issued at a discount to the face value and redeemed at par. i.e. they are issued at below face value and redeemed at face value. 

The salient features of Zero Coupon Bonds are:

  • The tenure of these securities is fixed.
  • No interest is paid on these securities.
  • The return on these securities is a function of time and the discount to face value.

c) Partly Paid Stock:

In these securities the payment of principal is made in installments over a given period of time. 

The salient features of Partly Paid Stock are:

  • These types of securities are issued at face value and the principal amount is paid in installments over a period of time.
  • The rate of interest and tenure of the security is fixed at the time of issuance and does not change till maturity.
  • The interest payment is made on half yearly rest.
  • These are redeemed at par on maturity.

d) Floating Rate Bonds:

These types of securities have a variable interest rate, which is calculated as a fixed percentage over a benchmark rate. The interest rate on these securities changes in sync with the benchmark rate. 

The salient features of Floating Rate Bonds are:

  • These are issued at the face value.
  • The interest rate is fixed as a percentage over a predefined benchmark rate. The benchmark rate may be a bank rate, Treasury bill rate etc.
  • The interest payment is made on half yearly rests.
  • The security is redeemed at par on maturity, which is fixed.

e) Capital indexed bonds:

These securities carry an interest rate, which is calculated as a fixed percentage over the wholesale price index. 

The salient features of Capital Indexed Bonds are:

  • These securities are issued at face value.
  • The interest rate changes according to the change in the Wholesale price index, as the interest rate is fixed as a percentage over the wholesale price index.
  • The maturity of these securities is fixed and the interest is payable on half yearly rests.
  • The principal redemption is linked to the Wholesale price index.

Bank Deposits:

Bank deposits are the most popular among fixed income investors. Safety, liquidity and convenience are being the prime reasons for gaining the investors confidence in banks; apart from safety of deposits. Bank fixed deposits are new entrants in 80C league. These form part of overall limit of Rs.100000 for deposits tenure of 5 years or more. However, interest on such investment is not tax exempted.

Infrastructure Bonds:

These bonds are offered by various financial institutions. Lock in period of three years is one of the attractions for investing in these bonds. Institutions like ICICI, IDBI have been issuing these bonds regularly.

Infrastructure bonds are essentially for those who do not care to study better investment avenues and would be satisfied with bank fixed deposits. Moreover, they being issued by infrastructure companies (and not the government) are quite unsecured. Some study in the financial markets can be well worth the effort.

Life Insurance Products:

Investing in life insurance has got a new look with the launch of ULIP’s (Unit Linked Life Insurance Plans) in the Industry. Yesteryear's we had the conception that insurance is all about life cover, risk cover, death benefit. But, now the rapid growth evidencing the entry of private players in to the market has created the wave of ULIP’s, which now has become one of the major investment avenues for Indian Investors.

Following are the broad categories of insurance plans available in the market:

  • Whole life policies
  • Endowment Policies
  • Term policies
  • Money Back Policies
  • Specialized Policies
  • Single Premium Policies
  • Unit Linked Policies

The tax benefit on investments in life insurance up to Rs.100000 can be availed in a financial years.

Pension Products:

A pension is a long term savings plan. Monies saved build up a retirement fund. This fund provides a source of regular money to live on in your retirement. It is one of the most tax efficient ways to save money.
When people are investing for the long term, it's important you have the freedom to choose how and where to invest your money - and the option to change your choice of investments you need or want to.
Most people need a pension because: People are living longer: retirement could make up a third of your life.
They'll need money for their increased leisure time during retirement.

Mutual Funds:

A mutual fund is a trust, which combines the investments of various investors having similar financial goals. The trust issues the units to the investors in the proportion of their investments. A fund manager then invests these funds in different types of assets, according to the objectives of the scheme. The investment provides return in the form of dividends, interests and capital appreciation. This is distributed to the various investors in the proportion of their contribution to the pool funds.

Investment in mutual funds is advantageous for good number of reasons; Professional management of funds, diversification of investments, tax benefits, liquidity are few to mentioned here.

When a new scheme is launched, funds are available to subscription at par value, known as NFO. Subsequent to NFO, units are available for selling and repurchase based on Net Asset Value or NAV. NAV is market value of all assets net of liabilities. NAV per unit is a common performance indicator of the fund.

Stock Market:

Actively investing in stocks is not as complicated or as expensive as it may seem. But it is not without its risks or its costs. It is not only the wealthy who can enjoy the benefits of investing in shares. In fact, you may already own shares indirectly through a unit trust, a life insurance policy, a retirement annuity or by being a member of a retirement fund. But if you have about R5 000 to invest, you can also invest directly in shares, in order to claim a stake in some of the wealth that is generated on our local stock market.

The stock market can be a great source of confusion for many people. The average person generally falls into one of two categories. The first believe investing is a form of gambling; they are certain that if you invest, you will more than likely end up losing your money. Often these fears are driven by the personal experiences of family members and friends who suffered similar fates or lived through the Great Depression. These feelings are not ground in facts and are the result of personal experience. Someone who believes along this line of thinking simply does not understand what the stock market is or why it exists.
The second category consists of those who know they should invest for the long-run, but don’t know where to begin. Many feel like investing is some sort of black-magic that only a few people hold the key to. More often than not, they leave their financial decisions up to professionals, and cannot tell you why they own a particular stock or mutual fund. Their investment style is blind faith or limited to “this stock is going up. We should buy it.” This group is in far more danger than the first. They invest like the masses and then wonder why their results are mediocre (or in some cases, devastating).
Investing in stock market with long term vision and patience will always yield you the best.

IPO’s:

In an IPO, or initial public offering, a company issues its shares to the public for the first time. Often the issuing companies are growing upstarts that have previously relied on venture capitalists to provide their funding.

The investment bank managing the deal sets an offering price for the stock of the company. It then doles out almost all the available shares to institutions and other wealthy investors before the stock begins trading.

Average investors have traditionally had a rough time obtaining parts of IPO allocations. They usually can't get in until the stock begins trading. And if the stock opens above its offering price, investors usually wind up buying the stock at the same time the institutions that originally received the stock are selling it.
Investing in IPO’s is very profitable, if you have done enough research wok before buying an IPO of any company.

Commodity Market:

Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodity exchanges, in which they are bought and sold in standardized Contracts. Commodity market is one of the upcoming investment avenues for Indian investors. One can expect huge profit from commodity market, if he is doing sufficient research work before investing in any commodities.

 

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Article Author

Mr. C.S. Sudheer

Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.

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