Here are some of the investment options available in India for everyone of us.
1. Savings Bank Account
Use only for short-term (less than 30 days) surpluses
The first banking product used by people, it offers low interest (4%-5% p.a.), making them only marginally better than safe deposit lockers.
It offers better returns than savings account without compromising on the terms of liquidity
These liquid funds are a specialized form of mutual funds invested in extremely short-term fixed income instruments. Unlike most mutual funds, they are primarily oriented towards protecting the capital and then later maximising the returns.
Money market funds usually yield better returns than savings accounts, but lower than bank fixed deposits. With the flexibility to issue cheques from a money market fund account now available, this option can be explored before putting one's money in a savings account.
3. Bank Fixed Deposit (Bank FDs)
For investors, who are ready to take low risk, Bank FDs are best for 6-12 months investment period
Also known as term deposits, Bank FDs would be offered by all banks. Minimum investment period for them is 30 days.
The ideal investment time for bank FDs is 6 to 12 months as normally interest on bank less than 6 months bank FDs is likely to be lower than money market fund returns.
It is very essential to plan one's investment time frame while investing in this instrument because early withdrawals typically carry a penalty.
Low risk and no TDS
POSS are popular because they typically yield a higher return than bank FDs. The monthly income plan could suit a retired individual or the one's having regular income needs.
Besides the low (Government) risk, the other salient feature of POSS is that there is no tax deducted at source (TDS).
The Post Office offers various schemes that include National Savings Certificates (NSC), National Savings Scheme(NSS), Kisan Vikas Patra, Monthly Income Scheme and Recurring and Fixed Deposit Scheme.
Best fixed-income investment for high tax payers
PPF is a very attractive fixed income investment option for small investors primarily because of -
1. An 11% post-tax return - effective pre-tax rate of 15.7% assuming a 30% tax rate
2. A tax-rebate - deduction of 20% of the amount invested from your tax liability for the year, subject to a maximum Rs60,000 for a tax rebate
3. Low risk - risk attached is Government risk
So, what's the catch? Lack of liquidity is a big negative. You can withdraw your investment made in Year 1 only in Year 7 (although there are some loan options that begin earlier).
If you are willing to live with poor liquidity, you should invest as much as you can in this scheme before looking for other fixed income investment options.
6. Company Fixed Deposits (FDs)
Option to maximise returns within a fixed-income portfolio
FDs are instruments used by companies to borrow from small investors. Typically FDs are open throughout the year. Invest in FDs only if you have surplus funds for more than 12 months. Select your investment period carefully as most FDs are not encashable prior to their maturity.
Just as in any other instrument, risk is an embedded feature of FDs, more so because it is not mandatory for non-finance companies to get a credit rating for this instrument.
Investors should consciously and judiciously select the companies they invest in as quite a few small investors have lost their life's savings by investing in FDs issued by companies that have run into financial problems.
7. Bonds and Debentures
Option for large investments or to avail of some capital gains tax rebates. Besides company FDs, bonds and debentures are the other fixed-income instruments issued by companies. As a result of an illiquid secondary market and a lack-lusture primary market, investment in these instruments is largely skewed towards issues from financial institutions.
While one might find some high-yielding options in the secondary market, if one does not want the problems associated with bad deliveries and the transfer process or if one wants to invest a large sum of money, the primary market is the better option.
8. Mutual Funds
mutual funds are like investments made in partnership with someone else, because more or less they work on same principles. Investors pool together their money to buy stocks, bonds, or any other investments.
Investing through mutual funds allows an investor to -
1. Avail the services of a professional money manager (who manages the mutual fund)
2. Access a diversified portfolio despite making a limited investment
Our primer Investing in Mutual Funds should educate one a lot more on the benefits of investing in mutual funds and strategies one could employ.
We suggest not to buy life insurance solely as an investment
Life insurance premiums, depending upon the policy selected, include the costs of -
1) death-benefit coverage
2) built-in investment returns (average 8.0% to 9.5% post-tax)
3) significant overheads, including commissions.
This implies that if one buys insurance solely as an investment, one is incurring costs that one would not incur in alternate investment options.
It is, however, important to insure one's life if your financial needs and profile so require.
10. Equity Shares
Maximum returns over the long-term, invest funds you do not need for at least five years
There are two ways in which one can invest in equities-
1. through the secondary market (by buying shares that are listed on the stock exchanges)
2. through the primary market (by applying for shares that are offered to the public)
Over the long term, equity shares have offered the maximum return to investors. As an investment option, investing in equity shares is also perceived to carry a high level of risk.
11. Gold :
This is the oldest investment option available in the world. The way gold never looses its lusture, inesting in gold is never loss making proposition in medium and long term. In the last 3 years this form of investment has yielded highest return than any form of investment. This form of invest is highly liquid, however in india, we purchase mainly Gold ornaments and attach emotional values
This is the latest entrant in the market. New Pension Scheme is the first social security tool introduced by Government of India for all its citizens. This is a lowest cost investment scheme which also gives us the option to invest upto 50% in equities. You can get upto 80% higher yield in NPS as compared to Ulip's and Mutual Funds, provided the fund performance are same. There are 2 types of account, Tier1 and Tier2
Tier 1 account doesnt have partial withdrawal option and one cannot even withdraw till age of 60 is attained.
Tier 2 account can \be withdrawn anytime in parts or in full and works as a very low cost mutual fund in which one can invest upto 50% in equities.
13. Real Estate
This form of investment has always outperformed any other form of investment. However one has to invest huge amount as there is no scope to invest small amount. Liquidity is the main concern in Real estate investment as buying and selling of property is time taking activity, however there are 2 benefits of investing in property
1. Capital appreciation
2. Rental income
