What are the Best Investment Options in India?


  • What is the best investment option for you?
  • Is it a mutual fund, fixed deposit or gold? Read here the factors that help decide the best investment for you

The baby steps you take by investing in small amounts, in the beginning, lay the foundation of a strong financial future. As time goes on, you will most likely accelerate your investment and increase the possibility of more corpus over time. Investments, as we speak, do well when they align perfectly with the mindset of individuals. As investments are subject to risks of different kinds, one investment may not suit all classes of investors. The fact with risk appetite is that it does not remain the same throughout your lifecycle. All that only makes it tricky to choose the best investment. We can, however, help you figure out the best one by evaluating different investment options in this post. So, keep reading!

Factors Based on Which You Can Figure Out the Investment Option for You

The factors will be your age, risk appetite, the time for which you want to invest, your financial goals, etc. We will tell you the best investment based on all these factors. Let’s check out without any further delay.

Investments Based on Risk Appetite

The risk appetite is an attribute that tells about one’s ability to take investment risks. There are normally three sets of people based on risk appetite – someone who could afford high risks, someone who could afford very less, and someone who could be in between. Based on what kind of risk appetite you have, the best investment option for you will vary.

Best Investments for People Having High-risk Appetite

If you can take high risks in your investment, you will like investing in the power of equities as they can appreciate the growth of the invested capital much more than any other financial instrument. What investment choices do you have in equities? There are predominantly two – direct investment in stocks or via equity mutual funds. The earnings of both these two depend greatly on the movement of stock markets, which are very sentiment driven. Positive developments on economic and political fronts can boost market sentiments as well as increase the value of money invested in these two avenues. Whereas, weak market sentiments owing to adverse economic and political developments could bring a substantial reduction in the value of your investments if such sentiments prevail for long. So mentally, you need to be ready for such fluctuations, which often remains the case with people having the ability to take high risks.

How to Choose Between Direct Investment in Stocks and Equity Mutual Funds?

Stocks will be the top pick if you understand the nerves of the market and are aware of what’s happening around economically, internationally and even politically. You can thus manoeuvre your investments in stocks in line with the market changes and make gains for yourself. But is the market that EASY to fathom? Maybe not! Market pulses react differently to different developments, contrary to what many predict. Many may falter in that regard, so you must rely on the expertise of someone well versed with market dynamics.

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You will be pleased to know that equity mutual funds will have a dedicated fund manager taking stock of your investments. The concerned manager will use his/her market intelligence and read those complex market data to take the right action on your behalf. What you need to do is choose the equity fund that has outperformed its peers and is managed by a fund manager having a rich vein of experience. The other benefit that equity funds have is the amount of diversification involved in such investments. Your money will be put in different stocks; so if there’s a fall somewhere, it can be compensated by the gains made elsewhere.

How to Invest in Equity Mutual Funds?

You can invest in these funds via a Systematic Investment Plan (SIP) or a lump sum. With an SIP, you can invest in equity funds at any of the predetermined intervals – monthly, quarterly, half-yearly or annually. Of these intervals, a monthly interval could be the one you would like to choose as it brings a sort of investment discipline to your routine.

SIP investments tend to multiply the invested capital over time owing to compounding benefits as well as average the investment cost. The latter one is ensured by buying a greater number of quality stocks at lower prices when the market goes down and less number of stocks at higher prices when the market goes up.

You can start investing in an SIP with an amount as low as INR 500. Whereas, lump sum investments mean a one-time investment in equity funds, although mutual fund companies allow additional investments.

Best Investments for People with Low-risk Appetite

If your risk-taking capacity is low, you will then need to choose investments from debt mutual funds, fixed deposits, recurring deposits, or even postal deposits. As banks are flush with a massive cash surplus, they are forced to cut their deposit rates to ensure they maintain profitability. Fixed deposit interest rates have come down to 5-6% per annum on average. The same is the case with recurring deposit rates across banks in India. While the modus operandi of fixed deposits is much like mutual fund lump sum investments, recurring deposits act like mutual fund SIPs. The difference is the return potential, which you can see here. Whereas, postal deposits like national savings certificate (NSC), Kisan Vikas Patra (KVP) can also be considered. The return on these postal deposits is changed by the government from time to time. Currently, the return of NSC and KVP investments stands at 6.80% and 6.90%, respectively.

You can invest in any of the bank and postal deposits with an amount as low as INR 1,000. Now, these deposit products offer fixed income and thus meet the expectations of investors with a low-risk taking appetite. But even a debt mutual fund can be one of the best investments for these investors. It can offer better returns bank and postal deposits, although not guaranteed because of the bearing the market movement will have on its performance. Debt funds invest the capital predominantly in bonds, debentures, certificates of deposits, commercial papers, which are considered much safer than equities.

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Age – How Does it Influence Investment Patterns?

Age is somehow associated with risk appetite; the younger you will be the greater will be your risk appetite and vice versa. So, you are supposed to have a greater risk appetite when you are in the early 20s to early 40s. As you go past that period, the risk appetite starts to wane and becomes very low when you are about 3-5 years away from retirement.

In the young days, you won’t mind taking a ride of equities even though there are high risks. You should ideally concentrate around 70-80% of your investable amount in equities and the rest in bank & postal deposits and debt funds.

In the middle phase, you could think of lowering the equity portion by some percentage and have space for more debt investments.

As you reach the fag end of your work life, divide your equity and debt investments in about 50:50.

Post work life, you may not have any regular income to feed upon. In that case, you can invest the corpus collected at that time into both equities and debt instruments. The allocation to equity and depend will depend on how much amount do you need month on month. For regular monthly income, you can choose the Systematic Withdrawal Plan (SWP) of a lump sum investment. Here, you will get the option to choose the amount you can withdraw monthly from your lump sum investment. The SWP is available on lump sum investment in both equity and debt funds.

Time Horizon & Financial Goals – How Do They Dictate Investment Choices?

If you are looking for the best investment over the long term, you must be eyeing to earn huge sums on your invested capital. In that case, you will need to trust the power of equities, which can prove fruitful over the long term. There will be fluctuations both in the short and medium-term. But if you stay focused and invest in a planned manner, you can achieve your goal without much fuss. In case you want to invest for the short term, equities may not give you the ideal results even if your risk appetite is high. Equity investments can go through extreme market volatilities, thereby not creating the surplus you may look for in the short term. In that case, you should opt for debt mutual funds and other low-risk investments. But if you are chasing goals like creating a corpus for child education, home purchase and other ambitious goals, you will need to invest fairly in equities given the large sum you require to fulfill these ambitions.

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Where to Invest If You Want to Save Taxes?

Taxes charged on your earnings could kill all the joy you would have otherwise. So, if you are seeking the best investments keeping tax-saving benefits in mind, you have some choices to make! These choices are Equity-linked Savings Scheme (ELSS), Public Provident Fund (PPF), NSC, Tax Saver Fixed Deposit, etc. All these investments offer tax deductions of upto INR 1.5 lakh in a financial year courtesy Section 80C of the Income Tax Act. Also, these products come with a lock-in period, which means you can’t withdraw investments during that period.

If you have a high-risk appetite, the choice becomes easy for you with ELSS. It is an open-ended equity mutual fund scheme that invests in equity and equity-related instruments to accelerate the growth of the invested capital over time. It comes with a lock-in period of 3 years compared to 5 years or more in all other competing investments. Also, there’s no maximum cap on ELSS investments, much unlike its competing products where you can’t keep more than INR 1.5 lakh in a financial year.

In case your risk appetite is on the lower side, it makes sense to invest in any of PPF, NSC and tax-saver fixed deposits. They can be called the best investments for people with a low-risk appetite as they offer a fixed stream of income to these investors. Tax-saver fixed deposit rates will be like the rates of normal fixed deposits that banks have set. Whereas, the interest rate of PPF is 7.10% per annum. As far as the NSC interest rate is concerned, it is 6.80% which was shown above.

Can Gold be Called the Best Investment?

Both risk-averse and risk-takers should do well to create space for gold investments. People use gold as a hedge against inflation, and in times of crisis like the one we are witnessing amid the COVID-19 pandemic, the precious yellow metal has helped many. As equity markets around the world got corrected recently due to the unprecedented challenge posed by the pandemic, gold prices surged by more than 20% over 3 months to clock more than INR 50,000 per 10 gram in July 2020. Some of you must have monetized gold to compensate for the loss of earnings due to job losses. In case you witness such a situation in the future, the money accumulated through this best investment product could make you feel better at that time. Maybe you should keep only 5% of your overall investment in gold, but ensure you do it to tide over crunch times.

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