You have numerous investment options to choose from. However, you have to ensure that you are investing in only those options that fall under your risk tolerance and serve your requirements. The following are the top 7 investment options in India:
i) Direct Equity Direct equity, commonly referred to as investing in stocks, is probably the most potent investment vehicle. When you buy a company’s stock, you buy partial ownership of that company. You directly invest in the company’s growth and development. You need to have enough time and possess the market knowledge to benefit from your investment. If not, then investing in direct equity is as good as speculation. Stocks are offered publicly listed companies through the recognised stock exchanges and can be bought by any investor who has Demat account and undergone KYC verification. Stocks are ideal for long-term investments. You have to actively manage your investments as various economic and business factors influence stocks. Also, you need to understand that the returns are not guaranteed and be willing to assume the associated risks.
ii) Mutual Funds Mutual funds have been around for the past few decades, and are gaining popularity amongst millennials. A mutual fund pools investment from various individual and institutional investors who have a common investment objective. The pooled sum is managed by a finance professional called the fund manager, who invests in securities and assets to generate optimum returns for investors. Mutual funds are broadly divided into equity, debt and hybrid funds. Equity mutual funds invest in stocks and equity-related instruments, while debt mutual funds invest in bonds and papers. Hybrid funds invest across equity and debt instruments. Mutual funds are flexible investment vehicles, in which you can begin and stop investing as per your convenience. Any individual may consider investing in mutual funds. You don’t need to have time or knowledge to invest in mutual funds as the fund manager takes care of portfolio constitution, and you only have to invest. However, it is advisable to invest in only those funds whose risk levels and objectives match yours. The returns are not guaranteed as they are dependent entirely on the market movements. Note that past performance of a fund does not indicate future returns.
iii) Fixed Deposits Fixed deposits are an investment option offered by banks and financial institutions under which you deposit a lump sum for a fixed period and earn a predetermined rate of interest. Unlike mutual funds and stocks, fixed deposits offer complete capital protection as well as guaranteed returns. However, you compromise on the returns as they remain the same. Fixed deposits are ideal for the conservative investor. The interest offered by fixed deposits change as per the economic conditions and are decided by the banks depending on the RBI’s policy review decisions. Fixed deposits are typically locked-in investments, but investors are often allowed to avail loans or overdraft facilities against them. There is also a tax-saving variant of fixed deposit, which comes with a lock-in of 5 years.
iv) Recurring Deposits A recurring deposit (RD) is another fixed tenure investment that allows investors to invest a fixed amount every month for a pre-defined time and earn a fixed rate of interest. Banks and post office branches offer RDs. The interest rates are defined by the institution offering it. An RD allows investors to invest a small amount every month to build a corpus over a defined time period. RDs offer complete capital protection as well as guaranteed returns. Like fixed deposits, RDs are recommended for risk-averse investors.
v) Public Provident Fund Public Provident Fund (PPF) is a long-term tax-saving investment vehicle that comes with a lock-in period of 15 years. It is offered by the Government of India and the sovereign guarantees back your investments. The interest rate offered by PPF is revised on a quarterly basis by the Government of India. The corpus withdrawn at the end of the 15 years is entirely tax-free in the investor’s hands. PPF also allows loans and partial withdrawals after certain conditions have been met. Premature withdrawals are permitted to meet certain conditions, and you can extend your investment in a five-year block upon maturity.
vi) Employee Provident Fund Employee Provident Fund (EPF) is another retirement-oriented investment vehicle that helps salaried individuals get a tax break under the provisions of Section 80C of the Income Tax Act, 1961. EPF deductions are typically a percentage of an employee’s monthly salary, and the same amount is matched by the employer as well. Upon maturity, the withdrawn corpus from EPF is also entirely tax-free. EPF rates are also decided by the Government of India every quarter, and the sovereign guarantees back your investments in EPF. You can contribute more than the minimum prescribed amount under the Voluntary Provident Fund (PPF). However, you need to note that you can access your EPF investments only on meeting specific criteria and your EPF account matures only when you retire.
vii) National Pension System The National Pension System (NPS) is a relatively new tax-saving investment option. Investors subscribing under the NPS scheme will mandatorily stay locked-in until their retirement and can earn higher returns than PPF or EPF. This is because the NPS offers plan options that invest in equities as well. The maturity corpus from the NPS is not entirely tax-free, and a part of it has to be used to purchase an annuity that will give the investor a regular pension. You can withdraw only up to 40% of the entire corpus accumulated as a lump sum, while the remaining goes towards an annuity plan. Some government employees are compulsorily required to subscribe to NPS.
