Best Investment Options in India

Aggressive Investment Options

9) Tax saving mutual funds – ELSS plans( Equity Linked Saving Scheme)

Equity Linked Saving Schemes belong to mutual fund class. You also get the added benefit of tax saving. Most Indians do not explore this investment option much. It is a plain simple product to get exposure to equity as well save some tax under 80C. The Government of India specifically has ELSS to encourage investments by common man into equity.

Contrary to popular perception ELSS funds have generated good returns in last 5 years. Well you can’t expect them to perform like Diversified Equity funds or Thematic funds.

Why? Because they take comparatively lesser risk. It has only 3-year lock-in period which is shorter compared to other 80C investments.

ELSS funds have an average 18% p.a returns in last 5 years. The DTC draft has a proposal to remove ELSS from 80C bracket. So make hay while the Sun shines 

Tip: Invest in SIP or in staggered manner than a lump sum(unless market is extremely down). You’ll get the benefits of Rupee Cost averaging and long term compounding.

Related : Best tax saving mutual funds in India

10) Diversified Mutual Funds Investments

Why are we discussing Mutual Funds if we already discussed ELSS? Well, they are for different purposes. While the primary aim of ELSS is tax saving, the goal of diversified mutual funds is wealth creation to meet goals.

Did you know that if you had invested Rs.1,00,000 in HDFC Top 200 fund in 1996, your corpus is worth nearly Rs 23,00,000 now. That is staggering 2200% return over 20 years. You can easily marry your daughter, put you kid through college with this fund.

Mutual funds are ideal for an individual investor who can’t follow the market regularly. It allows a professional to take care of your investments. You should invest with/for some long-term goals in mind. It provides you with diversification.

Tip: Try to invest in a low-cost Index fund, if you want to keep your costs low. Yes, you can dabble in active funds but the risk is also higher. In an index fund, the only risk is the risk of stock market. The chance of all top 50 India companies failing at same time is highly unlikely.

11) Direct Equity/Stock Investments

If you’re a seasoned investor or one who doesn’t like mutual funds, then direct equity is best for you. You make direct stock purchases of companies which you feel will do well in the future.SEBI regulates the stock markets.

Equity Stocks have the best possibility to return the most returns if chosen wisely. All the billionaires in the world are rich because they have either stocks or real estate as one of investment options.

You can only save money with conservative investment options. If you’re serious about getting rich, then majority of portfolio should be towards high quality stocks and real estate.

It has been proven world over that equity/shares in quality companies is the best investment option for long-term returns. You don’t need to restrict to Indian Equity. You can also buy shares in US and other countries or invest in some international equity funds.

Definitely Read: How to choose good quality stocks for investment

12) Real Estate Investments

It’s a dream for everyone to buy their own home. In a country like India it makes sense too. Our land is limited but the population is ever-growing. Everyone wants a piece of land parcel and driving up prices.

The most important thing to consider in realty as investment option is LOCATION, LOCATION,LOCATION.

Buying land in some remote corner where there is no job activity is not good investment. It may take years for this investment to bear fruit. So make sure you buy in places where people want to buy (ie., where life is easier and jobs get created).

However, you need to be careful with realty investments. It is one of easy investment plans where you can be cheated with fake documents, false promises.

Pros:

• You fulfill long time goal – Own a home
• Get a safe place for your family to stay
• Good appreciation in India
• Can be financed with low-cost housing loan

Cons:

• A self occupied house is not an investment – As it does not return you any income unless you sell it.
• Tough to buy and the process is detailed. Too many points to be careful about.
• Prices of some places are artificially driven up
• A lot of black money involved
• Can be an illiquid option. You can’t sell it that easy. IF you’re in hurry, be ready to sell at a discount

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13) Gold/Commodity investments

Gold has formed the  major portion of assets in Indian household. From analyzing our clients and studying wealth reports, we find Indian hold their assets primarily as real estate and gold ie., average Indian’s assets 80% is made of gold/realty. Gold has been considered as a hedge against inflation for long time.

It’s good to have gold but make sure it doesn’t form more than 10% of your overall assets. Why? Because it has no utility(other than as jewellery which makes it primarily fashion accessory than an investment option).2

You buy with a notion there will be someone else to buy at higher price in future. Indians also don’t buy other commodities much, so we better avoid them as it’s not for the ordinary investor.

Tip: If you consider gold as an investment option, then the best way to invest in gold is Gold ETFs. You store it in paper format. So there are no making charges,damages, theft issues or storage hassles.

14) Corporate/Commercial Deposits (CDs)

Corporate deposits can be good investment options. They offer slightly better interest rates than Bank FDs. As in any investment, the interest rate goes up with the risk. A medium risk short term investment option.

Small companies offer higher interest while big reputable companies offer lesser interest. Why? Because big companies can easily mobilize funds and people are more ready to invest with them even at slightly lower rates. In most cases, it’s rightly so.

HDFC, ICICI Bank, SBI, L&T, Shriram Transports all offer corporate deposit options from 8.5-11%. You must make sure the company you invest in

• Doesn’t have a lot of debt in balance sheet
• Has been around for long time
• Has good ratings (atleast AA+ ratings) from Credit agencies like ICRA, CRISIL
• Have good free cash flow so that they can service your debt

15) Other investment Options & investment plans –

We have not considered the below as investment options and investment plans

1) ULIPs – Unit Linked Insurance plans are not good products. They neither cater to your insurance needs nor investment needs. You’re better off investing in mutual funds and buying term insurance instead.

2) Endowment/Money Back Insurance Policies – They have low coverages and provide sub-optimal returns ranging from 5.5 to 7% returns. When you can good returns from PPF with same safety ,why should we consider these low-income investment plans.

Related Read: Most Common Investment mistakes by Indians

3) Art/Wine investing – This is for the high income bracket. How many Indians can accurately estimate what will be the value of a painting or a wine bottle in future . We should always know what we do and stay away from unknown. When you gain sufficient knowledge and have surplus money, you can consider them as one of your investment options.

4) Private Equity – This is a high risk game. New companies do not have regulated procedures and it’s hard to predict how they’ll grow. It is for seasoned investors and professionals. There are a lot of variables to consider which is beyond scope of average Indian investor. Note: Private Equity can give highest returns but also carry highest risk. This is not an investment plan but a business venture.

5) Chit Funds, Deposits from Gold Loan companies – Not properly regulated

No one approach fits all. Making shrewd investments and growing your money is your responsibility. Consult a fee based financial planner whom you can trust if you can’t make the decisions yourself. You should have a fair mix of conservative investment options and aggressive investments options.

Too much conservative gives you low returns and being too aggressive can erode wealth in a downfall. The thumb rule is the younger you are the more aggressive your investment options must be.

If you’re nearing retirement or have short-term responsibilities then be more conservative. You should try to maintain an ideal asset allocation by optimizing it to suit your goals through ideal investment plans.