Best Investment Options in India

Conservative Investment Options

1) Public Provident Fund – PPF

Well this was a no-brainer. If you belong to the salaried class or are a small business owner, you should consider the PPF as your first option. You do not need to explore other options before you consider this.

Public Provident Fund offers almost 99% security being operated by the government. You already would know the benefits of PPF like

• Minimum investment of Rs.500 and maximum investment of Rs.1,00,000(if you’re considering tax deduction under 80C)
• Tax free interest and maturity amount
• One of best interest among fixed income products – 8.7% p.a in 2014
• Free from creditors, loan sharks and court attachments

There is practically no disadvantage in PPF investments. If you have any remaining benefit under 80c after paying term insurance & children tuition fee you should definitely invest remaining in PPF. You can use a PPF or an EPF (Employee Provident Fund) to add fixed income to your portfolio and maintain stability.

Tip: The best investment option if you’re in high tax bracket. Gives you total savings of 11% which is the best if you’re in 30% tax bracket. Do not consider other investment options like stocks until you have maxed out your 80C with term insurance, PPF if you’re retail investor. PPF is so far the best low risk long term investment in India.

Definitely read: 

2) National Savings Certificate (NSC)

NSC is a popular choice among rural Indians. The minimum investment is Rs.100 and one has option to choose 5 or 10 year period. The current interest is 8.5% for 5 years and 8.8% for 10 years.

Just like PPF, the Indian government fixes the interest rate for NSC each year.The recent issues of NSC are NSC VIII(available for deduction under 80C) and NSC IX.

However, one needs to pay interest on interest earned from National Savings Certificate. The section 80TTA removed the tax benefits of interest from NSC. That’s why we advocate to make use of PPF instead of NSC.

Tip: Re-invest the interest from NSC to get 80C benefit. For eg., you receive Rs 8,800 as interest from Rs 1 lakh investment in NSC. Instead of withdrawing and paying tax, you can allow it to accumulate and show this 8,800 as re-investment next year and claim tax deduction under 80C .Cool, isn’t it? 

3) Senior Citizen Savings Scheme (SCSS)

Probably the best investment option plan if you’re above 60 years. The rate of interest for Senior Citizen Savings Scheme is nearly 9.2% now. Usually the interest is around 1% above the 10 year government securities yield.

So for eg., if the 10 year yield is 8% in a year, the SCSS interest will be 9% give or take 10 basis points.

Pros:

• High interest rate
• Tax saving under 80C
• Provided liquidity as interest is paid quarterly

Cons:

• 15 lakh maximum investment limit
• Interest is taxable
• Tax saving limited to Rs 1 lakh
• Some bank FDs offer higher returns for Senior Citizens

4) Money Market Funds

Money Market Funds are ideal as short-term investments options. These also called Liquid funds. 

As the name suggests, liquidity is the primary motto. These offer slightly higher returns than Savings Accounts.

The returns range from 5.5 to 9% based on the period and risk category. Liquid funds are fairly safe investments as they invest in fixed income securities of governments and corporates.

Money market funds are one of largest pie of mutual fund industry.  ICICI Pru Liquid Plan and HDFC Liquid Fund are some of best liquid funds to consider for investment in India

Tip: If you have surplus money for 2-10 months, then consider investing in a money market fund. Earns better interest than Savings Bank Account. The withdrawal money is usually credited the next day or two. Also look for liquid funds with total assets managed more than Rs.300 crores

5) Bank Fixed Deposits (FDs)

A Term Deposit or bank fixed deposit as it’s often called is a good choice if your investment period is 6-24 months. It is very common and simple product which does not need much explanation. Also the rules vary from one bank to another. Typically, smaller banks offer higher interest rates.The minimum investment period is 30 days.

Pros:

• Easy availability and ease of operation/withdrawal
• Good interest rate
• Safety of capital

Cons:

• Usually early withdrawal has a penalty
• Lesser interest compared to Corporate Deposits

Tip: Private Sector Banks typically pay lesser interest. So better interest can be earned by investing in Public Sector Banks especially medium-sized banks.

Source: MoneyControl.com

6) Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is a must-have investment option in my opinion if you’re risk averse.1

It is with sole aim of saving for your daughter’s long term future whether it is for marriage or education purpose.

Some salient features of this investment product is the high interest rate @ 9.2 % in 2015 (may change in future). This shows the importance of the products in government’s scheme of things.

You can invest as less as Rs. 1000 in a year. The investment plan period is maximum of 21 years from date of opening or marriage date whichever is first.

You can open maximum 2 accounts one for each daughter. You can check more details from our detailed post below

7) National Pension System

National Pension System(NPS) has got way more attractive than it was earlier and become one of best investment options now. Broadly, All individuals between age of 18 to 60 can join the NPS.

You get tax benefit for investment upto Rs 50,000 under section 80CCD(1B) in addition to Rs 1.5 lakh under section 80C.

The investments are regulated by PFRDA and hence considered a safe investment option. You can choose the percentage exposure you want to equity.

The minimum investment is Rs.500 per month and fund management charge is very low at 0.01%. Another long term safe investment for conservative investors.

8) Atal Pension Yojana

Atal Pension Yojana is a recent investment option launched ny MOdi government. Here any Indian between 18-40 years can join the scheme.

The government will contribute 50% of your contribution for 5 years or Rs 1000. Whichever is lower is applicable.

But this government contribution is only for non income tax payers. If you want monthly pension of Rs 5000, then your monthly contribution starting from age 20 years is Rs 250 approx.

This is safe investment option for lower income people for long term investments. You cannot withdraw before attaining 60 years unless exceptional scenario.