Investors often want to make such investments in which they have a higher possibility of getting sky-high returns, and that tool at a faster pace without risking your principal amount.
This is why most of the investors mostly look for such investment plans, where they can expect double money returns within a few months interval. Or, it may rarely a year, leaving you with a little or no risk of losing your investment.
However, this is also true that investment plans to get higher returns with low or zero risk don’t exist. Generally, returns and risks are interrelated. That is, choosing a higher return investment plan is subjected to higher risk of losing principal money, and vice versa.
Therefore, while picking an investment option, make sure to match your chances of risk with the risk related to that plan, prior to making any investment.
Now, let’s dive deeper into some of the top investment avenues that most investors prefer while saving to get better financial goals in India.
1. Direct Equity
Making stock investment is subjected to high risks of volatility as it belongs to the volatile asset class. Plus, you don’t have the guarantee of getting assured returns. Not just that, but it’s also hard to choose the right stock along with the timing of your entry and exit.
However, the only relief is that the equity fund became capable of delivering high returns, over long years, greater than inflation-adjusted returns in comparison with the other asset classes.
Currently, the market returns of 1-, 3-, 5 year are approximately 13%, 8%, and 12.5%, respectively. Lastly, it is important to note that you must open a demat account in order to make direct equity investment.
2. Equity Mutual Funds
Equity Mutual Funds predominantly associated with the equity stocks based investment. According to the current Securities and Exchange Board of India Mutual Fund Regulations (Sebi) (MFR), the above mentioned scheme (EMF) must make an investment of minimum 65% of its equity assets along with other equity-related instruments. An Equity Mutual Fund can be either managed actively or passively.
3. Debt Mutual Funds
Debt Mutual Fund is an ideal scheme for those investors, who want a fixed return on investment. These funds have lesser volatility risk as compared to the equity funds. Initially, the Debt Mutual Funds make investment in steady interest producing securities including government securities, treasury bills, corporate bonds, commercial paper along with other money driven instruments.
Currently, the market return for 1-, 3-, 5-year is nearly 6.5%, 8%, and 7.5%, respectively.
4. National Pension System (NPS)
The National Pension System (NPS) is a retirement scheme with a long term tenure. This investment plan is handled by (PFRDA) the Pension Fund Regulatory and Development Authority.
The least contribution per annum for NPS Tier-1 account to remain valid has been decreased to Rs 1,000 from Rs 6,000. It is the combined system of fixed deposits, equity and liquid funds, corporate bonds, and government funds, among others.
Based on the money losing risk, you are free to decide the amount of money you want to invest in equities via NPS. Currently, the market return for 1-, 3-, 5-year for Fund option E is roughly 9.5%, 8.5%, and 11%, respectively.
5. Public Provident Fund (PPF)
The Public Provident Fund (PPF) is one of the plans most people would turn to. As the tenure for PPF is 15 years, the effect of compounded tax-free interest is quite high, particularly in later years.
Moreover, as the return on principal investment is supported by sovereign guarantee, it makes PPF one of the safest investment plans.
6. Bank Fixed Deposit (FD)
A Bank Fixed Deposit (FD) is a safe alternative for making investment in India. Under the (DICGC) Deposit Insurance and Credit Guarantee Corporation rules, every investor in a bank is offered an insurance of about Rs. 1 lakh for interest as well as the principal amount.
You may pick the cumulative interest, monthly, quarterly, half-yearly, or yearly option among them. The rate of interest gained by a person is credited to one’s income. Besides, the person will be taxed on the basis of his income slab.
7. Senior Citizens’ Saving Scheme (SCSS)
Perhaps, this is the most preferred plan opted by most retirees. So, Senior Citizens’ Saving Scheme (SCSS) is a mandatory document for investment portfolios.
As the name indicates, this plan is solely associated with the early retirees or senior citizens only. Only these people can avail this scheme. SCSS plan is available from a bank or post office by anyone aging more than 60.
The tenure for is 5 years and it is extendable upto 3 years, only after the scheme matures. Recently, the rate of interest that can be gained annually on SCSS is 8.3%. It is quarterly payable and entirely taxable. The upper limit investment is about Rs. 15 lakhs and you can open multiple accounts on SCSS as required.
8. RBI Taxable Bonds
The government of India has removed the former 8% Taxable Saving Bonds of 2003 and put the Savings Bonds (Taxable) of 7.75% into effect. These bonds are valid for 7 years and can be authorised in demat form and credited to the investor’s (BLA) Bond Ledger Account. Plus, the investor is provided with a Certificate of Holding. This certification will act as a valid evidence for investment.
Out of the several investment plans discussed above, some are market-linked and others are fixed-income. Both of these are required for planning during the wealth creation process.
While the investment based on market-link helps to locate the volatility and generate real high return in the whole process. Whereas, the fixed income based investments let you preserve the gathered wealth in order to achieve the desired financial goal.
So, make sure to do the best use of both the types discussed above. Try to have a justified blend of both fixed cum market-linked income keeping taxation, risk of loss, and time horizon into account.
Hope that helps!