What makes a good investment choice? Several factors can be used to measure the effectiveness of a savings plan, from investment flexibility, pre-withdrawals, to the amount of tax exemption. For most investors, the following factors influence your investment decision more than the factors listed below:
a) Freedom to invest and withdraw at any time
b) Flexibility to invest any amount
c) Secure Risk-Return Offer
d) Custom Investment Term
e) Tax benefits and other benefits
Based on your goals and needs, you can decide which factor makes more sense to you while investing for the long term. Also, remember that you can’t have the best of all worlds; Every investment will have some strong factors, while others will have to be compromised. For example, when you are investing for high liquidity, you may run out of total returns.
types of investment options
You need to invest in those schemes which suit the investment need or purpose. Thus, investment plans can be broadly divided into three types based on their potential uses:
a) Short term or liquid plan
b) Goal based investment plans
c) retirement or annuity plan
1. Short Term or Liquid Investments
These are investment schemes in which you can enter and exit at any time. These are highly liquid investments i.e. you can easily convert these investments into cash. The risk-return ratio here is low.
The volatility in these investments is also negligible. Thus, they are the best investment option to keep your money safe for short-term needs.
Some investment options you can consider are:
- saving account
- Super Saver
- Liquid Mutual Fund
2. Goal Based Investing
As the name suggests, these are investment plans that will help you achieve your goal. These are suitable if you want to achieve a goal that has medium or long term horizon like buying a house, ensuring higher education of children, marriage etc.
They are not liquid and take time to grow. These investments have entry and exit restrictions.
Examples of goal based investment plans
- Public Provident Fund (PPF)
- Unit Linked Insurance Plan (ULIP)
- Guaranteed Savings Scheme
- Bank and Post Office Fixed Deposits
- Equity and Debt Mutual Funds
- 3. Retirement and Inheritance Plans
A stress-free retirement is a major milestone you want to achieve. After retirement, you no longer get your salary. Thus it becomes important to build a corpus that will be enough to take you till retirement. Retirement plans are specially designed for the same.
These are not liquid. Retirement-focused plans mature at the time you retire. Examples of these plans include:
- New Pension Scheme (NPS) Tier-I Account
- Employees Provident Fund
- pension plans
- Senior Citizen Savings Scheme
- whole life insurance
- best investment option in india
1. Direct Equity – Stocks
Buying individual equity shares of listed or unlisted companies in stock exchanges is known as direct equity investment. You can get capital gains or dividend returns from your direct stock investments. The performance of the shares depends on the factors like market condition, performance of the company etc.
a) This option is one of the most volatile investments and has a high risk-return ratio
b) One of the best investment options to generate inflation-adjusted wealth
c) Suitable for long term horizon
You need to have a bank account and demat account to start investing. It is important for you to have high investment risk appetite if you want to invest and get consistent returns from stock investments.
If you have a good understanding of the workings of equity stocks and markets, you can invest using your research or advice from a certified broker. However, you also need ways to manage your investment risk.
2. Equity Mutual Funds
Types of Mutual Funds where the fund is primarily invested in equity shares are known as Equity Mutual Funds.
Equity mutual funds can invest anywhere between 70 to 95% of the fund value in equity shares and related instruments. Since these are equity based, they offer high risk-reward ratio.
a) Actively Managed Mutual Funds
In this type of fund, the fund manager is actively involved in the management. The expertise and competence of the fund manager plays a vital role in the performance of this fund. He selects the stocks in which the fund will invest on the basis of research and analysis of the companies.
b) Passively Managed Mutual Funds
Fund managers do not play a major role in this type of fund. The fund is based on a particular index or market portfolio. For example, a fund which is made up of stocks of Nifty 50 etc. The performance of the index determines the performance of this fund.
3. Debt Mutual Fund or Bond Fund
We have seen how investing in equities can give you good returns but it also involves high risk. What if you don’t have a high-risk appetite and don’t want to take more risks? If so, then you are on debt mutual fund
Invested in fixed income securities including government and corporate bonds, debentures and other long-term fixed income securities. Debt funds can have different risk profiles depending on the type of securities held in the portfolio.
You should check the rating of securities held by the fund to assess the risk before investing.
If you want stability with low-risk returns, then funds with top rated securities or government bonds are a good fit for you.
Thus you can consider debt funds when
a) you are a risk averse
b) you want relatively fixed returns
c) Principal’s safety is a priority
Note that the risk of changes in interest rates will still be present in all debt funds.
4. National Pension Scheme (NPS)
The National Pension Scheme is an investment designed to help you in your retirement. NPS is backed by the government and regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
NPS helps you to build a strong retirement corpus at your disposal. You can use NPS retirement account as a salaried or self-employed investor.
There are two types of NPS accounts:
a) Tier-I (Retirement Account)
The primary difference between NPS and other provident fund investments is that NPS allows you to build your corpus in an aggressive manner. NPS follows an auto rebalancing methodology to maintain the portfolio with decreasing risk as you age.
The return on NPS investment will depend on the portfolio mix chosen by you and the length of time you stay invested.
5. Public Provident Fund (PPF)
PPF is one of the most popular and safe investments for your long term goals. Originally launched as a safe retirement investment plan for the self-employed, the scheme has been popular with long-term investors, because:
a) tax efficiency
You can claim deduction under section 80C up to Rs. 1.5 lakh for ULIP investment. Also, the maturity value is tax free.
You can borrow from the accumulated corpus within the first 5 years of the account. Partial withdrawal allowed after 5 years
c) risk-return mix
Low risk investment with market linked interest rate, which is updated every year.
d) Investment period
At least 15 years, after that you can extend the account in batches of 5 years.
6. Bank Fixed Deposit
It is a facility offered by banks that ensures the safety of your invested money and provides stable returns.
In bank fixed deposits, you have to invest a lump sum amount with the bank for a fixed period and at the prevailing rate. After the end of your tenure, you will receive your principal amount along with compound interest added to the tenure.
Things to know about bank fixed deposits
a) Bank FD gives you guaranteed returns. Thus, your principal is protected.
b) You cannot withdraw money from your FD till maturity. By breaking your FD before the tenure, you can miss out on the compound interest and incur penalty charges.
c) FD can be both long term and short term. This period can be as short as 7 days and up to 10 years.
d) The rate of interest initially accepted in bank FDs will continue for the entire tenure. Thus, fixed rates of interest remain
e) You can either get interest or reinvest it.
7. Senior Citizen Savings Scheme (SCSS)
Senior Citizen Savings Scheme or SCSS is an investment option designed for those who have retired or have retired. It is a government backed investment option where you can invest lumpsum and get regular income after retirement.
You can open SCSS account in 2 ways
– through the post office
– through the bank
SCSS is a very popular investment option for senior citizens due to its guaranteed and attractive returns. The current rate of return is 7.4% (as on Q2 of FY 2021-22). These rates are subject to quarterly change.
Here are some features of SCSS that you should know:
a) You can invest in SCSS if you have attained the age of 60 years. People above 55 years of age can also apply if they have taken VRS (Voluntary Retirement Scheme).
b) The minimum investment is Rs 1000, i.e. you have to deposit more than or equal to Rs 1000.
c) The maximum investment is Rs 15 lakh. You cannot invest more than this amount.
d) Interest is paid quarterly in SCSS
e) Maturity period is 5 years which can be further extended up to 3 years.
8. Real Estate Investing
Investing in real estate is also a good option. Real estate investment refers to the purchase of assets such as buildings and land. It is one of the best investment options that can counter inflation.
Investing in real estate can give you a shot at both regular and capital gains income.
You can rent out the building you have bought. This will ensure you monthly returns. If your property has appreciated you can sell at a higher rate and receive capital gains.
There is a famous saying that 3 things are important in real estate and they are, Odd space can be expensive but you can also get higher rates to rent and it has better chances of appreciation.
9. RBI Bonds
RBI bonds are one of the safest investment options in the market. The Reserve Bank of India, i.e. RBI, issues bonds to the public to raise funds for the development of various government projects. These bonds have a specific duration. The money is returned along with the interest earned after maturity.
You can buy RBI bonds from any of the 12 national chains along with 4 private banks. To sanction your loan, RBI will issue you a certificate of holding. This certificate will serve as a proof during maturity.
a) His tenure is 7 years.
b) These can be cumulative where the interest is reinvested, and non-cumulative, wherein the interest is paid as regular income.
c) The current interest rate is 7.75%** p.a. This is as per the Floating Rate Saving Bonds, 2020 (Taxable) scheme which started on July 01, 2020.
In India, gold is often viewed as an investment to protect family heirlooms. But rising costs and rates of making charges have now made them less attractive.
Gold ETFs are becoming popular today. These are commonly known as ‘paper gold’. Gold ETFs include gold stocks and investments. Unlike expensive gold, they can be brought from the stock market according to their capacity.
reasons to invest in gold
Since it is an ETF, i.e. Exchange Traded Fund, it is passively managed. It reflects the performance of gold. The better the gold performs, the better the performance of the ETF.
a) Since they are traded on stock exchanges, they are volatile and carry high risk
b) These are liquid and you can enter and exit as per your choice.
c) Research the stocks thoroughly before making a buying decision.
This is another government-backed investment option available to senior citizens, i.e., those aged 60 years and above. This is a good investment plan if you want a regular income stream for yourself.
Like SCSS, Pradhan Mantri Vaya Vandana Yojana also pays an interest of 7.4% per annum, but has a longer validity. The special rate is in respect of the scheme which is available till March 31, 2023.
Some of the features of PMVVY are as follows:
a) Pension payable on monthly, quarterly or annual mode
b) Its maturity date is 10 years
c) The minimum amount you need to invest is Rs 1000, you can invest maximum Rs 9250 in a month.
d) You can use it against taking loan up to 75% of the value provided you have kept it for more than 3 years.
12. Guaranteed Savings Schemes
Guaranteed Savings Plan ULIP is a safe investment option; However, they do offer fixed returns.
The returns are guaranteed based on the tenure of the investment and the number of annual contributions.
Which investment plans give the highest returns?
Investment return is often a factor in its performance and your holding period. However, some investments promise fixed returns when invested for a fixed period of time. Thus, you have two types of investments:
1. Fixed Income Investments
2. Market Linked Investments
You should include a combination of these two investments in your portfolio to make a good corpus for yourself.
Fixed investments, also known as non-linked investments, are those that will offer you a fixed rate of return. Returns are not tied to market performance. These investments are low risk and thus offer stable interest rates. Such investments play a big role in keeping your money safe.
The types of fixed investments are:
a) Bank Fixed Deposit / Recurring Deposit
B) National Pension Scheme
c) Senior Citizens Savings Scheme
d) Savings Account
e) RBI Bonds
All of them offer you a fixed interest rate. Note that the applicable interest rate will be subject to change from time to time.
On the other hand, market linked investments do not give you fixed returns. These have the potential to earn very high returns and thus have no limit. The returns you get will depend on how you manage your market-linked investments.
Factors affecting your returns
The fund strategy chosen by you
The period for which you remain invested
Since they depend on the performance of the market, they are considered risky.
Examples of market linked investments
B) Mutual Funds
Which are the safest investment plans with the highest returns?
Safe savings and investment schemes are those which carry minimal to no risk. These ensure the safety of your principal and give you a relatively low but stable return on your investment.
These can be considered when you want to preserve your wealth and park the surplus money.
Safe Investments That Provide High Returns
a) Debt Mutual Funds
f) Bank FD
Apart from these, you can consider the following plans from Canara HSBC Oriental Bank of Commerce Life Insurance:
Invest 4G with 100% Debt Fund Allocation
Guaranteed Savings Plan is a life insurance cum savings plan that helps you inculcate the habit of saving by building a corpus and also provides a life cover. As the name suggests, this plan will give you guaranteed returns on the maturity of the policy. Thus, you are assured of a specific amount agreed upon at the time of the policy.
The plan also includes high premium booster and loyalty benefits.
In addition, Invest 4G can provide you with high returns along with safety. You can choose to invest in debt options with less risk. You can also use the ‘safety switch’; A facility that moves your funds towards safer options during the final stages of the policy. All these investments offer something or the other that will help you achieve specific financial goals. Most importantly, all these schemes offer tax saving or tax-free maturity value.