We (Indians) always try to maintain a reasonably very high savings rate (the national saving rate is about 30 per cent of GDP). Even a daily wage laborer who earns say Rs 300 per day will try to save some money for the future. But are we investing these savings in the right and best Investment Options (financial products) is a billion dollar question.
Unfortunately, in India a major portion of these savings gets invested in unproductive assets like Gold or low-yielding bank fixed deposits or traditional life insurance policies.
Investments in Land (property) & gold together can easily make up around 70% of all household assets. Investments in property & gold are perceived as ‘safe bets’ in India. Its allure is amplified by the attraction of being safe conduits(avenues) to stash away black money as well as avoid taxes.
We seem to be entrapped in a low-level equilibrium. The distribution of savings among various asset classes is rarely seen with most of the households.
Problems of access to various investment options (financial instruments) and ignorance about the available investment avenues can be attributed as the main reasons for this in-equilibrium.
But things are changing for the better. The gap between financial savings and Physical assets is slowly shrinking, which is a very good sign. Financial inclusion is taking the centre stage. More no of bank accounts are being opened and operated.
The young population wants to invest in new-age financial products and not just in fixed deposits. The Assets Under Management (AUM) of mutual fund houses have been steadily increasing in the last 4 to 5 years.
In this post, let us list out the possible Investment options that are available in India. Let’s discuss, what are the best possible investment options for short-term? What are the best investment Schemes for long-term goals? What are the best tax saving investment options?
List of Investment Options in India
As discussed earlier, the major portion of Indian household savings are being invested in the below investment options;
- Fixed deposits
- Gold
- Land & property
- Chit Funds
So, do we really have only these investment options to invest our savings? Let’s list out all the possible investment options that are available in India;
- Post office Schemes
- Monthly Income Scheme (MIS)
- Senior Citizens Savings Scheme (SrCSS)
- Term Deposits
- Recurring Deposits
- Sukanya Samriddhi Savings Deposit Scheme
- Public Provident Fund (PPF)
- Kisan Vikas Patra (KVP)
- National Savings Certificate (NSC)
- Bank
- Bank Fixed Deposits (FDs)
- Recurring Deposits (RDs)
- Public Provident Fund (PPF)
- Sukanya Savings Deposit Scheme
- PPF
- National Pension System
- Atal Pension Yojna
- Employees Provident Fund
- Company Fixed Deposits offered by NBFCs
- Tax Free Bonds
- Non-Convertible Debentures
- Chit Funds
- Mutual Funds
- Equity oriented Mutual Fund Schemes
- Debt oriented Mutual Fund Schemes
- Stocks (Direct equities)
- IPOs (Initial Public Offers)
- Secondary Markets
- Real estate
- Residential Property
- Commercial Property
- Agriculture Land
- Bonds u/s 54EC
- Real Estate Investments Trusts (REITS – soon to be launched)
- Reverse Mortgage
- Gold, Silver & other valuable
- Jewelry
- Gold bars & Coins
- Gold Exchange Traded Funds (ETFs)
- Sovereign Gold Bonds
- Gold Deposit Scheme
- Life Insurance
- Unit Linked Insurance Plans
- Pension Plans
- Money-back Plans
- Endowment Plans
How to shortlist or select best investment options?
Before selecting any financial product, kindly set your Financial goal(s). Your goals should be realistic, measurable, clear and attainable. You can then shortlist the right investment options by considering the below factors; (Factors to consider before investing….)
Financial Product side factors:
- The features, rules, guidelines, terms & conditions of a financial product (an investment option) should be simple, clear& easy to understand.
- The expenses, fees, loads and investment charges should be reasonable.
- It should be reasonably liquid & flexible.
- It’s great if it is a tax efficient investment option.
Investor side factors:
- Your age & financial profile.
- The time-frame (investment horizon) – Short, medium and long-term.
- Your investment objective(s) & financial goal(s).
- Your expected rate of return (Kindly give importance to real rate of return).
- Type of investor : Do-It-Yourself or depend on intermediaries (agent/advisor)
Best Saving options to accumulate Emergency Fund
- Bank Fixed Deposits (preferably eFDs / online FDs)
- Sweep-in Savings Bank Accounts (Auto-sweep accounts)
- Liquid Debt Mutual Fund Schemes
- Cash-in-hand
Best Investment or Saving Options for short-term
- Short-term Debt Mutual Fund Schemes
- Bank Fixed Deposits
- Recurring Deposits
Best Investment options for Long-term Goals
- Shares (direct Equity)
- Equity oriented Mutual Funds
- Public Provident Fund
- Sukanya Samriddhi Deposit Scheme
- Real-Estate investments
Best Investment options for Medium-term Goals
- Balanced Equity oriented Mutual Funds
- Secured Non-Convertible Debentures – Cumulative option
- Mutual Fund MIPs – Growth options
Best Investment options to get periodic fixed income
- Tax Free Bonds
- Post Office Monthly Income Scheme (Maximum investment limit is INR 4.5 lakhs in single account and INR 9 lakhs in joint account)
- Post Office Senior Citizens Savings Scheme (if you are above 60 years. Maximum investment limit is Rs 15 Lakh. Interest amount paid quarterly.)
- Bank or Post office Fixed Deposits.
- Debt Mutual Funds – Dividend option
- Monthly Income Plans (MIPs) of Mutual Fund Schemes – Dividend option (beneficial if you are in 30% tax slab)
- Rental income from Real estate property investments
- Secured Non-Convertible Debentures (NCD – Payment option) (debentures can be best suited for low tax bracket individuals)
Best tax saving Investment options for long-term
- Equity Linked Savings Schemes (tax saving schemes) of Mutual Funds.
- Provident Funds
- Sukanya Samriddhi Deposit Scheme
Our culture and tradition encourages us to save more. We generally tend to save more for goals such as Kid’s education or a home purchase and less for retirement, may be because we are more likely to expect our retirement years to be financed by income of other family members (children).
We are also extremely risk averse and generally place greater importance on safety than rate of return on investments. I do not believe in classifying investors as conservative, moderate & aggressive. If you would like to accumulate sufficient corpus for a long-term goal, you may have to take calculated risk and invest in right financial product(s) which can beat inflation & give better tax-adjusted returns. If your investment horizon is short, kindly give high priority to safety & liquidity and do not chase returns aggressively.
Your investment portfolio should have a fair mix of both conservative as well as aggressive investment options. Kindly try to maintain an ideal asset allocation.