Top 10 Investment options in India for Residents and NRI Investors

When it comes to investments, we care so much about capital protection rather than the high appreciation. Risk-free investment options are ideal for individuals who just want to save a part of their earning and sit back and relax without having to worry about its outcome.

We have put together 10 best investment options that can help you park your money.

While selecting an investment avenue, you have to match your own risk profile with the risks associated with the product before investing.

Most investors want to make investments in such a way that they get sky-high returns as fast as possible without the risk of losing the principal money. This is the reason why many investors are always on the lookout for top investment plans where they can double their money in a few months or years with little or no risk.

However, it is a fact that investment products that give high returns with low risk do not exist. In reality, risk and returns are inversely related, i.e., higher the returns, higher is the risk, and vice versa.

So, while selecting an investment avenue, you have to match your own risk profile with the risks associated with the product before investing. There are some investments that carry high risk but have the potential to generate high inflation-adjusted returns than other asset class in the long term while some investments come with low-risk and therefore lower returns.

There are two buckets that investment products fall into - financial and non-financial assets. Financial assets can be divided into market-linked products (like stocks and mutual funds) and fixed income products (like Public Provident Fund, bank fixed deposits). Non-financial assets - most Indians invest via this mode - are the likes of gold and real estate.

Here is a look at the top 10 investment avenues Indians look at while savings for their financial goals.

1. Direct Equity

Investing in stocks may not be everyone's cup of tea as it's a volatile asset class and there is no guarantee of returns. Further, not only is it difficult to pick the right stock, timing your entry and exit is also not easy. The only silver lining is that over long periods, equity has been able to deliver higher than inflation-adjusted returns compared to all other asset classes.

At the same time, the risk of losing a considerable portion of capital is high unless one opts for the stop-loss method to curtail losses. In stop-loss, one places an advance order to sell a stock at a specific price. To reduce the risk to a certain extent, you could diversify across sectors and market capitalizations. Currently, the 1-, 3-, 5-year market returns are around 13 percent, 8 percent, and 12.5 percent, respectively. To invest in direct equities, one needs to open a Demat account.

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2. Equity Mutual Funds

Equity mutual funds predominantly invest in equity stocks. As per the current Securities and Exchange Board of India (Sebi), Mutual Fund Regulations, an equity mutual fund scheme must invest at least 65 percent of its assets in equities and equity-related instruments. An equity fund can be actively managed or passively managed.

In an actively traded fund, the returns are largely dependent on a fund manager's ability to generate returns. Index funds and exchange-traded fund (ETFs) are passively managed, and these track the underlying index. Equity schemes are categorised according to market-capitalisation or the sectors in which they invest. They are also categorized by whether they are domestic (investing in stocks of only Indian companies) or international (investing in stocks of overseas companies).

Currently, the 1-, 3-, 5-year market return is around 15 percent, 15 percent, and 20 percent, respectively.

3. Debt Mutual Funds

Debt funds are ideal for investors who want steady returns. They are less volatile and, hence, less risky compared to equity funds. Debt mutual funds primarily invest in fixed-interest generating securities like corporate bonds, government securities, treasury bills, commercial paper, and other money market instruments. Currently, the 1-, 3-, 5-year market return is around 6.5 percent, 8 percent, and 7.5 percent, respectively.

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4. National Pension System (NPS)

The National Pension System (NPS) is a long-term retirement-focused investment product managed by the Pension Fund Regulatory and Development Authority (PFRDA). The minimum annual (April- March) contribution for an NPS Tier-1 account to remain active has been reduced from Rs 6,000 to Rs 1,000. It is a mix of equity, fixed deposits, corporate bonds, liquid funds and government funds, among others.

Based on your risk appetite, you can decide how much of your money can be invested in equities through NPS. Currently, the 1-,3-,5-year market return for Fund option E is around 9.5 percent, 8.5 percent, and 11 percent, respectively.

5. Bank Fixed Deposit (FD)

A bank fixed deposit (FD) is a safe choice for investing in India. Under the deposit insurance and credit guarantee corporation (DICGC) rules, each depositor in a bank is insured up to a maximum of Rs 1 lakh for both principal and interest amount. As per the need, one may opt for monthly, quarterly, half-yearly, yearly or cumulative interest options in them. The interest rate earned is added to one's income and is taxed as per one's income slab.

6. Senior Citizens' Saving Scheme (SCSS)

Probably the first choice of most retirees, the Senior Citizens' Saving Scheme (SCSS) is a must-have in their investment portfolios. As the name suggests, only senior citizens or early retirees can invest in this scheme. SCSS can be availed from a post office or a bank by anyone above 60. SCSS has a five- year tenure, which can be further extended by three years once the scheme matures. Currently, the interest rate that can be earned on SCSS is 8.3 percent per annum, payable quarterly and is fully taxable. The upper investment limit is Rs 15 lakh, and one may open more than one account.

7. RBI Taxable Bonds

The government has replaced the erstwhile 8 percent Savings (Taxable) Bonds 2003 with the 7.75 percent Savings (Taxable) Bonds. These bonds come with a tenure of 7 years. The bonds may be issued in Demat form and credited to the Bond Ledger Account (BLA) of the investor and a Certificate of Holding is given to the investor as proof of investment.

8. Real Estate

The house that you live in is for self-consumption and should never be considered as an investment. If you do not intend to live in it, the second property you buy can be your investment.

The location of the property is the single most important factor that will determine the value of your property and also the rental that it can earn. Investments in real estate deliver returns in two ways - capital appreciation and rentals. However, unlike other asset classes, real estate is highly illiquid. The other big risk is with getting the necessary regulatory approvals, which has largely been addressed after coming of the real estate regulator.

9. Gold

Possessing gold in the form of jewelry has its own concerns like safety and high cost. Then there are the 'making charges', which typically range between 6-14 percent of the cost of gold (and may go as high as 25 percent in case of special designs). For those who would want to buy gold coins, there's still an option. One can also buy ingeniously minted coins. An alternate way of owning paper gold in a more cost-effective manner is through gold ETFs. Such investment (buying and selling) happens on a stock exchange (NSE or BSE) with gold as the underlying asset. Investing in Sovereign Gold Bonds is another option to own paper-gold.

To watch a video on Sovereign Gold Bonds click on the below link https://www.youtube.com/watch?v=EGQ5reTUs-8

What you should do

Consult your certified financial planner to understand, Which investment suits your risk appetite and financial goals.

Some of the above investments are fixed-income while others are market-linked. Both fixed-income and market-linked investments have a role to plan in the process of wealth creation. While market-linked investments help in navigating the volatility and in the process generate a high real return, the fixed income investments help in preserving the accumulated wealth so as to meet the desired goal. For long-term goals, it is important to make the best use of both worlds. Have a judicious mix of investments keeping risk, taxation and time horizon in mind.