Robert Kiyosaki says, “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”
To build wealth, you should aim to invest your hard-earned money in the best investment options available in India. If you don’t make the right decision at the right time, you might end up missing on a million-dollar opportunity!
But with multiple investment options available in India, how will you decide which is the best investment option for you?
Today we have come up with the 12 best investment options in India in 2021 that will help you create infinite wealth.
But before we get into the article, you need to know that each investment option has a certain amount of risk involved. Higher the risk, higher the potential return on investment and vice versa. Hence, you need to choose the right investment option based on your financial goals and risk appetite.
So let’s begin!
In this blog we will explore:
- Factors to consider while selecting the best investment options
- Why is choosing the right investment option important?
- Types of investment options
- Best investment options in India for 2021.
- Investment plan for goal-based wealth creation
Factors to Consider While Selecting the Best Investment Options
While planning your investment, you need to figure out the right investment option which fits your risk tolerance and financial goals. It should give you the desired return while also achieving your financial goals.
Below are the factors that you should take into consideration while selecting the best investment option:
Liquidity is how quickly an asset can be converted into cash. But why is liquidity important while selecting the best investment option? Liquidity is important simply because:
- Short-term goal = Invest in highly liquid assets.
- Long-term goals = Invest in low-medium liquid assets.
The tenure of your investment is the time for which you hold your asset to get maximum returns out of it.
Why is it important to look at the tenure of investment?
- Short-term goal = Investment options with a short-tenure.
- Long-term goal = Investment options with a long-tenure.
Each investment option has a certain amount of risk involved, and diversifying your investment portfolios helps in minimising risk. As a popular saying goes, “ Never put all your eggs in one basket”. Regardless of the tenure of your investment, you should diversify your portfolio by investing in various asset classes.
4. Risk appetite
There is a direct relationship between risk and return on investment.
Why is it important to check your risk appetite before investing?
Every individual has a different amount of disposable income for investment. According to the disposable income available, you must decide for yourself whether high-risk, low-risk or medium-risk investment options will suit you the best.
Generally, higher the risk appetite higher the return and vice versa. Hence, you should know your risk appetite and choose the best investment option for yourself. However, risk can be minimised by proper planning, research and diversification.
Comparison of Risk Categories
|High risk||Medium risk||Low risk|
|Meaning||High risk investments are for investors who want to earn high returns and can afford to take high risk.||Medium risk investments are for investors planning to invest for long-term with moderate returns, usually around 7%-10%||Low-risk investments are for investors who are planning for safe investment with steady returns.|
|Tenure||10 years +||3 – 5 years||1 – 3 years|
|Risk-Reward ratio||High||Moderate||Low – moderate|
|Investment options||Stocks, small-cap, mid-cap and commodities.||Large-cap, balanced funds, real estate, bonds||Government bonds, government schemes,
Bank Fixed Deposit.
5. Investment Objective
Before you start investing your hard-earned money in any instrument, you need to determine your investment objective.
Why is it essential to know your investment objective?
When you are planning to invest, you need to have clear investment objectives, such as:
Short term goals:
- To save tax
- To plan for vacations/vehicle purchase, etc.
- To fight inflation
- To increase saving
Long term goals:
- Buying a home
- Child’s marriage and education
So, you must choose an investment option in such a way that it will fulfil your investment objective.
Age is one of the most important factors that you have to take into consideration before selecting your best investment option.
Why is it essential to consider your age before investing?
- When you are young, you have very little to lose and you do not have many responsibilities, so you can go for high risk investment options.
- For senior citizens, it is advisable to go for low risk investment options.
Why is Choosing the Right Investment Option Important?
Choosing the right investment option will reap you good profits in the future and also help you accomplish your investment objective.
It is not rational to invest in any instrument just for the sake of investing. You need to take into account factors such as your goals, investment objective, risk appetite, etc.
If you take into consideration all the above factors while investing, you will surely create wealth for your future.
Types of Investment Options
Investments can be financial investments and non-financial investments.
- Financial investments are market linked and include stocks, mutual funds and even fixed income products like PPF account, Bank FDs etc.
- Non-Financial investments cannot be traded in the financial markets and its value is derived by its physical net worth. Example: Real estate, Gold etc.
Best Investment Options for you in 2021
1. Direct equity (Stocks)
|Who can invest||If you want to maintain liquidity and make quick profits.|
If you are a high risk taker with a long term time horizon, then direct equity, or stocks is the best investment option for you. Since the share market is highly volatile, you need to pick the right stock with strong fundamentals.
To reduce risk in the stock market, you should diversify your investment across different sectors. Stocks have been able to deliver much higher inflation-adjusted returns compared to all other assets.
Hence, investing in equities can prove to be the best investment option in the long run.
2. Equity mutual fund
|Tenure||Long – term|
|Who can invest||If you are looking for a long term investment option with moderate risk.|
Equity mutual fund is a category of mutual fund in which the majority of your pooled money is invested in equity shares of a company.
The money is allocated based on expert research done by the fund manager by conducting a fundamental and technical analysis of the targeted companies.
Equity mutual funds have generated much higher returns than debt mutual funds and are the best investment option for you if you find direct stocks as too risky.
3. Debt mutual fund
|Tenure||1 day to 7+ years|
|Who can invest||If you are looking for comparatively less risky options than shares.|
Debt mutual funds are invested in fixed income securities such as treasury bills, government securities, short-term and long-term bonds, etc
Debt mutual funds provide safe investment with moderate returns and hence are the best investment option for individuals with low to moderate risk profiles.
4. Public provident fund
|Tenure||15 years lock in period|
|Who can invest||If you are planning to invest in safe investment options for a long duration.|
Public provident fund is a savings cum tax saving scheme for investors with low-risk appetite. The interest earned and the maturity proceeds are also tax-free.
The minimum deposit ranges from Rs. 500 – Rs. 1,50,000 in a financial year. Hence, public provident fund (PPF) is the best investment option for investors with a low-risk profile but a long time horizon.
5. Fixed Deposit
|Tenure||7 days to 10 years (premature)|
|Who can invest||If you have a lump sum amount to invest for a fixed period.|
Since RBI is the regulatory authority, FD’s are considered to be comparatively safer and are the best investments options in India for retirees (60 years of age) and low-risk profile investors.
6. Real Estate
|Who can invest||Investors invest with the view of future appreciation of the property.|
|Risk-Reward ratio||Depends on the location of the property.|
The house that we use for ourselves should never be considered as an investment. The second property that you buy is an investment.
In real estate, the location of your property determines its growth and appreciation. Real estate investment can deliver returns in 2 ways:
- Capital appreciation of the property.
- The rent earned from the property.
Real estate is the most preferred investment option in India even though it is highly illiquid.
|Who can invest||If you wish to diversify your investment and want to hedge against inflation.|
Gold is considered to be the best investment option since it acts as a hedge against inflation. Gold in the form of jewellery has high making charges which ranges from 6% to 14% of the cost of the gold.
For those who want to buy gold for investment purposes, there is an alternative where you can own paper gold. This investment is cost-effective and can be done through gold ETFs. ETFs are traded in the stock market with gold as the underlying asset.
8. Sukanya Samruddhi Account
|Who can invest||Parents of a girl child who wish to save funds for her marriage and education.|
Sukanya Samruddhi account is an initiative by The Government of India to empower girl child. Parents of the girl child can invest and save for her marriage and education and also avail tax deduction on the invested amount. It is one of the best investment options which currently provides an interest rate of 7.6%
9. National Saving Certificate
|Who can invest||If you want a tax saving investment|
The National Saving Certificate is a fixed income scheme by The Government of India. It encourages people to invest and provides tax exemption up to Rs. 1,50,000 under Section 80C of Income Tax Act.
10. National Pension Scheme
|Tenure||Matures at the age of 60|
|Who can invest||If you are looking to save money for your retirement with tax benefits, then this investment option is for you.|
NPS is a pension scheme regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA). Any Indian resident in the age group of 18 to 60 can open an NPS account. You can also claim tax deduction up to Rs. 1,50,000 under section 80C of Income Tax Act. NPS is one of the best investment options for individuals who want to save money for their retirement and also avail tax benefits.
[Suggested Reading: 10 Best Tax saving options in India For 2021]
11. Recurring Deposit Account
|Who can invest||If you are looking to save in a systematic manner.|
A recurring deposit is probably the best investment option offered by banks which allows you to deposit a fixed amount every month and earn guaranteed returns on your investment.
12. Money Market Funds
|Who can invest||Investors who want to earn more than savings account without taking risk.|
A money market fund is a debt mutual fund that invests in short term debt securities such as treasury bills, commercial paper, etc.
Here is a quick summary of all the investment options available for you!
|Investment Options||Risk Types||Tenure||Risk- Reward Ratio|
|Direct equity||High||Long term||High|
|Equity Mutual Fund||Moderate-High||Long term||High|
|Real Estate||Moderate||Long term||Depends on the location of the property.|
|Debt Mutual Fund||Moderate||Medium-Long term||Moderate|
|Fixed Deposit||Low||Medium- Long term||Moderate|
|Public Provident Fund||Low||Long term||Low|
|Sukanya Samruddhi Account||Low||Long term||Low|
|National Saving Certificate||Low||Medium term||Low|
|National Pension Scheme||Low||Long term||Low|
|Money market funds||High||Short term||Low|
|Recurring Deposit Account||Low||Short term||Low|
As a bonus, here is a basic investment plan for goal-based wealth creation
|Goals||Remarks||Suitable Asset Class|
|Emergency funds||Emergency Funds Amount = Your monthly expenses including household expenses, leisure, EMIs etc X 6 months||Fixed Deposit, Liquid Funds|
|Buying house||You can accumulate funds for downpayment which is generally 20%-30% of the property value.||SIP in Mutual Fund + SIP in Blue chip stocks|
|Child’s education||Child’s higher education is getting expensive these days. So, from the year your child is born you should start saving and investing through SIPs in various asset classes.||SIP in Mutual Fund + SIP in Blue chip stocks|
|Retirement corpus||If you wish to retire early, you have to plan your retirement journey well in advance. Saving a small amount of money in a systematic manner today will reap good returns in the long run.||SIP in Blue chip stocks|
|Buying a car||Instead of taking a vehicle loan, plan for buying a car without any financial burden||Fixed Deposit + Recurring deposit|
[Suggested Reading: Best Short Term and Long Term Investment Plan for 2021]
As the popular saying goes “A penny saved is a penny earned.” But because of inflation, the value of the penny saved is much less than the value it had before. Hence, you need to make your money work hard for you.
Of all the above best investment options, the most effective and popular investment option to fight against inflation is equities.
To invest in equities and earn high returns, open a Demat account with Samco – India’s best equity stock broker and get the benefit of a 3-in-1 Demat – Trading – Mutual Fund investing account and 100% brokerage cashback on all trades placed from the StockNote app for the first month!
What is an Investment?
Investment is an asset acquired for a specific financial goal with a view of earning profits in the future.
Why should I go for an investment plan?
We do not get great opportunities twice! When you find it, grab it. We all invest to secure our future. Also, the profit that we earn in return for our investment acts as an additional source of income.
Should I go for a short term or long term investment plan?
The investment plan you choose is entirely dependent on your risk appetite, your current financial situation and your disposable income. Once you decide your goals, you can select the best investment option for you from this article itself.
[Recommended Reading: Best Short Term and Long Term Investment Plan for 2021]
What are the best investment options for salaried people?
Depending on his risk profile, a salaried individual can select from Bank FDs (low risk profile) to direct equities (high risk profile).
What are the best investment plans in India with high returns?
If you plan to invest in the best investment options with high returns, it will have a high risk as well. Risk and rewards have a direct relationship. Stocks are the best investment option in India providing high returns.
What are the best investment options for children?
If your girl child is between 1 to 10 years, then Sukanya Samruddhi account will be the best investment option for you.