When it comes to the best investment options for you, many questions comes to our mind. The best investment option should give high return in a defined tenure at minimum risk. However, it is difficult to find the best investment option with low risk and high returns. Therefore the best investment options has to be in a balance. The following are 8 best investment options shortlisted for you with judicious mix of risk and return. It is in order of merit.
1) Direct Equity
It means investing directly in equity market through stock market. It is one of the best investment options. Though associated risk is high, it also gives high returns.
Stock market is a place where publicly held companies list their shares for buy and sell. It is purely market driven for price, based on demand and supply. SEBI the regulatory authority allow companies to offer its share for public subscription only after fulfilling the prescribed norms and thereby listing in stock exchange. So direct equity means investing in shares of a worthwhile company.
Price of these shares varies depending upon the performance of the company, Govt policies, economic outlook, political scenario etc. The risk factor varies depending upon the company size, industry, management capability and host of other factors.
All the companies listed in stock exchange are categorized as small cap, medium cap and large cap. Cap stands for capitalisation or volume of trade. Associated risk is inversely proportionate to capitalization. Larger the capitalization lower is the risk. You may choose to invest as per your risk appetite.
The return on Direct Equity varies depending upon company you choose to invest in and the period you stay invested. On an average, shares of a good company engaged in growing industry give a return of 12%-15% if held for about 5 years or more. Some of the blue chip shares can give return above 15% as well.
Transaction in direct equity attracts tax by way of securities transaction tax and capital gain tax.
2) Mutual Fund
Mutual fund is the next best investment options to invest after direct equity. It can be termed as indirect equity investment.
The company who floats mutual fund for investment is called Asset Management Company (AMC). These AMCs design different schemes based on their goals. Some of examples are Equity, Debt, Hybrid, Thematic, focused, Index etc. Accordingly, AMCs invest the money to buy shares of various companies in stock market.
The AMC keeps on monitoring the portfolio and sales existing shares to buy new shares, if required, to maintain the desired return and risk. Thereby, it ensures better return and minimize the risk.
Individual investors can decide upon the scheme they want to invest best on the return they expect, risk appetite and period of investment.
Generally, equity scheme gives higher returns if invested for long period – 5 years and above. For short period, debt fund is suggested. It gives lesser return but capital is preserved, For someone who has moderate risk appetite may go for hybrid fund – part equity and part debt fund.
The average return in equity scheme is around 15%, hybrid scheme 12% and debt scheme 10%.
Though risk is reduced in mutual fund compared to direct equity, it is not eliminated totally. No tax is applicable on transaction. Capital gain tax is applicable as per duration of holding the investment.
3) Unit Linked Insurance Plan (ULIP)
ULIP gives investor an option to combine insurance and investment. If one decides to subscribe for ULIP, a part of money invested goes towards premium of an insurance coverage. The balance amount is utilized towards investment in equity or debt as per the choice of the investor.
It’s a very good opportunity of investment as it can garner benefit of both insurance as well as investment. Moreover, there is a minimum lock in period of 5 years. During this period the investor can not withdraw the amount.
ULIP give return in the range of 15%. Some funds even give higher returns. There is tax exemption on ULIP proceeds after completion of 5 year lock in period.
4) Public Provident Fund (PPF)
It is one of the most secured tax savvy best investment options in India. It is a Central Government scheme for savings, governed by a law known as Public Provident Fund Act 1968. Under this scheme any individual can start saving. Even minors are also allowed under guardianship. Investment can be made with just rupees ₹ 500 and upto ₹ 1,50,000 a year. The investment or contribution has to be made every year.
Tenure of investment is 15 years. After which it can be extended for 5 years blocks without annual contribution. The interest rate is decided by Government of India. The current rate is 7.1% p.a. which is compounded yearly. It is above any bank rate. Further investment made in PPF is tax exempted u/s 80C, interest earned is tax free and maturity amount also tax free. Whatever earned by the investment is entirely passed on to the investor. It is risk free, but return is low compared to equity and mutual funds.
5) National Pension Scheme (NPS)
NPS is the one among newest best investment options in Indian context. NPS is launched in 2003. It is operated by Pension Fund Regulatory and Development Authority (PFRDA) through a trust. NPS is open for all to subscribe from age 18 to 70 years.
There are two type of accounts – Tier I and Tier II. Tier-I is compulsory and minimum investment is ₹ 6000 per year. The money deposited in Tier-I account can not be withdrawn till retirement. Even after retirement only 40% is allowed to withdraw. Tier-II account is optional, investor may choose to open. On retirement, Tier-II money can be withdrawn in full.
There are two choices of investment – active and auto or lifecycle fund. In Active choice the investor can choose how to invest the money in different assets. Auto choice decide the allocation of fund in assets as per life stage of the investor. You can change investment choice once in a year. You can also change the fund manager. Investment in NPS is eligible for tax deduction as per section 80C. The return on NPS ranges from 9-12%.
6) Real Estate investment
Real estate is another best investment options. However, it should be clearly distinguished from self use to commercial use. An investment in real estate for self use as a residence can not be considered as an investment. It has to be for the purpose of renting or sale of the property to book profit at appropriate time.
Therefore, location is critical for getting adequate rent and appreciation of value. Generally real estate give return of around 15% in metro. In tier II and III cities it is less than that. The rental income is taxable as per tax slab and real estate sale proceed attracts capital gain tax.
Associated issues are registration, various permissions, brokerage, finding right tenant or buyer.
7) Gold
It is the oldest form of investment. Its demand and preference as a best investment options is still going strong. An investment in Gold in 2010 would have given a return of 9% as on date. In absolute price it has grown by 2.85 time since than. There are new ways of investment in gold apart from traditional way of physical gold.
The new methods include Gold ETF, sovereign gold bond, digital gold etc. The gain accrued from sale of gold is subject to capital gain tax.
8) Fixed Deposits
This is the most popular saving or investment options. Though it is not an efficient product; majority of people prefer it as it preserves the capital and consider as one of the best investment options. However, due to current economic scenario, interest offered on FD by public sector bank is very nominal (around 5.5-6%). Though few private sector banks and corporate are offering interest above 6% p.a.
Interest earned on Fixed deposits is taxable. Therefore actual earning or real earning is very low.
These are 8 best investment options for you. As the old adage goes – don’t put all your eggs in one basket. Therefore invest in a mix of product, not in a single category.
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Do comments, if you like the post. You may suggest other best investment options to add to the list.