Best Investment options in India: Detailed Guide for investors
When we talk about financial freedom, it is not how much money we earn, it is how we use that money, which can set us apart from the crowd. The right kinds of investment decisions allow a person to multiply their hard earned money and set themselves up for life. Investors look out for the highest returns while having the lowest risk while searching for an investment plan.
Unfortunately, an investment scheme with such a combination of features does not exist in the market. There are different combinations of risk and return that are available in the market, meant for different kinds of investors depending upon their risk tolerance, earnings and financial goals. Moving forward, this article will go through the best investment options in India 2022.
What is an Investment Plan?
An investment plan is a set of financial goals and a laid down path to achieve those goals. The right kind of investment plan helps an investor to consider all variables objectively and make decisions based on these variables. An investment plan helps the investor to commit to the plan and be consistent with their investing efforts.
How to Choose an Investment Plan?
Investors can easily take the help of financial advisors to plan their investment path and pick out the best investment plan 2022 tailor fit to their requirements. There are some steps that revolve around the best strategies for planning investments:
- Evaluate your financial status: Individuals need to assess their financial situation before planning investments as this would help in determining the value of investments that are available and the kind of investment tenure that the investor can go for. Some schemes require a large sum of lumpsum investment whereas some provide recurring deposits that include yearly or monthly investment plans.
- Determine your risk tolerance: The individual must be aware of the risk that they are willing to bear; i.e, the amount of loss they are prepared to handle, while making an investment decision. A new/ young investor might be more risk tolerant as they have time to regain any losses that they incur, whereas an experienced/ elder investor might be set in their ways and would not be prepared to incur high losses.
- Consider the investment time period: Determining your financial status and risk tolerance enables you to ascertain the kind of results that you would be looking for. This helps you to decide when you would want to achieve these results. Hence, you will choose the scheme that is best in line with your expectations.
- Choosing the investment scheme: Consider all kinds of investment schemes available in the market, including mutual funds, direct equity, real estate, government investment schemes, etc. in order to select the ones that match your risk tolerance, financial goals and time period.
- Tracking the investment progress: Monitoring the investment is extremely crucial in case of short term investing strategies, as the investor might need to make changes in the investments if they are not performing as expected. Long term investments require comparatively less moderation.
Investment Options in India 2022
Following are some of the best investment plans in India 2022 that investors are opting for to secure higher profits from their investments:
Investments in the stock market are not suitable for everyone, although it may provide the opportunity for the best investment returns in India, it is one of the riskiest investment options out there. The reason why this is one of the most opted for investment options is that as compared to other investment plans, direct equity can provide higher returns than inflation. At the same time, the risk borne by the investor is very high, it could lead to a significant portion of the investment to wipe off. Investors can reduce this risk by diversifying their investments in various sectors and markets.
Equity Mutual Funds
This kind of mutual fund invests the money into equity markets. By mandate, they are required to invest at least 65% of their assets into equity or equity-related instruments. The returns generated by this investment option are majorly dependent on the ability of the fund manager to generate profits. This is a slightly less risky option as compared to direct equity as it has diverse investments and an expert managing the investments. The funds are generally categorized according to the market-capitalisation of the companies they are investing in or on the basis of the sectors in which the companies operate. Considering the returns, in the short term this investment option could be termed as the best investment plan for 1 year.
Debt Mutual Funds
These are mutual funds that invest their money into fixed-interest generating securities including corporate bonds, government securities, commercial paper, and other market instruments. These are suitable for people who are looking for steady returns with a comparatively low risk option. These instruments are less volatile in nature but are not risk-free, they bear credit risk and interest rate risks. Hence, it is recommended that investors thoroughly research the funds before investing.
National Pension System (NPS)
The Pension Fund Regulatory and Development Authority (PFRDA) hosts a long term retirement focused investment plan called the National Pension System (NPS). Recently, the minimum contribution to the National Pension System Tier- 1 investment scheme has been reduced from Rs. 6000 to Rs. 1000. It has a combination of different financial instruments like equity, corporate bonds, liquid funds, and government funds, fixed deposits, etc. The investor can decide how much of their investment can be allocated for equities depending upon their risk tolerance, through the NPS.
Public Provident Fund (PPF)
This kind of investment scheme has a long time period before the investor can encash their investments. Therefore, it is a very illiquid investment. The investments under this scheme are backed by a sovereign guarantee which makes it a safe investment with considerably low risk. Another factor that makes it pretty common among individuals is that it provides taxation benefits. Hence, making it even more appealing to the investors. The interest rate under the PPF is determined by the government and is reviewed every quarter.
Bank Fixed Deposits
Banks provide the individual with a fixed deposit option which provides a low return but is a safe investment as it is insured by the bank. As per the rules laid down by the Deposit Insurance and Credit Guarantee Corporation (DICGC), individuals are insured of their investments capped up to Rs. 5 lakhs from February 2022 including both the interest and principal investment amount. The investors have the option to opt for different time durations of the scheme starting from monthly, quarterly, half-yearly, yearly or long term investment options. The interest rates increase along with the time duration of the investments. The banks also offer both lump sum and recurring deposit investment schemes under fixed deposit plans. In terms of the low risk involved, this is considered one of the best monthly investment plans in the market.
Senior Citizens' Saving Scheme (SCSS)
The Senior Citizens’ Saving Scheme is one of the most opted for schemes among retiring individuals. This scheme only allows senior citizens or early retiring individuals to invest in it. This scheme can be availed by anyone above the age of 60 from a nearby post office or a bank. The scheme offers a five year term, which is extendable upon maturity to another three years. Investors are allowed to open more than one account based on their requirements and the limit on investments is capped at Rs. 15 lakhs per account. This scheme offers tax benefits upto Rupees fifty thousand in a year under section 80 TTB on the interest earned under this scheme.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
This is another scheme that is introduced for senior citizens above the age of 60 years. The scheme offers a return of 7.4 per cent per annum. The applicable pension income to the senior citizens is payable according to the preference of the investor either monthly, quarterly, half-yearly or yearly. The maximum investment amount is capped at Rs. 15 lakhs and the pension amount lies between Rs. 1,000 per month to Rs. 9,250 per month. The time duration of the scheme is 10 years at the end of which, the individual is repaid the investment amount.
The real estate market has always lived up to its expectations and has delivered great results for investors. Real estate can be used as an investment that can payout either lump sum or recurring payments, as it can either be sold when the price goes up or it can be put out on rent and used as a steady income source. The most important factor of determining the value of a real estate property is the location upon which it is situated. However, in contrast to other investment options, real estate is illiquid. As it is a very tedious and time consuming process to find a buyer of the property.
What is the right age to start investing?
There is no particular right age to invest, as it is more of a journey than a destination. Experts recommend starting out early to get exposed to the experience of investing. Experience can help investors to minimize their risk by taking objectively evaluated investment decisions.
What does a lock in period mean?
Investment schemes like the Bank Fixed Deposit, and Public Provident Fund, among others, have a lock-in period. Even the best investment plans for 5 years and up to 20 years have a lock in period. This means that the investor can only withdraw their returns after a stipulated time period. The schemes either do not allow the encashment of the investment altogether or they do not payout the promised return, in case the investor wants to withdraw before completion of the lock-in period depending upon the investment terms and conditions.
Which investment scheme gives the highest return?
Depending upon the nature of the investments, direct equity has the potential to give the highest returns. However, these investments are equally risky and have the potential to wipe out most or all of your invested amount.