11 Best Investment Options In India 2021 (Review & Comparison)
Last updated – 04 February 2021
Every person a different risk appetite and investment goal. So, one investment option wouldn’t full all the purpose for everyone. If you have different purpose, then you should invest in different investment options to fulfil that goal.
In this article, I have listed 11 best investment options available in India based on different term and investment objectives. Before reading the list of best investment plans, check a factors you should consider while choosing the investment option.
Things You Should Know While Investing in Best Investment Options
#1. Financial Goals
Before any investment decision, it is prudent that you know your investment goals i.e the purpose of the investment. The investment goals can be saving for retirement, buying a car or a house.
Knowing a tangible financial goal will help you to decide the investment options and the time period required for achieving the financial goals.
Three-year investment plans are short-term plans which work best for life goals like tax savings, purchasing a dream car or bike, expenses to cover foreign vacation, wedding or for retiring an existing debt.
#2. Start Early
The magic of compounding and reinvestment helps your corpus grow bigger with a smaller amount of initial contributions.
If you start investing regularly, then you have a chance to build a larger corpus in comparison to when you start a year later. Early investment helps you reinvest returns for an additional period.
#3. Time Horizon
Money cannot be doubled overnight. This can happen only in dreams. As a thumb rule, you can divide 72 with the rate of return to get the investment period required to double the amount.
For example, if the rate of return is 8%, then 72 / 8 = 9.
It will take approximately 9 years for your investment to double. So, once you know the rate of return, you can always calculate the time period required to double the amount.
Once the investment objective is finalized you have clarity on the time horizon to achieve the goal. The time horizon gives a better idea about where you should invest your money.
Generally, the longer time horizon gives you a chance to take more risks in order to grow money.
#4. Know Your Risk-Taking Capacity
All investments have some amount of risks. A three-year investment plan may not be highly risky but still, there is a chance that you might lose some money.
If you are a risk-taker or aggressive investor, then you are comfortable with market fluctuations and believe in the high-risk, high-return concept.
On the other extreme, if you are risk-averse or conservative, then your primary goal will be capital protection irrespective of earning returns.
Moderately risky investors are those who seek capital protection plus simultaneously earning decent returns.
Best Investment Options in India for Salaried
#1. Equity Investment
Direct investment shares for a longer-term horizon have the capacity to generate multi-fold returns.
Yet when the stock markets are booming, you can use equity investment even for a three year investment period. Below is the snapshot of the Sensex returns in the last 3 year period.
The Sensex has grown from 26,711.15 points to 34,056.83 points in the year 2017 itself giving a return of (34,056 – 26,711) / 26,711 x 100 = 27.49% returns.
Again from 34,056 points in the year 2017, the Sensex ended 2019 at 41,253 points. If you have invested at the beginning of 2017 when Sensex was at 26,711, the returns for three year period would have been:
(41,253 – 26,711) / 26,711 x 100 = 54.44% (or a return of approx 18% per year)
Careful investment in the shares of growing companies can fetch even higher returns over a period of time. But at the same time you have a higher amount of risk of your equity investment turning into losses.
Expected Returns – 15% and above
Risk Factor – High
What I like
- Higher returns
What I Don’t Like
- No tax savings
- Requires thorough research
Best Short Term Investment Option in India
#2. Liquid Mutual Funds
A liquid mutual fund is a low-risk investment plan with a major portion of the money invested in debt and money market securities. For example, Govt. Securities, Call Money, Treasury Bills, Commercial Papers, and Certificate of Deposits having maturity up to 91 days.
The investment plan gives a decent return with the flexibility to withdraw money ats any time. Thus, liquid mutual funds are useful for investing surplus funds or for systematic transfer plan (STP).
Expected Returns – 6.5% to 7%
Risk Factor – Low
What I like
- Returns more than saving bank account
- Stable returns
What I Don’t Like
- Exit load charge up to 6 days investment
#3. Savings Account with Sweep-in Facility
The savings account with the sweep-in facility is offered by the commercial bank, specifically, the private sector banks.
The facility automatically converts any excess money over a certain threshold level into fixed deposits. In case of shortfall in the savings account at the time of withdrawal, the fixed deposit is liquidated by the amount of shortfall.
This way investors stand to benefit from earning higher returns from FD while managing their savings account.
The sweep-in facility investment option earns a higher return than a savings bank interest. However, there is a penalty of up to 1% on premature liquidation of fixed deposits.
Expected Returns – 6% to 7%
Risk Factor – Low
What I like
- Up to 7% returns, more than the 3.5 savings account returns
- Auto creation and liquidation of fixed deposits
What I Don’t Like
- Charges for liquidating fixed deposits
#4. Ultra Short Duration Mutual Fund
Ultra short-term mutual funds invest in debt and money market instruments such that the remaining maturity of the portfolio is up to 6 months.
The investment plan is almost similar to liquid mutual funds except that it gives investors a chance to earn an additional interest of 3 more months. Hence, the returns generated from an ultra-short duration mutual fund is slightly better than the liquid mutual fund.
Expected Returns – 6% to 8%
Risk Factor – Moderately Low
What I like
- Higher returns of up to 8%
- Help to park short-term funds
What I Don’t Like
- No tax benefits
#5. Short Duration Mutual Fund
The short term mutual funds invest in debt and money market instruments such that the remaining maturity of the portfolio is between one to three years.
The returns generated from a short duration mutual fund is higher than the ultra-short duration mutual fund. As it gives a chance to earn capital appreciation along with regular interest for two more years.
Expected Returns – 7% to 9%
Risk Factor – Moderately Low
What I like
- Stable returns of up to 9%
- Investment can be done using SIP
What I Don’t Like
- Low capital appreciation
- NO tax benefits
Best Secure Investment Options In India 2021
#6. Bank Fixed Deposits
Unlike other investment plans, a bank fixed deposit allows investors to lien mark the deposits (investment amount) to avail of a loan in case of need.
For example, below is the FD offering from ICICI Bank:
Apart from that, bank fixed deposits are safe and give guaranteed returns (interest). However, the money gets locked-in for the tenure of investment and any premature liquidation attracts up to a 1% penalty.
Expected Returns – 6.5% to 8%
Risk Factor – Low
What I like
- Safest investment option
- Easily accessible at banks and post offices
What I Don’t Like
- 1% premature liquidation penalty
#7. Corporate Fixed Deposit
Top finance companies, housing finance, NBFC, and leading corporate houses accept deposits, which are termed as corporate fixed deposits.
For example, Bajaj Finance, Shriram Transport Finance, and HDFC regularly offer corporate deposits to the general public.
Corporate fixed deposits carry default risk. Hence it is prudent to invest in highly rated (AAA) corporate fixed deposits.
The investors stand to benefit from a higher interest rate when compared to bank fixed deposits.
Expected Returns – 7.5% to 9%
Risk Factor – Moderately High
What I like
- Higher returns than bank fixed deposits
- Fixed interest income
What I Don’t Like
- Returns for corporate fixed deposits are taxable
- Carries credit and default risk
#8. Recurring Deposits
Recurring deposits helps earn fixed returns with no risk involved. The investment option offers higher flexibility in comparison to fixed deposits and is suitable when you do not have a lump-sum amount to invest.
For example, below is the screenshot of the recurring deposit offered by HDFC Bank.
A salaried person can invest a regular fixed amount in recurring deposits every month and the best part is that one can start with a minimum amount of Rs. 10 at the post office.
Recurring deposits offer interest rates almost similar to bank fixed deposits. Recurring deposits can be used as collateral to obtain loans. However, any premature withdrawal attracts up to 1% penalty.
Expected Returns – 6.5% to 8%
Risk Factor – Low
What I like
- Low investment amount
- Regular investment period suitable for salaried person
- Safe investment option
What I Don’t Like
- RD rate is almost similar to fixed deposits
- The premature penalty of 1%
#9. Fixed Maturity Plans (FMP) – Debt
Fixed maturity plans are a close-ended mutual fund that invests in debt instruments such that the lock-in period of FMP and the maturity of the debt instruments is the same. For example, a 3-year FMP will invest in debt instruments maturing in three years.
The FMPs carry a moderately lower risk and invest primarily in T-bills, Government Securities, and Certificates of Deposits. The only concern is that FMPs do not allow exit before the maturity period.
Expected Returns – 7% to 9%
Risk Factor – Moderately Low
What I like
- Safer investment option
What I Don’t Like
- Lock-in period
Best Investment Plan With High Returns in India
#10. Large Cap Mutual Fund
Large-cap companies are the top 100 companies in terms of market capitalization which have years of business experience and are stable in operations. They are less volatile and the stock appreciation is restricted.
Large-cap mutual funds invest 80% of their corpus in equity in large-cap companies. Hence the investment in large-cap mutual funds carries moderately high risk. The returns are consistent and majorly in the form of dividends.
An example of a Large Cap mutual fund is “Axis Bluechip Fund”.
Expected Returns – 14% to 16%
Risk Factor – Moderately High
What I like
- Consistent stable returns
- Less volatile than among equity mutual funds
What I Don’t Like
- Returns are taxable
Best Tax Saving Investment in India 2021
#11. Equity Linked Saving Scheme (ELSS)
ELSS is also known as “Tax Saver Funds”. For tax savings investing ELSS is the best because the option has the lowest lock-in period i.e. 3 years.
An example of ELSS is the “DSP Tax Saver Fund”.
You are allowed to deduct any investment made in ELSS (up to Rs. 1.5 Lakhs) from your taxable income under section 80C of the Income Tax Act, 1961.
ELSS funds give investors an opportunity to invest indirectly in equity, that too using a smaller amount of Rs. 500 through the SIP method.
In addition to tax benefits, you get higher returns than PPF or FD. However, the gains up to Rs. 1 Lakhs are exempted from tax and any gains over Rs. 1 Lakh are taxed at 10%.
Expected Returns – 10% to 12%
Risk Factor – Moderately High
What I like
- Under section 80C the investment amount up to Rs. 1.5 Lakhs qualifies for a tax deduction
- Higher returns when compared to traditional tax saving options
- ELSS has the lowest lock-in period compared to NPS, PPF, and FD
What I Don’t Like
- Returns over Rs. 1 Lakh is taxable
- Lock-in period of three years
Conclusion
These are some of the best investment plans for in India.
Before making any investment, you should note that the returns indicated are expected returns which may vary depending on the market fluctuations, macroeconomic, political, and other factors.
Therefore, before you invest, have a clear financial goal, a defined investment period, and check your risk-taking ability.