A few days ago, we talked about just how much you should ideally be saving from each paycheck. Many of you must be wondering what exactly to do with that money now that you’ve saved it and the answer is, invest it. 

Why should you be investing at all? Well, because you could make more money by investing it rather than letting it sit in a bank account. Investing is key to securing financial security and achieving long term goals. Working hard isn’t the only way to do this; if you invest properly, your money will be working harder for you.

Investment, however, can be tricky for those who are new to it. There are so many options available and that can get a little confusing, which is why we’ve created this guide. 

We’ll be walking you through a broad and high-level overview of some of the best investment options available for you in India, taking the time in the future to delve into greater detail about some of them. We’ll try and keep it as light but as informative as possible. 

Before we get into it, though, there are a few terms we want to go over that you will be hearing multiple times.

The first one is risk. The most basic definition of risk is the chance of something unexpected happening. For example, if a movie is supposed to start at 9 PM, risk would be the chance of the movie starting later or earlier than that time.

The second one is return. Simply put, it is the profit you make from investing something. For example, if you invest INR 1000 and at the end of the term of investment if you’re left with INR 1200, your profit is INR 200 or 20%. 

The last one is risk appetite. It means the amount of risk you’re prepared to accept based on what you can potentially gain versus what you can potentially lose if you take that risk. 

The reason why we mention this first is to drive home the fact there is no return without risk and returns are generally proportionate to the risk you’re willing to accept. Each avenue for investment has different risks and returns associated with it (high risk, medium risk and low risk) and what’s right for you really depends on your risk appetite.

That being said, let’s get into the 9 best investment options available to Indians.

1. Public Provident Fund

The Public Provident Fund (PPF) is an investment plan that is regulated by the government. Investing in it is extremely low-risk (the principal amount and interest are secured by the government and is tax-free) as well as long term.  

The interest rate is revised every quarter by the government, with the current interest standing at 7.10%. Though the maturity period of a PPF account is 15 years, you can make partial withdrawals from your PPF account after 6 years. You can invest up to Rs. 1.5 lakhs per year in a PPF account and this amount is income-tax deductible. 

2. Mutual Fund Investment

To someone who is new to investing, mutual funds can seem scary since they are linked to the market, which means higher risk, but the high returns are harder to ignore than the risk. 

Mutual funds invest money in numerous financial instruments like stocks, debt and equity and the returns are determined by the performance of the fund. There are three categories of mutual funds that you can invest in. They are

  • Hybrid Mutual Funds: They invest in more than a single type of investment security (simply put, financial assets that can be traded), hence the name hybrid. The asset allocation (strategy to invest how much and what) can change or stay the same according to the goals of who’s investing. Relatively low risk and long term, this is ideal for beginners.
  • Debt Mutual Funds: These investments are made under fixed interest securities. They invest money in government securities, treasury bills, corporate bonds etc and are a good fit for those with a low-risk appetite since the return on the investment is fairly stable.
  • Equity Mutual Funds: Without going into further branches of equity mutual funds, they invest 65% in equity and the rest in the shares of companies with different market capitalizations (market values), which is why the returns are higher and, therefore, the risk is higher too. This is a better fit for those with higher risk appetites. 

3. National Pension Scheme

The National Pension Scheme (NPS) is regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA).  It lets investors invest money in many market-linked instruments like equity and debt and the returns from the performance of these is what the final pension amount depends on. 

The scheme is open to everyone between the ages of 18 and 60, though the maximum age can be extended until 70. It offers higher returns than other schemes, gives tax benefits up to Rs. 50,000 and investors can withdraw up to 25% from the NPS after three years of opening their account.  

4, Unit Linked Insurance Plan

Unit Linked Insurance Plans (ULIP) is offered by insurance companies and gives investors both insurance and investment options in one plan. Investors have to pay a premium, which can be paid either monthly or annually. Part of it goes towards insurance cover while the rest is put towards a mutual fund of your choice (hybrid, debt or equity). Beneficiaries of the plan will either get the insurance cover or the market fund, whichever is more valuable.

With tenures up to 15 years and a possibility of high returns if investing in equity mutual funds, this plan offers flexibility in terms of what you can take away from it. If you don’t have much time to invest yourself, this might be a great option for you since there are fund managers for ULIP who keep an eye on the portfolio carefully. 

5. Fixed Deposit

Easily one of the most familiar and popular investment options due to the guarantee of fixed returns over a fixed period of time (hence the name), fixed deposits (FD) can be made with most banks. The tenure can vary from 7 days to 10 years, while fixed deposits with tax-saving benefits can be availed for tenures from 5 to 10 years.

At the time of investment, you can choose to make cumulative deposits (where the interest generated gets re-invested into the principal amount) or non-cumulative deposits (where the interest is paid out to you as per the underwriting of the FD). With flexible tenures, lows risk and guaranteed returns, FDs are a sure shot investment.  

6. Real Estate

A fast-growing sector, real estate holds a lot of influence over hospitality, housing, retail and more. The risk in investing is low while the chances of property prices increasing are high. Since it can be difficult to liquidate this investment quickly, as property takes time to sell, it’s best served as a long term investment. 

If looking for higher returns, it’s possible to invest in Real Estate Mutual Funds, or even retail or commercial real estate, which also helps in diversifying your investment portfolio. 

7. Direct Equity

Direct Equity is not something that everyone can or is ready to invest in since returns are entirely market-linked, as such, the possibility of losing a certain amount of capital is incredibly high. Despite the risk associated with direct equity, it offers some of the highest returns, which is why it is a popular investment option.

Do note that you will need a demat account to invest in direct equity and that it is crucial that you research carefully about the stocks you want to invest in, as well as give careful consideration to when you enter and exit the market. These are long term investments with tenures of 1, 3 and 5 years with returns of 13 per cent, 8 per cent and 12.5 per cent respectively. This is an option best suited for those with high risk appetites. 

8. Gold ETF

The love Indians have for gold is notorious so if you would like to invest in gold but want higher returns, you should strongly consider Gold Exchange Traded Funds. Gold ETFs are based on gold prices and are a combination of investments and stocks (stocks that are traded on the National Stock Exchange).

Since they are market-linked, the risk is a little higher, along with the returns so it’s best to research thoroughly before investing here. The risk, overall, is still low, though, and you save yourself space, money and charges that otherwise accompany buying actual gold.   

9. RBI Taxable Bonds

RBI taxable bonds are government regulated, so the principal amount is entirely secure. The interest rate is relatively low at 7.75 per cent, hence the risk is on the lower side as well. The bonds are only issued in demat mode, which means you must have a demat account, and they are credited to your Bond Ledger Account (an account with the RBI), along with a Certificate of Holdings.  

The tenure is 7 years, with no cap on how much can be invested. Like FDs, you can choose to make cumulative deposits so the interest generated gets re-invested into the principal amount and is paid out on maturity or non-cumulative deposits, where the interest is paid out to you bi-annually.

Though the above plans are in no particular order, there are definitely some that will appeal to you more than others. Trying to invest in plans that align with your financial goals without involving more risk than you’re comfortable with. Always seek out plans with additional tax benefits and rebates if you can, which simultaneously show enough promise for growth in the future considering the tenure that you’ll be obligated for.