Top Investment Options

7/31/2019 Top Investment Options

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Top Investment Options

While some plans accrue short term profits some are long term deposits. The first step towards

investing in Indian market is to evaluate individual requirements for cash, competence to undertake

involved risks and the amount of returns that the investor is expecting. Below are Top 10 InvestmentOptions in India which assure safe and satisfactory returns.

1. Investments in Bank Fixed Deposits (FD)Fixed Deposit or FD is accrues 9.25% of annual returns for non-senior citizen, depending on

the bank's tenure and guidelines, which makes it's widely sought after and safe investment

alternative. The minimum tenure of FD is 15 days and maximum tenure is 5 years and

above. Senior citizens are entitled for exclusive rate of interest on Fixed Deposits, current

rate of return is average 10% annual.

2. Investments in Insurance policies

Insurance features among the best investment alternative as it offers services to indemnify

your life, assets and money besides providing satisfactory and risk free profits. Indian

Insurance Market offers various investment options with reasonably priced premium. Some

of the popular Insurance policies in India are Home Insurance policies, Life Insurance

policies, Health Insurance policies and Car Insurance policies.

Some top Insurance firm in India under whom you can buy insurance scheme are LIC, SBI

Life, ICICI Prudential, Bajaj Allianz, Birla Sunlife, HDFC Standard Life, Reliance Life, Max

NewYork Life, Metlife, Tata AIG, Kotak Mahindra Life, ING Life Insurance, etc.

3. Investments in National Saving Certificate (NSC)

National Saving Certificate (NSC) is subsidized and supported by government of India as is a

secure investment technique with a lock in tenure of 6 years. There is no utmost limit in this

investment option while the highest amount is estimated as ` 100. The investor is entitled for

the calculated interest of 8% which is forfeited two times in a year. National Saving

Certificate falls under Section 80C of IT Act and the profit accrued by the investor stands

valid for tax deduction up to ` 1, 00,000.

4. Investments in Public Provident Fund (PPF)

Like NSC, Public Provident Fund (PPF) is also supported by the Indian government. An

investment of minimum ` 500 and maximum INR. 100,000 is required to be deposited in a

fiscal year. The prospective investor can create it PPF account in a GPO or head post office

or in any sub-divisions of the nationalized bank.

PPF also falls under Section 80C of IT Act so investors could gain income tax deduction of


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up to ` 1, 00,000. The rate of interest of PPF is evaluated yearly with a lock in tenure of

maximum 15 years. The basic rate of interest in PPF is 8%.

5. Investments in Stock MarketIndian Stock market is very fluctuating. A smart portfolio positioned for long-term growth

includes strong stocks from different industries. Before investing in stock market one should

be prepared to assume risk equivalent to sum invested in the market. Investing in share

market yields higher profits. Influenced by unanticipated turn of market events, stock market

to some extent cannot be considered as the safest investment options. However, to accrue

higher gains, an investor must update himself on the recent stock market news and events.

6. Investments in Mutual Funds

Mutual Fund firms accumulate cash from willing investors and invest it in share market. Like

stock market, mutual fund investment are also entitled for various market risks but with a fair

share of profits. One should select mutual fund schemes based on all or some of the

following criteria:

Long term and Short Term Performance

Consistency in Returns

Performance during bullish and bearish phases

Fund Managers performance with the fund's operations

A simple way to select a mutual fund scheme to invest in is to select a 5 star or 4 star rated

fund from one of the following rating agencies:

ICRA Ratings

Value Research Online

Moneycontrol

7. Investments in Gold Deposit Scheme

Controlled by SBI, Gold Deposit Scheme was instigated in the year 1999. Investments in this

scheme are open for trusts, firms and HUFs with no specific upper limit. The investor can

deposit invest minimum of 200 gm in exchange for gold bonds holding a tariff free rate of

interest of 3% - 4% on the basis of the period of the bond varying with a lock in period of 3 to

7 years.

Moreover, Gold bonds are not entitled of capital gains tax and wealth tariff. The sum insured

can be accrued back in cash or gold, as per the investor's preference.

8. Investments in Real Estate

Indian real estate industry has huge prospects in sectors like commercial, housing,


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hospitality, retail, manufacturing, healthcare etc. Calculated realty demand for IT/ITES

industry in 2010 is estimated at 150mn sq.ft. around the chief Indian cities. Termed as the

"money making industry", realty sector of India promises annual profits of 30% to 100%

through real estate investments.

9. Investments in Equity

Private equity is a type of asset consisting of equity securities in private companies that are

not publicly traded on stock exchange.

A private equity investment will generally be made by a private equity firm, a venture capital

firm or an angel investor.

Private Equity is expanding at a fast pace. India acquired US $13.5 billion in 2008 under

equity shares and featured among the top 7 nations in the world. In 2010, the total equity

investment is predicted to increase upto USD 20 billion. Indian equities promise satisfactory

returns and have more than 365 equity investments firms functioning under it.

As ranked by the PEI 300, the 10 largest private equity firms in the world are:

1.TPG Capital

2.Goldman Sachs Principal Investment Area

3.The Carlyle Group

4.Kohlberg Kravis Roberts

5.The Blackstone Group

6.Apollo Global Management

7.Bain Capital

8.CVC Capital Partners

9.First Reserve Corporation10.Hellman & Friedman

10. Investments in Non Resident Ordinary (NRO) funds

Investing in domestic (NRO) is one of the best investment alternatives for NRIs who wish to

deposit their income accrued abroad and maintain it in Indian rupees. The deposited amount

along with the interest is completely repatriable. Investment can be done in Indian financial

institutions including the Non Banking Finance Companies which are listed with RBI. The

interest returns accrued on in this account is entitled under IT Act and is subject to 30% tax

reduction at source including the appropriate surcharge and education cess. The NRIinvestor can repatriate upto USD 1 mill ion every year, for genuine reasons, by forfeiting valid

tariffs.


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1. Savings Bank Account

Use only for short-term (less than 30 days) surpluses

The first banking product used by people, it offers low interest (4%-5% p.a.), making them only

marginally better than safe deposit lockers.

2.Money Market Funds (also known as liquid funds)

It offers better returns than savings account without compromising on the terms of liquidity

These liquid funds are a specialized form of mutual funds invested in extremely short-term fixed

income instruments. Unlike mostmutual funds, they are primarily oriented towards protecting the

capital and then later maximising the returns.

Money market funds usually yield better returns than savings accounts, but lower than bank

fixed deposits. With the flexibility to issue cheques from a money market fund account now

available, this option can be explored before putting ones money in a savings account.

3. Bank Fixed Deposit (Bank FDs)

For investors, who are ready to take low risk, Bank FDs are best for 6-12 months investment

period

Also known as term deposits, Bank FDs would be offered by all banks. Minimum investmentperiod for them is 30 days.

The ideal investment time for bank FDs is 6 to 12 months as normally interest on bank less than

6 months bank FDs is likely to be lower than money market fund returns.

It is very essential to plan ones investment time frame while investing in this instrument because

early withdrawals typically carry a penalty.

4.Post Office Savings Schemes (POSS)

Low risk and no TDS

POSS are popular because they typically yield a higher return than bank FDs. The monthly

income plan could suit a retired individual or the ones having regular income needs.
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Besides the low (Government) risk, the other salient feature of POSS is that there is no tax

deducted at source (TDS).

The Post Office offers various schemes that include National Savings Certificates (NSC),

National Savings Scheme(NSS), Kisan Vikas Patra,Monthly Income SchemeandRecurring and Fixed

Deposit Scheme.

5.Public Provident Fund (PPF)

Best fixed-income investment for high tax payers

PPFis a very attractive fixed income investment option for small investors primarily because of -

1. An 11% post-tax return effective pre-tax rate of 15.7% assuming a 30% tax rate

2. A tax-rebate deduction of 20% of the amount invested from your tax liability for the year,

subject to a maximum Rs60,000 for a tax rebate

3. Low risk risk attached is Government risk

So, whats the catch? Lack of liquidity is a big negative. You can withdraw your investment

made in Year 1 only in Year 7 (although there are some loan options that begin earlier).

If you are willing to live with poor liquidity, you should invest as much as you can in this

scheme before looking for other fixed income investment options.

6. Company Fixed Deposits (FDs)

At Fundsupermart.com, we believe that informed financial planning is a key step towards meetinglifes goals, and endeavourto provide information that will encourage investors to take a more activeinterest in their financial well being. In this article, we do a quick round up of the investment optionsavailable to retail investors in India.

ASSET OPTIONS

Broadly speaking, investment options can be seen as being of two types:
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Fixed Income Market Linked

Fixed income products are saving oriented products whose primary aim is capital conservation.Some fixed income products also offer regular income.Market linked products are growth oriented products, whose primary aim is capital appreciation.

Almost all market linked products carry a risk of volatility in returns as well as capital depletion; onthe other hand, the returns on market linked products are generally much higher than those on fixedincome products.

FIXED INCOME INVESTMENTS

Fixed Income Investments Include The Following:

Bank Fixed Deposits: Deposits in banks earn a fixed rate of interest depending on the timeperiod for which the money is parked with the bank. The recent hike in rates by RBI hasmade bank deposit rates more attractive. Deposits of up to Rs. 1 lakh are guaranteed by thegovernment; larger deposits are at risk of loss of capital.

Post Office Term Deposits: These are deposit schemes offered by the Department of Post.The deposits as well as interest earned are risk-free as they are backed by the government.

Post Office Monthly Income Schemes (MIS): Another scheme by the Post Office, thisinvolves depositing a lump sum and receiving monthly interest as income. The deposit andinterest are risk-free as the scheme is backed by the government. The amount deposited isexempt from Wealth Tax.

National Savings Certificates (NSC): These certificates are available in denominations ofRs. 100, Rs. 500, Rs. 1000, Rs. 5000 and Rs. 10,000, and have a maturity of 6 years. This isa risk- free instrument.

Kisan Vikas Patra (KVP): This scheme offered by the Post Office offers to double theinvestors money in 8 years, 7 months. The amount can be reinvested on maturity. Again,this scheme is backed by the government and is risk-free.

Public Provident Fund (PPF): Provident Funds are primarily two Employees ProvidentFund, where a part of the salary (12% of basic) is deposited in the provident fund account,and Public Provident Fund, where you can directly open a PPF account and deposit savingsinto it. It is a risk-free option with tax benefits.

Infrastructure Bonds: In this years budget, Finance Minister had announced that over theRs.1 lakh that is exempt under Section 80C, a further Rs.20,000 will be exempt if invested inlong term infrastructure bonds. Only bonds issued by Industrial Finance Corporation of India(IFCI), Life Insurance Corporation of India (LIC), Infrastructure Development FinanceCompany (IDFC) and non banking finance companies classified as infrastructure financecompanies by the RBI are eligible. These bonds are not backed by the government and carryrisk of loss.

National Pension Scheme (NPS): A pension scheme available to all citizens of India, NPSbrings the advantage of having 6 professional fund managers manage your retirement

savings. SBI, UTI, Reliance Capital, Kotak Mahindra, IDFC and ICICI Prudential have beenauthorized to manage contributions to earn the best possible returns. Within each scheme,you have the option to select the desired asset allocation Equity (E), Corporate Bonds (C)and Government Bonds (G). The investments are market linked and hence are subject therelevant market risks.

Company Fixed Deposits: The company fixed deposits can offer higher returns than bankdeposits, but carry the risk of complete loss of capital. Due diligence is required before youchoose to invest in a companys fixed deposit. ICRA, CARE and FITCH issue credit ratingsto all companies that issue deposits ideal credit rating is AAA or AA.


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Liquid Funds: Liquid funds are a category of mutual funds, but are used more as analternative to the savings account to park funds for a short period of time from a day up toa few months. The rate of return is usually greater than bank savings accounts, but itdepends on the overnight interest rates and liquidity prevailing in the money market.

Investors also tend to use Endowment Insurance Policies as retirement and annuity benefit options.

We believe, though, that insurance plans fulfill a different objective and should be treated separatelyfrom your investment portfolio. In Table 1*, we evaluate the fixed income products on the variousparameters to bring out their comparative benefits:

Table 1: Comparison of Fixed Income Investment Options

Average Return InvestmentDuration

PrematureWithdrawal

Taxation Minimum Investment

Bank FixedDeposits

6%-8% 15 Days-10Years

Allowed InterestTaxable;DepositsExempt

Under 80COnly IfTenure OfDeposit >5 Yrs

Varies For EachBank; For PublicSector Banks, CanBe As Low As Rs.

100

PO Term Deposits 7.5% 1-5 Years For Bet6months-1year: NoInterest Paid>1 Year-BeforeMaturity: 2%Penalty

InterestTaxable;DepositsExemptUnder 80C

Rs. 200

PO MIS 8% + 5%Bonus OnMaturity

6 Years >1year-3year: 2%Penalty;>3year: 1%Penalty

InterestTaxable;No 80CRelief OnDeposit

Rs. 1500

NSC 8% 6 Years After 3Years

InterestTaxable;DepositsAndInterestReinvested Exempt

Under 80C

Rs. 100

KVP 8.40% 8 Years, 7months Allowed InterestTaxable;No 80CRelief OnDeposit

Rs. 100

PPF 8% 15 Years AllowedFrom 7th

InterestTax Free;

Rs. 500


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Year; LoanPossibleAfter 3Years

DepositsExemptUnder 80C

InfrastructureBonds

Yield On AnySuch Infra

Bond CannotBe HigherThan Yield OfGovernmentSecurities OfCorresponding ResidualMaturity.

Min 10 Yrs AllowedFrom 6th

Year

Deposit UpTo Rs.

20,000Exempt(AdditionalTo Rs. 1LakhUnder80C)

Varies With EachBond

NPS Variable; 10 -12% As At 30July

From 18 YearsUp To Retirement(Latest One CanOpen An NPS Is

55 Yrs)

Tier IAccount: NotAllowedTier II

Account:Allowed

DepositsExemptUnder80C;

Taxable AtWithdrawal

Min Rs. 6000 PerAnnum (Tier IAccount)

Company FDs 6%-12.5% Varies. IdealTenure Is6month-3years

Not Allowed InterestTaxable;No 80CRelief OnDeposit

Rs. 10,000

Liquid Funds Around 4% To6%Annualized

Alternative ToSavings Account

EasyLiquidityWith T+1DayRedemption

s And NoExit Loads

GrowthSchemeGains AreAdded ToYour

IncomeAnd TaxedAccordingTo YourSlabDividendSchemes

DividendDistribution Tax Of28.325%

Rs. 5000;Depends OnMutual FundHouse

MARKET LINKED INVESTMENTS

Market linked options include:

Equities: A company issues units of its equity capital (shares) to the public as a means ofraising finance. Earnings in equities come from increase in the shares value based on how


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well the company performs. For this very reason, equities are potentially, the highestearning, and the riskiest of all investment options. Few universal guidelines for investing inequities:

o Equities are a sophisticated investors instrument, requiring deep understanding andconstant study of corporate, macroeconomic and global forces that may affect ashares value. Stock tips from friends and family are not adequate replacements for

this due diligence.o Understand your risk appetite well; investing in equities usually requires moderately

high to aggressive risk taking appetite.o Look at this option for medium to long term at least 3-5 years to ensure that you do

not lose out due to short term volatility in a shares price.o Never invest your entire investible portfolio into equity. Study and plan how much of

your portfolio will be in equities and stick to the plan.

Read aboutlessonsandguidelinesfrom Warren Buffet on investing in equities.Read up on thebasics of equities in our school series here.

Mutual Funds: Historically, retail investors have been disadvantaged where investing inmarket linked options is concerned:

o They do not have easy access to the instrumentso They do not have the kind of funds that easily allow bearing of risk that market linked

investments entailo They do not have the knowledge or access to data that allows them to make

informed decisions about buying or selling these investments

To help retail investors overcome these obstacles and participate in the market, mutual funds wereintroduced. As the name indicates, mutual funds pool investments by investors and hire professionalfund managers to invest these funds in the market. Mutual funds are more like a super class ofinvestments, catering to all types of investor needs:

o Exposure to various asset classes debt, equity, commoditieso Tenures short term, medium term, long termo Different investment objectives wealth creation, tax savings, goal-oriented savings,

retirement planningo Investors risk taking appetites and return requirements there are schemes ranging

from low risk ratings generating fixed income, to aggressive risk ratings withpotentially exponential returns.

Read about the available choices of mutual funds in this article.

ALTERNATIVE ASSETS

Gold: In the last five years, gold has almost doubled, making it one of the most rewarding

investments. Gold is perceived to be an alternative store of value; this is why we see investorsflocking to invest in gold in times of high inflation (as we have been seeing in the last year). Goldalso becomes attractive whenever the dollar, the worlds fiat currency, weakens. Inflation and dollarvalue are thus, key indicators of the value of gold globally.

Investment in Gold is possible in physical format (bars, coins or jewelry), or in demat form throughExchange Traded Funds (ETFs). ETFs purchase physical gold on behalf of their investors makingthis a hassle free and safer option than buying physical gold. Read about the latest on the outlookfor gold in thesearticles.
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Market linked options would also include commodities apart from Gold, such as Silver, otherindustrial metals and currencies, but these are used more for trading than investment and aretherefore not suitable for the average investor. Similarly, Private Equity is another option, whichthough market linked, is meant more for sophisticated investors who can take an educated decisionto invest substantially in the equity of a certain company.

CONCLUSION

As catalogued here, the Indian investor has a gamut of investment options to choose from. The fixedincome options listed make for good entry points into organized and low risk investing, whereas themarket linked options are more suitable for young investors with a certain risk taking appetite.Mutual funds deserve special mention though as the most suitable investment option for retailinvestors a professionally managed option allowing higher returns needing minimum involvement.Explore Fundsupermart.com to identify the scheme that suits your needs! Happy Investing!

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