Investment. The heavy word you have been hearing as soon as you got your first job.
Financial security is a very integral part of a working individual and deciding a safe investment platform that promises good returns.
If you are thinking about where to invest money for good returns in India, then this guide can help you with sketching out your beginner’s investment plan.
As more and more people are looking for investments and are willing to try new options, the government and other financial institutes of the country has introduced a number of investment options, giving people the freedom to choose whatever they find suitable.
Top 10 Safe Investment Options in India
1) Mutual Funds
Mutual funds are becoming common and one of the most favoured ways among investors. This is because of the wide range of investment options they offer and the flexibility they provide with their schemes.
What are Mutual Funds?
Mutual funds are funds with multiple investors. This means that investors invest their money with a single company on a single bond or stock. The money is managed by a financial institute that charges you a small fee for the same.
You can invest in mutual funds directly or through an advisor (agent).
If you decide to invest with the help of an advisor then you will have the advantage of saving time because it will give you would not have to invest time in research and management of your investments. But you will have to pay extra charges other than maintenance charges which reduce the overall return.
On the other hand, you can always invest directly which will save you money but you will have to invest time and do some thorough research before deciding the funds.
Types Of Mutual Funds
The one thing that attracts investors to mutual funds is their wide range of options that suits almost every type of investor. The most common and effective mutual funds for investors are:
1) Equity Funds
Equity funds are the leading investment options in mutual funds due to their promise of high returns and security.
With equity funds, the investor invests his or her money in a company’s shares. One of the reasons they are highly recommendable is because of the easy management as the money is managed by professional fund managers.
Types of Equity Funds
There are roughly five types of equity funds that can yield good returns.
ELSS stands for Equity Linked Saving Scheme which gives the advantage of tax exemption up to 1.5 lakhs and also provides a secure investment option. This dual advantage of ELSS funds makes it a very favorable choice for young investors.
2) Large-cap Funds
With large-cap funds, the investors can invest their money in top companies by market capitalization. Since these companies have been in the market for a long period of time, investing in their shares is comparatively safe.
3) Mid-cap Funds
Mid-cap industries are the companies that are not that big but have the potential to grow big in the near future. The returns are usually big while investing in mid-cap funds but also is the risk. So, if you decide to invest in a mid-cap company then do thorough research beforehand.
4) Small-cap Funds and Micro-cap Funds
As the name suggests, these funds let you invest in companies with small capital. These companies have a good scope in the future and therefore a very good investment plan for obtaining high returns. But they have very high risks.
5) Multi-cap Funds
Multi-cap funds let investors invest in more than one cap funds. The investors can also invest in large-cap funds, mid-cap funds and small-cap funds at the same time.
Benefits of Equity Funds
- Equity funds are managed by professionals making them secure and easy to invest in.
- Since they are professionally managed, the investor can save a lot of time.
- The funds are much more affordable when compared to the various other mutual funds.
- They provide flexibility in the investment plan.
- They give stability to the investor’s portfolio.
Best Performing Equity Mutual Funds
|Scheme||3 years||5 years||10 years|
|Kotak India EQ Contra Fund||11.32%||10.31%||10.95%|
|Canara Robeco Equity Tax Saver – Regular Plan||9.85%||9.06%||12.03%|
|JM Tax Gain Fund – Growth||11.46%||11.47%||10.41%|
|Mirae Asset Tax Saver Fund – Regular Plan – Growth||13.30%||–||–|
|SBI Focussed Equity Fund||11.32%||11.91%||17.28%|
2) Debt Funds
Debt funds are the kind of mutual funds that deal in corporate and government bonds. Since they deal in fixed income instruments, they are also called fixed bonds.
Debt funds offer much more stability, reliable returns, low-cost structures and high liquidity, which makes them extremely favourable investment option.
Types Of Debt Funds
- Income Funds
Debt funds that try to provide a stable rate of returns with active portfolio management. Although they try to maintain stable returns, they also have a higher risk of negative returns.
As they are completely dependent on the market, the returns are always a little uncertain. A professional fund manager can help you get good returns by investing in lower-rated instruments and also avoid risky investments.
- Dynamic Bond Funds
These open-ended debt funds maximize the returns by switching durations according to the market fluctuations.
If you don’t have much knowledge about handling mutual funds, then I suggest you go for a professional manager to gain maximum returns and reduce the risk of returns.
- Liquid Funds
As the name suggests, liquid funds aim to provide higher liquidity than any other type of liquid funds. With liquidity, you will have more cash or cash value convertibility.
With the maximum maturity period of 91 days, liquid investments are usually made in the high-rated instruments.
Liquid funds are best for investors with high income.
- Short-term and Ultra-Short Term Funds
If you are interested in short-term investments that come with minimum or no risk, then short-term and ultra-short-term funds are a very good choice for you.
The schemes under short-term funds have a maturity period between 1 to 3 years.
- Gilt Funds
For investors looking for safe investments and higher returns isn’t a top priority, then gilt funds can be a good choice.
Gilt funds are investments made in government-issued policies, so they have a low level of risk.
- FMP (Fixed Maturity Plans)
Much like fixed deposits, FMPs have a fixed duration of for any chosen scheme. The investment is done only once at the beginning of the investment period.
What is different than an FD is that with an FD, you get guaranteed returns, but on the other hand with FMP, the returns are not guaranteed. It all depends on the condition of the market.
Benefits of Debt Funds
- You have the freedom to withdraw your money whenever needed.
- Wide range of options available for almost every type of investor.
- Almost every option is safe and offers great returns.
- A great way to add stability to your investment portfolio.
Top Performing Debt Mutual Funds
|Scheme||3 Year||5 Year||10 Year|
|Edelweiss Banking and PSU Fund||7.92%||8.28%||–|
|LIC MF Banking and PSU Debt||7.68%||7.50%||7.46%|
|IDFC Corporate Bond Fund||7.12%||–||–|
|L&T Triple Ace Bond Fund||6.46%||7.90%||7.36%|
|Kotak Credit Risk Fund||7.03%||8.35%||–|
3) Balanced Funds
Also called hybrid funds, balanced funds are a great way of adding stability and diversifying your portfolio. With this, the investors can divide their investments across various assets (equity and debt) including stocks, bonds and other securities.
They are best for investors who want safety as well as reasonable returns on the invested money.
Types of Balanced Funds
- Equity Oriented Funds
Since balanced mutual funds are hybrid in nature, an equity-oriented balanced fund would be where more than 65% of the invested funds are equity. The other half of the smaller half is saved for debt funds.
- Monthly Investment Plan (MIP)
MIP is the contrary of an equity-oriented balanced mutual fund. Here, 65% or more invested funds are debt and the remaining are invested inequities.
Usually, the equity invested funds are extremely low at only 20-25% which the investor uses to outdo the debt funds and diversify their portfolio.
MIPs are available for a number of schemes depending on the payment schedule. This includes monthly, quarterly, half-yearly and annual schemes.
- Arbitrage Funds
Arbitrage funds are the most strategic investment options that need time and extreme market knowledge. Usually, arbitrage funds are managed by professionals but if you have good knowledge about the market trends, then you should do it yourself.
Here, the fund manager keeps track of all the stocks and bonds and their prices. He or she moves between buying and selling different equity bonds and investing in better derivatives to maximize the profits.
Benefits of Balanced Funds
- The investor’s portfolio is diversified as well as stabilized.
- This diversification protects it from market volatility as it is less exposed to the market than the equity mutual funds.
- Since they are partly equity funds, they are also taxed like equity funds.
- Gives the freedom of choosing the best plan to the investor.
Top Performing Balanced Mutual Funds
|Scheme||3 Year||5 Year||10 Year|
|Canara Robeco Equity Hybrid Fund||8.49%||9.87%||11.97%|
|Mirae Asset Hybrid – Equity – Growth||9.62%||–||–|
|IDFC Arbitrage Fund – Regular Plan – Growth||6.10%||6.45%||7.15%|
|Canara Robeco Conservative Hybrid Fund – Regular Plan||6.18%||7.07%||8.22%|
|LIC MF Debt Hybrid Fund – Growth||5.18%||6.34%||6.17%|
2) Fixed Deposits
Fixed deposits are a very common option for safe deposits in India. Fixed deposits are offered by banks and several other non-banking institutions of the country.
A fixed deposit lets the investor invest a certain lump sum for a fixed period of time. Depending on this time period, the investor gets interested in this money.
Fixed deposits offer better interest rates than savings accounts and lock the money for a fixed period which makes them highly favourable among investors. The money cannot be withdrawn before the maturity period.
Things to Keep in Mind before Investing in Fixed Deposits
1. The minimum and Maximum Deposit Limit
Different banks offer different deposit limits. With most of the government banks, the minimum deposit amount is 1000.
With private banks, the minimum deposit account is higher. For example, ICICI fixed deposits have 10,000 minimum deposit for general investors and for minors, the minimum deposit is 2000 Rs.
On the other hand, there is no maximum limit.
A deposit with more than Rs 1 crore is called a bulk deposit and the banks offer a better rate of interest on these FDs.
2. Interest Payment Frequency
To begin with, the interest is calculated cumulatively on the principal amount. This, with the principal amount, is paid at the end of the deposit period.
Usually, banks pay interest quarterly, but it can also be paid monthly and annually.
One thing to keep in mind is that if a bank says they pay 8% interest on an FD then the interest will vary depending on the frequency of the interest payment.
3. Additional Features
Banks offer various extra or better interests for various investors. While looking for starting an FD with any bank, look into their schemes.
Banks offer extra interest to senior citizens (investors with age 60 and more). Some banks like SBI and ICICI also offer extra 1% interest to their employees and ex-employees.
Some of the banks that offer the highest interest rates for an FD with a deposit period of almost a year:
|Lakshmi Vilas Bank||331 to 340 days||8.25|
|Ratnakar Bank||241 days to 364 days||7.85|
|Axis Bank||9 months to 1 year||7.75|
|IndusInd Bank||270 to 364 days||7.75|
|Yes Bank||9 months to 1 year||7.65|
1) Fixed Deposit Tenure
The average tenure for most of the FDs lies between a week to 10 years. But the Ratnakar Bank and IDBI Bank offer a time span of 20 years on regular payouts option.
Whereas, with some banks like Citibank, Standard Chartered, and Deutsche Bank have a maximum tenure of 5 years.
The interest paid on your lump-sum depends on the tenure of your fixed deposit, so always consider this aspect before opening an FD.
2) Partial Withdrawal Option
Usually, banks do not allow to partially withdraw an FD. This means that the investor cannot take out some of the invested money while letting the rest of it locked up.
Since more and more investors are looking for liquidity, nowadays some banks like ICICI have started the partial withdrawal of FDs. This means that if you have invested 5 lakhs and you want to draw 2 lakhs, you can easily withdraw them and keep the rest 3 lakhs in the FD.
But most of the banks still don’t have this option or have penalties that must be paid if you want to withdraw the money which leads to loss rather than gain. So, to prevent such mishappenings, you can divide the funds.
For example, if you want to invest 5 lakhs in an FD, then open 5 FDs with Rs 1 lakh each rather than locking all the money at one place. So, even if you want to break an FD before maturity, you will have to pay less penalty.
Moreover, always open FDs for a short period of time (1 year to 18 months). This not only offers better returns but financial security without penalties. You can always reinvest the money if you don’t have a good use for it.
3) Loan Over FD
Premature breaking of FD can lead to penalties and taking loans can be a headache with the approval procedures and the high rate of interests.
In such cases, if you need a small loan for a short period of time, you go for a loan over your FD. Most of the banks allow you to take a loan on your FD.
This gives you an advantage of acquiring a loan at a very low rate of interest, which is usually 2% or 3% more than the interest paid on your FD. Moreover, there is no lengthy approval procedure.
Urgent short-term loans are best taken over an FD with a small rate of interest rather than paying 8% to 12% over an amount of 2 to 3 Lakh.
Benefits Of Fixed Deposits
1. Guaranteed Returns
Since fixed deposits are in no way dependent on the market trends, therefore, they guarantee a fixed return mentioned by the bank beforehand.
Until and unless the investor takes a loan on the FD or withdraw it before maturity, they will get the complete interest with the principal amount after the completion of the fixed period.
2. Financial Security
Fixed deposits offer great financial security if left untouched. This means that not only the investor gets a fixed amount after the completion of the tenure but also it acts as emergency money.
Moreover, if within the tenure, the bank changes their policies, there wouldn’t be any effect on the fixed deposit as the investor will get the interest as decided before the start of the tenure.
3. Available for Various Tenures
Depending on the nature and financial behaviour of different investors, fixed deposits offer the flexibility of choosing the tenures as per investors comfortability.
For instance, if an investor believes in short-term investments, then he or she can choose a one year tenure for their FD, but for investors who want long-term investments, then FDs with 5 to 6 years are also available.
Some banks, like Ratnakar bank and IDBI bank, go as far as offering a tenure of 20 years on fixed deposits with regular payout options.
4. Loans Against Fixed Deposit
As already mentioned in this article once, the investor can avail a loan against their fixed deposit.
If an investor needs an urgent short-term loan, then getting it against an FD can be a very intelligent decision.
First, the interest rate is only 2% to 3% higher than the interest offered by the bank on your FD. Secondly, you won’t have to go through a long loan approval procedure.
5. Avail Credit Cards
Sometimes, due to a bad credit score, it becomes hard to get a credit card. In such cases, you can avail a credit card on your FD.
With this, you will not only get a credit card but with regular payments and intelligent use, you can also improve your credit score.
5 Best Fixed Deposit Schemes in India
Currently, India has 27 operational public sector banks and various other private financial institutions that offer fixed deposit schemes. The top 5 banks that offer the best rate of interests and flexibility are mentioned below.
|Yes Bank||7 days to 10 years||5% to 7.25%|
|IDBI Bank||7 days to 10 years||6.25% to 7%|
|Bank Of India||7 days to 10 years||5% to 6.35%|
|Canara bank||7 days to 10 years||5% to 6.25%|
|ICICI bank||7 days to 10 years||4% to 7%|
3) Recurring Deposits
Currently, Recurring deposits are one of the most common investment options in India. Recurring deposit, offered by banks, let the investor add a fixed amount monthly. The bank in return pays interest on this money.
This money is added for a fixed period, and at the end of the term, the investor gets the collected money with the interest offered by the bank.
Things to Keep in Mind Before Investing in RD
1. Minimum Amount
The minimum amount that can be invested every month is a very important factor to consider while opening an RD with any bank. It is important that you consider how much are you willing to invest every month.
Most of the banks have a minimum deposit of ₹500 but banks like HDFC has a minimum deposit of ₹1000.
Make sure you have gone through their minimum deposit requirements before opening an RD.
Recurring deposits are opened for a fixed period of time for which the investor has to deposit money at equal intervals of time.
Depending on your requirements and how much investment you are planning to make, you need to look for a bank that offers good returns with a favourable tenure.
3. Interest Offered
Usually, private banks offer a better rate of interests rather than government banks. Lakshmi Vilas Bank currently offers the highest rate of interest at 7.75% for a tenure of one year, whereas, Citi Bank offers the lowest at 5.25%.
Even though private banks offer better interest rates, they also have rigid policies. So look into their policies before deciding to open an RD.
Here are the interest offered by different banks for a tenure of 1 year.
|Bank||Interest (General Public)|
|Lakshmi Vilas Bank||7.75%|
|South Indian Bank||7.40%|
1. Taxability of Interest
Just like fixed deposits, the interest on recurring deposits is also taxable. TDS is deducted from the recurring deposit after the account has earned ₹40,000 (for the general public) and ₹50,000 (for senior citizens).
The investor can also fill up a 15G or 15H form to get a rebate on the TDS if they have an income below the no tax limit.
2. Withdrawal Before Maturity
Although it is not impossible to withdraw an RD before maturity, it is not recommended. This is because the withdrawal of RD will cost you more than the actual investment.
First and foremost, the bank will charge 50% of the amount invested in the RD. Secondly, the RD can only be withdrawn if the operational period is for a year or more. And lastly, the bank also has the right to deduct an amount of the interest offered on the RD.
5 Best Recurring Deposit Schemes in India
|Bank||Minimum Deposit||Interest (General)||Interest (Senior Citizens)|
|HDFC Bank||₹1000||5.65% – 7.10% p.a.||6.15% – 7.60% p.a.|
|ICICI Bank||₹500||5.75% – 7.10% p.a.||6.25% – 7.60% p.a.|
|Bank Of India||₹100 (rural), ₹500 (urban)||6.75% – 7.00% p.a.||7.25% – 7.50% p.a.|
|Deutsche Bank||₹5000||6.25% – 7.75% p.a.||6.25% – 7.75% p.a.|
|South Indian Bank||₹100||6.50% -7.45% p.a.||7% – 7.95% p.a.|
4) PPF – Public Provident Fund
Public provident fund or PPF scheme is a government-oriented saving scheme for all the working individuals. It is an extremely safe investment option that guarantees returns at the end of the maturity period.
The government pays quarterly interest on this tax-free scheme. The current interest offered by the government for the period of July to September was 7.9%.
With PPF, the investor gets the freedom to invest at any interval deemed favourable by the investor. The minimum investment that must be made each year is ₹500 while the maximum is at ₹1.5 lakhs.
The investor can deposit the money as a lump sum or make at most 12 instalments.
Key Features of PPF
1. Investment Limit
PPF offers extreme flexibility to the investor in terms of investment limit. The minimum necessary investment that must be made each year is ₹500 while the maximum investment is ₹1.5 lakh.
It is mandatory that the investor makes at least a single payment of ₹500 or more every year. They can also make more than one installment (maximum 12 in a year).
2. Investment Period
PPF is a 15-year investment scheme offered by the government of India. The interest is paid by the government and the rate of interest is decided by the government at every term.
The investor can extend the period for one to 5 years or you can open a new account completely after the maturity of your PPF.
The government pays quarterly interest on PPF. The interest rate is decided by the government for every term.
Currently, the interest rate is 8%. The investor earns this interest until the maturity of the Fund and even after you choose to extend your PPF.
4. Tax Benefits on PPF
The tax benefits on PPF makes it one of the most beneficial investment option in India. PPF comes with tax exemption which makes the interest earned completely yours.
5. PPF Withdrawal
Although PPF allows partial withdrawals, there are certain regulations to it.
First, if the withdrawal is made before 15 years, then the investor cannot withdraw more than 50% of the invested money.
In the second scenario, if the withdrawal is made after the completion of 15 years, in the extended period, then the investor is allowed to withdraw up to 60% of the amount at the beginning of the extended period.
6. PPF Transfer
A PPF can be opened with a national bank or the post office. Due to any reasons, the investor wants to transfer there PPF from a bank to the post office or from the post office to the bank, then there are no restrictions to perform this task.
7. Loan on PPF
One great advantage of the PPF is that the investor can avail a loan on their PPF from the third to the sixth financial year.
The loan can be taken on 25% of the funds.
If the investor takes the fund on behalf of a minor, then they must provide valid proof that the fund will be used in the benefit of the minor.
Any working individual can avail the benefits of a PPF by simply opening a PPF account with a national bank or post office. Parents are allowed to open a PPF account for their children below the age of 18.
One condition that is a must to open a PPF account is that the investor must be a resident of India. NRIs do not get the benefit of PPF.
But, in case an NRI was a resident of India at the time of opening a PPF account, then he or she will get the interest until the maturity of the PPF.
5) NPS – National Pension System
NPS or National Pension System is another government-oriented scheme that provides financial security after retirement.
Earlier, the scheme was limited to only government employees but today, the NPS Scheme is open for every employee from the public, private and workers in the unorganized sector.
Those working in the armed forces are not applicable for the pension scheme.
Investors looking for a pension after retirement can opt for the NPS scheme. Even if you are not interested in the pension system and just want the benefit of a good investment, you can opt for the national pension system scheme.
Key Features of NPS
1. Guaranteed Return
The government pays an interest of 8% to 10%. The final interest is decided by the government before every term.
Some of the interest goes to the equities, the investor still gets better returns than the PPF.
2. Zero Risk
Since the interest is paid by the government, the investor gets guaranteed returns making NPS a risk-free investment.
3. Tax Benefits
With an NPS account, there is a deduction of up to ₹1.5 lakhs. There are two main tax deduction rules revolving around NPS.
- 80CCD – This covers the self-contribution (as per part of Section 80C). In this, the maximum tax deduction the account holder can claim is only 10% of their salary, and for the self-employed, it is 20%.
- 80CCD(2) – This is available only for salaried taxpayers and not self-employed taxpayers. Here, the total tax deduction consists of the actual NPS contribution, 10% of the basic income + DA and the gross total income.
The account beholder can also avail an additional tax deduction on any extra self-contribution of up to 50,000 made to the account.
NPS, although a pension scheme, allows withdrawals from the account after the investor has been consistently investing for at least three years. There are some restrictions on the tier I account.
- You have to at least wait until the completion of 3 years.
- The investor can only withdraw up to 25% of the account assets (For children’s wedding, building or buying a house, medical treatment).
- The maximum withdrawals you can make on the account are 3.
There is no restriction on the Tier II account.
5. Fund Manager
Since a part of NPS investment goes into equities, the investor is allowed to change their fund’s manager and even the pension scheme, if he or she is not happy with their performance.
Types of NPS Accounts
Currently, the government offers two types of NPS accounts; tier I and tier II. The tier I account is the default account, whereas, the investor has to specifically mention their service provider for a tier II account.
|Segment||Tier I||Tier II|
|Tax Exemption||Up to 2 lakh||Up to 1.5 lakh|
|Maximum Contribution||No limit||No limit|
6) SCSS – Senior Citizens’ Saving Scheme
Usually, most of the saving schemes talk about starting young to plan a financially secure retirement period. But the government also provides investment schemes for senior citizens (60 years and above) with the ‘Senior Citizen’s Saving Scheme’.
Any individual can avail this scheme as soon as they turn 60. The scheme has a maturity period of 5 years but it can be extended for 3 years.
At 8.6%, the SCSS provides the highest interest rate of all the saving schemes in India. SCSS can be availed at all the public and private sectors banks and all the Indian Post Offices.
Key Features of SCSS
1. Deposit Limit
The deposits are made in a lump sum in the multiples of ₹1000. The minimum deposit rate is ₹1000 while the maximum stops at ₹15 lakh.
Below ₹1 lakh, the deposits can be made using cash. But if the deposit amount exceeds ₹1 lakh, then it is necessary that the investor use a cheque or demand draft for making the deposit.
2. Maturity Period
The regular maturity period for the Senior Citizen’s saving scheme is 5 years from the date of opening. Other than this, the account can be extended for 3 years after maturity.
However, the scheme can only be extended once. So, the total tenure for the Senior Citizen’s Saving Scheme is 8 years.
3. Tax Benefits
According to Section 80C, SCSS qualifies for income tax deduction benefit.
Although it is applicable for a tax deduction, the interest is taxable. If the interest earned is more than ₹50,000, then TDS will be deducted.
Premature withdrawal of the Senior Citizen Saving Scheme is allowed, but the investor will have to bear a few penalties. The penalties on the premature withdrawal of the scheme are:
- If the scheme is withdrawn before the completion of two years, then 1.5% of the deposited amount is deducted as penalty.
- If the scheme is withdrawn after the completion of two years, then 1% of the deposited amount is deducted as a penalty.
4. Closure of SCSS
SCSS account is closed in case of the death of the primary account holder. In this case, the deposit with the maturity proceeds is transferred to the legal heir or the nominee (in case the investor has mentioned one).
For a deceased case, the heir or the nominee has to present the death certificate along with a written application.
Eligibility for SCSS
To invest in the Senior Citizen’s Saving Scheme, these are the conditions the investors need to fulfil.
- The scheme is only available for residents of India.
- The investor must be 60 years of age (with or without investment) or 55 years or more (in case of retired individuals).
- Retired Defense Personnel, irrespective of age, are eligible for the SCSS.
- The Senior Citizen’s Saving Scheme is not available for NRIs and PIOs.
7) RBI Taxable Bonds
RBI taxable bonds are a great investment option for investors who are interested in mutual funds but do not want to go through the risks of investing in them.
Unlike many other investment plans, especially mutual funds, RBI bonds provide an interest of 7.75%. This rate of interest is comparable with small investment schemes like National Saving Certificate (NSC) and short-term RDs.
Although RBI taxable bonds offer dual advantage of safe investment platform and mutual funds, they still have some drawbacks.
- The investor doesn’t get any tax benefits, no matter how small the investment is.
- Unlike FDs and some other investment schemes, RBI bonds cannot be used as collaterals for raising loans or credit cards.
- RBI bonds don’t give you the freedom to be transferred. The bonds are only issued in demat mode.
The minimum tenure for RBI bonds is seven years, but senior citizens can close them early under certain conditions.
Features of RBI Taxable Bonds
1. Minimum and Maximum Investment Limit
The RBI taxable bonds are issued at ₹100 per bond. The minimum investment is Rs 1000 with no maximum limit. The investment must be made in multiples of 1000.
2. Investment Method
These bonds give you payment freedom as the investor can buy these bonds with cash, using demand drafts, cheques or any other electronic payment method.
3. Option Of Transferability
One of the drawbacks of the RBI taxable bonds is that the investor doesn’t get the option to transfer their funds from bank to bank or even the fund manager.
4. Maturity Period
These bonds mature after 7 years but for senior citizens, premature encashment is also available under certain conditions. Even with this, the investor will have to wait for a minimum lock-in period.
The minimum lock-in periods for various age groups-
- 60 to 70 years – 6 years from the date of issue.
- 70 to 80 years – 5 years from the date of issue.
- Above 80 years – 4 years from the date of issue.
To avail this option the investor has to submit some documents with birth date proof.
5. Interest Rate
Both the cumulative and non-cumulative form investments are eligible for 7.75% per annum rate of interest.
Tax is deducted while making the payment of the non-cumulative bonds, whereas, in case of cumulative bonds, the tax on the cumulative bonds will be deducted once while the payment of the principal plus interest at the time of maturity.
RBI taxable bonds allow the investor to nominate a person(s), who will get the benefits of the investment scheme in case of the death of the sole or joint holder(s) of the bonds.
To nominate a person, the investor has to fill a ‘Form B’ and provide all the details of the nominated person.
8) ULIP – Unit Linked Insurance Plans
ULIP or ‘Unit Linked Insurance Plans’ is a combined plan to provide a source of investment as well as insurance to the investor. The investment money is divided between insurance and investment.
A minimal invested amount goes to the insurance while the rest of it earns interest until the plan matures.
The premium is paid either monthly or annually depending on the chosen plan. The investment periods range from 5 years to 15 years.
Key Features of ULIP
1. Investment Period
In the beginning, the lock-in period for ULIP was 3 years, but in 2010 it was modified and now, the lock-in period has been moved to 5 years.
Although the minimum lock-in period is 5 years, the investor doesn’t get any real benefits for such a short period since some of the investment goes into insurance.
Therefore, it is suggested that if you are looking for good returns, have a minimum period of at least 8 to 10 years. To get the best benefits, you can hold it for 15 years.
2. Get Insured
ULIP offers not only a good investment option but also life insurance at a minimum premium.
ULIP also different securities that assure the lives of the family members of the investor.
3. Income Tax Benefits
Under section 80C, the interest paid on ULIP is applicable for the tax deduction on the maturity of the scheme. This is a very good benefit, especially when investors think that the returns are not that big.
4. Long Term Goals
Unlike FDs and RDs, the lock-in period for ULIP is long and the returns are less for short-term goals.
So, who and when should one consider a ULIP?
ULIP is a scheme created for long-term goals. Planning to renovate a house or maybe buying one? Then ULIP is a very good investment plan.
Types of ULIPs
There are a number of ULIP schemes broadly categorized into three categories-
- Equity Funds
Here, the premium paid by the investor is invested in equities which carry a higher risk the other kinds of funds. Therefore, equity funds carry a higher risk.
- Debt Funds
When the premium paid is invested in the debt instruments, the ULIP is under the debt funds scheme. Debt funds carry a lower risk than equity funds.
- Balanced Funds
Balanced funds are divided between equity and debt funds. They increase the return on debt funds by decreasing the risk of the equity market.
- Retirement Plans
People looking for investment plans that offer good returns should look for ULIP scheme since ULIPs are best for long-term investment plans.
- Child Education
If you are planning to start saving for your child education, then ULIP can provide a secure source and good returns.
- Financial Security
Since ULIP is a long-term investment, it provides a very good end-of-use funds investments which ensure financial security.
Death Benefit to Policy Holders
- Type I ULIP
Type I ULIP pays high assured sum value in case of the death of the policyholder.
- Type II ULIP
It pays the assured sum value with the fund value to the nominee in case of the death of the policyholder.
9) Sovereign Gold Bonds
Gold has been the oldest method of investment in India. But holding real gold in possession is a less secure method of investment. Sovereign gold bonds solve this problem.
The investor gets the freedom to hold gold bonds without having to physically buy it. Moreover, since they are government bonds issued by the Reserved Bank of India, the investor gets complete security.
The bonds are bought in grams by an authorised SEBI broker. The payments have to be made in cash to the said broker.
Features of Sovereign Gold Bonds
The gold bonds are brought in the denominations of grams. The minimum gold that can be bought through the sovereign bonds is 1 gram while the maximum stops at 4 kg per investor.
Trusts, Universities and other institutions have a maximum limit of 20 kgs.
The maturity period for a bond is eight years. But with sovereign bonds, the investor gets to make an early exit after 5 years on the interest payout dates.
3. Price and Payment
To buy sovereign bonds, the investor can pay online, in cash, a demand draft or through a cheque.
To pay with cash, the maximum pay limit is ₹20,000. And there is a service charge deduction of Rs 50 during an online transaction.
4. Interest Rate
Since they are bonds, the interest rate keeps changing. The current rate of interest for gold bonds is 2.50% annually.
It is paid twice a year at a nominal value.
5. Issuance of Bonds
The sovereign gold bonds can only be issued by the government of India. The investor can buy these bonds either online (from the official website) or through an authorized SEBI broker.
Make sure that you have confirmed the identity of the broker before making any payments. Do not forget to take your holding certificate.
6. KYC Documentation
The KYC documents required for buying sovereign gold bonds is the same as the documents required for buying physical gold. Hence, you must keep a copy of one of the following documents.
- Driver’s license
- PAN Card
- Voter ID
7. Tax Benefits
If you invest in the Sovereign Gold Bonds, there would not be any TDS deducted on your investments.
Moreover, the investor can also claim indexation benefits if you decide to transfer the bonds.
Eligibility for SGB
To buy and invest in Sovereign Gold Bonds, the investor must be an Indian individual, trust, HUF, a charitable institution or Univerisity.
Investment on the behalf of a minor can also be made.
10) Real Estate
Another safe investment method that has been one of the oldest ways of investment in India is Real Estate.
Real estate offers short-term as well as long-term returns and the rising prices has been a constant for a very long time. This makes it a very good investment scheme and also helps in diversifying your portfolio and getting a source of for loans.
Even though real estate seems like an easy and highly beneficial investment option to many, it still has its drawbacks. So, consider every aspect before choosing real estate as an investment option.
Types of Real Estate Investing
Many investors that already investing in real estate still doesn’t know the extent of the kinds of real estate investments they can make. Here is a brief that will expose you to the different types of real estate investing.
1. Residential Real Estate
Residential real estate is the most common real estate investment option. It consists of single-family houses, multi-family houses, townhouses and condominiums.
The investor can choose to rent, selling or leasing the property. If you are not interested in long term investment you can go for renting or leasing, whereas selling a residential property is best if you need urgent money.
2. Commercial Real Estate
Commercial real estate is a property that is used for commercial purposes. Nowadays, more and more people are looking to rent a property than buy one which makes commercial buildings a very favourable source of income or investment for people looking for short and long term investment plans.
Commercial real estate includes office space, land, shops, storage spaces, restaurants and even apartment buildings.
3. Industrial Real Estate
If you are looking for big investments, then the industrial real estate can provide you with a very good source of income.
These properties include shipping and storage warehouses, factories and power plants.
Although under-developed lands do provide a source of investments, the profits are not very great. Moreover, the options are very limited.
Lands for agriculture can be given for rent or it can be sold for development purposes.
Benefits of Investing in Real Estate
1. Steady Income
Investing in real estate not only provides you with financial benefits but also a steady and reliable source of income, especially in the case of residential and commercial real estate investment.
The monthly rents that you would recover from your tenants will not only cover the expenses of the rented property but will also help you earn an income.
2. Long-Term Financial Security
Living space is the requirement of every individual and not every person is open to take a hefty loan to buy a house. This is why having a property to rent can give you long-term financial security as you can easily rely on your property to provide rent with minimum maintenance.
Moreover, since you are renting your property to someone else, the chance of physical damages is extremely low. Even if there are any major damages, you are not required to pay for them as it becomes the duty of the tenant.
3. The Growing Price
Real estate in India is continuously gaining prices and so if you buy a property today, there is a high chance that within 10 years you will be able to sell it at double its price.
Moreover, buying a property in an underdeveloped area will not only be cheap, but its prices are going to grow more than an already developed area, thus increasing the profit.
4. Reliable Source for Urgent Money
If you have a house, an office, a shop, a factory or land you can sell it to get some instant money.
Planning to buy a house, starting a business or your child’s higher education? Then a real estate can be your saving grace.
5. No Full-Time Work
Unlike many other investment methods, real estate doesn’t require much work or paying premiums. It is more like a one-time investment with real estate that needs occasional repairs and renovations.
Real estate provides amazing liquidity as an investment plan and suits almost everyone who has a good amount to invest.
Things to Keep in Mind While Investing in Real Estate
1. Capital Growth
Capital growth, which roughly means the development of the area your property is located in, is a very important factor if you are looking at real estate as a long term investment.
As an investment, you need to make sure that you are getting more than you invested, and for that, you should consider its capital growth before buying one.
2. Rental Profits
No investor wants to keep the property dead until it attains a value that will make a profit. For the years that it remains passive, real estate investors use it to gain a side income through it by renting it.
So, while you are buying a property, do consider its rental profits. How much rent would you be able to gain from the said property?
Location is another important aspect to consider while investing in property. If you are a long-term investor who wants the cheap property and waits for it to double its price, then you can consider any location that is under development.
Whereas, if you investing in it for short-term and want to start earning profits right away, then always consider the location of the property.
For instance, if you are buying a multi-family residential property, then consider the facilities one would want near their place (market, grocery store, school etc.)
Anyone wanting to rent a property will first and foremost look for its appealing quality. What is the condition of the property? What are its features?
Some of the things to consider to estimate the appeal of the property are parking lots or space, the number of bathrooms and are they attached to the bedroom, and a lift.
How much are you actually investing?
When you invest in a property, you not only pay the price of the property but also the fee of the broker and the workers you pay to renovate the place. You would or would not have to put in the effort to make it appealing for the tenants.
So, while you are buying a property, make a list of all the expenses that you will be putting in and deciding if it is worth the price.
How to Choose an Investment Plan for Yourself?
Choosing an investment plan can be a difficult task, especially if you are someone who doesn’t like the technical stuff. So, here are a few things you should consider before you start any investment scheme.
1. Decide Your Goals
Before you choose an investment plan, you need to first consider your goals and what you are looking for while you are investing. Are you planning an investment for your retirement or are you investing for some future plans?
Deciding your investment goals will not only help you decide a good investment plan for yourself but also gives you the freedom of diversifying your portfolio while increasing your assets.
So, before you go on looking for different types of investment plans available in India, you should start analyzing your future goals.
2. How Much are You Willing to Invest
There are a number of investment plans that provide good returns, but they also have costly premiums and uncertain interest rates (equity mutual funds).
If you do not have an income that can afford costly premiums or if you are not willing to take a risk on your money, then you should probably consider the investment plan.
Moreover, it is important that you decide what part of your annual income do you want to invest.
3. The Tenure of Your Investment
Planning your investment first requires you to decide the time you want to invest a certain sum for.
Most of the investment schemes require to lock-in the money for a fixed period. Therefore, when you decide your goals, it will help you decide the term of your investment.
Once you are certain of the time period of your investment, you can move on to choose the best investment scheme for your plan.
There are a number of schemes that offer different interest rates for different tenures, especially FDs and RDs.
Planning your investment is a great way to diversify your financial portfolio. But this is only possible if you choose the investment schemes correctly.
While you are expanding your investments, you should make sure that it is also benefiting your portfolio.
As a salaried or self-learning individual, your investment portfolio can offer you various tax benefits. You can also apply for loans and credit cards on certain investments.
5. What Do You Want to Avoid
Every investor has his or her limitations depending on personal choices and preferences. This makes a huge difference in every individual’s investment plan.
So, when you are choosing the best investment plan for yourself, always look into the terms of the plan and its key features. If there is something that you do not want, it is always best to move on to the next one as it will reflect on your portfolio.
Where we have already discussed the tenure of the investment, it is also important to discuss how much time are you willing to put into your investment plan.
For example, if you decide to invest in direct mutual funds, you will have to dedicate your time as well as money to understand the working of the market and also understand the market trends.
Although it will give you good returns as there would not be any middle man involved, you will still have to compensate it with your time.
7. Being Hands-On
Investments can be a tricky subject if you decide to have a hands-on experience with it. Mostly, employed individuals decide to hire an agent or a broker to look into their investment plans and handle all the tricky work.
But if you are a self-employed worker who wants to be deeply involved in their investment plan then you need to look for plans that can give you good returns with a thorough understanding of the subject.
Start Investing Today in the Best Investment Options in India
Investment is something everybody has heard of but only a few truly practice. A major part of our country still doesn’t take the full advantage of the investment schemes offered by our banks and the government.
Making intelligent use of your passive money can yield amazing results in the future. And with this article, I have tried to share with you everything that can help you start your investment plan. Hope this will help you understand where to invest money in India.