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Where to invest money in India – 8 brilliant options

April 28, 2021

“Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.” – Warren Buffett

The quote above tells you why investing your money is important. Now that you know why Investing is important, let’s look at where to invest money in India!

where to invest money in india

8 Places to invest money in india

Let’s start off with something you’re probably familiar with :

1. Fixed Deposits

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Fixed Deposits are the most popular investment in India to date. In this investment, you lock your money for a fixed time period and you get a return on it. These returns are generally low (3-5%) but are extremely safe as they’re regulated by the RBI. Incase of an emergency, you can also “break your FD” making it a medium liquid investment. All the returns you get on an FD are taxed. The post-tax returns are generally very poor (higher than savings bank but lower than pretty much everything else).

And now for something your parents are more familiar with :

2. Postal Savings

Postal Savings consists of Time Deposits, NSC, Senior Citizens’ Savings Scheme, recurring deposit and Monthly Income Scheme. In a postal savings scheme, the Government borrows money from the investors and in return, they are offered interest rates that are often above fixed deposit rates.

These postal savings pay out interest periodically or at the end of a fixed tenure. The returns are fixed and guaranteed. They are also taxable under your tax slab. Risk is minimal  as they have a sovereign guarantee. You can “break” your savings and hence this is medium liquidity. They are regulated by the Ministry of Finance.

3. Public Provident Fund

The Public Provident Fund (PPF) is a Government scheme for people who want to invest their money with low risk. This is a voluntary scheme. The invested money has a 15 year lock-in period. The returns for this scheme are set by the Government every year and are not market linked.

You can see the PPF interest rate history here.

The maximum amount that can be invested in this scheme is 1.5 lakhs every year. The 15 year lock-in is mandatory and can only be broken in case of emergencies. Even during emergencies, only partial withdrawals can be made and that too after only 5 years from the date of account opening. They are also regulated by the Ministry of Finance.

4. Corporate Bonds / Debentures

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Corporate Bonds are a method of raising funds for companies from investors. These companies then periodically pay interest on those bonds. The corporate bonds also give you a higher return than your normal fixed deposit interest rate. You can buy these bonds through your broker.

The returns on a corporate bond are taxable as per your current tax slab rate. Once you buy a bond, you can sell them in the secondary market thereby making it medium liquid. These investments are subject to risks such as credit risk, interest rate risk, and liquidity risk. There is no guarantee of capital, and the payments are guaranteed only by the company (not by the government or any regulator).

5. Insurance

Insurance is not an investment but more of a cover against life risks such as illness, accidents, or death. Use your insurance for this purpose only and don’t confuse it with an investment.

6. Real Estate

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You can invest in land or property or even invest in real estate through real estate private equity / venture capital funds. You can also invest in Real Estate through REITS. These REITS are mandated to payout 90% of their income through dividends. You can invest in REITS through your broker.

The returns of real estate are market driven. There is a high element of risk in real estate. Real Estate is regulated by State Land Laws and REITS are regulated by the SEBI. The investment potential can vary greatly depending on a lot of factors. Here is an article on REITS in India that covers the basics of REITS.

7. Equities

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Equities ( or investing in shares of companies) allows you to own a piece of a company by buying its shares from the exchange. You can also buy shares from the primary market during the IPO of that company. Shares are either used for short term gains or as long term investments. Another famous equity investment is Exchange Traded Funds or ETFs.

An ETF is a basket of stocks that mimics an index at all times. ETFs are traded in real time prices and are a passive route to investing in stocks as opposed to active mutual funds. Equities are market driven and as such have no guarantee on returns. They also do not have a cap on returns.

The returns are taxed at 15% on short term capital gains (if held for less than 1 year) and 10% on long term capital gains (held for more than 1 year). Long term capital gains of upto 1 lakh are exempted. Equities are high risk investments and also have high liquidity. They are regulated by the Securities Exchange Board of India (SEBI).

8. Mutual Funds

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A mutual fund is an investment vehicle that pools money from a multitude of people (investors like you and me). It uses this pool to purchase securities like stocks, bonds, and gold. As the prices of securities change, the mutual fund scheme makes its returns which is in turn the investor’s return.

Professional money managers with decades of experience manage each mutual fund and take the call on which securities to buy and sell. Mutual funds have high liquidity, low cost of transactions and help invest across different asset classes. Mutual Fund returns are market driven and not guaranteed. Mutual Funds have generally delivered better returns compared to other asset classes. Mutual funds are also regulated by the Securities Exchange Board of India.

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