by Investment preferences can vary based on individual goals, risk tolerance, and investment horizons. Keep in mind that the investment landscape can change due to economic, political, and global health factors, so it’s always a good idea to do current research or consult with a financial advisor. Here are ten investment options that were popular in India for those seeking higher returns:
Equity Mutual Funds:
These funds invest in stocks and aim to provide high returns over the long term. They are suitable for investors with a higher risk appetite.
Equity mutual funds are investment vehicles that pool money from multiple investors to purchase a diversified portfolio of stocks. Managed by professional fund managers, these funds aim to generate higher returns by investing in a wide range of public company shares across various sectors and market capitalizations. The primary goal of equity mutual funds is capital appreciation over the medium to long term, making them an attractive option for investors with a higher risk tolerance and a longer investment horizon.
Investors in equity mutual funds benefit from diversification, which reduces the risk of loss from any single stock underperforming. The fund manager’s expertise in selecting stocks, timing the market, and portfolio rebalancing adds value, potentially leading to better returns compared to individual stock investments. Equity mutual funds offer various schemes tailored to different investment strategies, such as growth funds, value funds, sectoral funds, and index funds, each with its own risk-return profile.
The performance of equity mutual funds is subject to market volatility, and the value of investments can fluctuate based on stock market movements. However, over the long term, equity markets have historically provided superior returns compared to other investment options, albeit with higher variability. Investors can choose to invest in these funds via a lump sum or through a Systematic Investment Plan (SIP), which allows for investing a fixed amount regularly, thus averaging out the cost of investment over time through the principle of rupee cost averaging.
Tax implications for equity mutual fund investments in India include short-term capital gains tax (if sold before one year) and long-term capital gains tax, with certain exemptions and thresholds as per the prevailing tax laws. Equity mutual funds offer liquidity, as units can be redeemed based on the current Net Asset Value (NAV), subject to exit load and market conditions.
Direct Equity or Stocks:
Investing in individual company shares can offer high returns but requires thorough research and understanding of the market.
Direct equity or stock investments involve purchasing shares of public companies through stock exchanges, making the investor a partial owner of those companies. This form of investment is favored by individuals seeking to capitalize on the growth and performance of specific companies, aiming for potentially high returns. Unlike mutual funds where investments are pooled and managed by a fund manager, direct equity investments give investors full control over their choice of stocks, the timing of their purchases and sales, and the strategy they wish to employ, be it long-term holding, short-term trading, or a mix of both.
Investing in stocks requires a comprehensive understanding of the market, the ability to analyze financial statements, and a keen insight into industry trends and economic indicators. Success in direct equity investment is heavily reliant on an investor’s research, judgment, and timing, making it suitable for those who are willing to dedicate time and effort to manage their portfolios actively.
Direct equity investments are characterized by their potential for high returns, especially if investors successfully identify and invest in undervalued or high-growth companies. However, this comes with a higher level of risk compared to some other investment types, as stock prices are volatile and can be influenced by myriad factors including corporate performance, market sentiment, economic changes, and political events.
The liquidity of direct equity investments is another advantage, as stocks can be quickly bought or sold during market hours. However, investors must be mindful of transaction costs, capital gains tax, and the possibility of loss. For tax purposes, profits from stock sales are classified as capital gains and are taxed differently depending on the holding period, with long-term gains typically attracting more favorable tax treatment.
Fixed Deposits in Small Finance Banks:
Fixed Deposits (FDs) in Small Finance Banks (SFBs) are investment products that offer a safe and predictable way to save money, with typically higher interest rates than those offered by larger, traditional banks. Small Finance Banks are financial institutions that provide financial services to underserved and unbanked segments of the population, including small business units, small and marginal farmers, micro and small industries, and other entities in the unorganized sector. These banks are licensed by the Reserve Bank of India (RBI) with the primary objective of expanding access to financial services in rural and semi-urban areas.
An FD in a Small Finance Bank is a deposit made for a specific period, which can range from a few days to several years, at a fixed interest rate that does not change throughout the term of the deposit. Upon maturity, the investor receives the principal amount along with the accumulated interest. The interest rate offered on these FDs is usually higher than those offered by larger banks, making them an attractive option for investors looking for safer investment avenues with better returns.
Investors choose FDs in SFBs for their stability and predictability of returns, as well as the higher interest rates. These deposits are covered by deposit insurance, up to a limit specified by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which adds an additional layer of security for investors.
However, it’s important for investors to conduct due diligence on the financial health of the Small Finance Bank before investing, as these institutions may face different risks compared to larger banks. The interest earned on FDs is subject to taxation as per the investor’s income tax slab, and there is a penalty for premature withdrawal, which varies from bank to bank. Fixed Deposits in Small Finance Banks offer a balance of higher returns and safety, making them suitable for conservative investors seeking to diversify their portfolio.
National Pension System (NPS):
National Pension System (NPS) is a government-sponsored pension scheme in India designed to provide long-term financial security to its subscribers through systematic savings during their employment years. Open to employees from both the public and private sectors, as well as to self-employed individuals, the NPS allows participants to contribute regularly to a pension account during their working life, which can be withdrawn upon reaching retirement age. A portion of the corpus is mandatorily used to purchase an annuity, ensuring a steady income during the retirement years.
NPS is structured around two types of accounts: Tier I, which is a non-withdrawable account meant for savings for retirement, and Tier II, which is a voluntary savings account from which participants can withdraw their savings freely. The scheme offers a choice of investment options and fund managers, allowing subscribers to tailor their investment strategy based on their risk appetite, with the options ranging from government securities and corporate bonds to equities.
NPS stands out for its low-cost structure, tax benefits under various sections of the Income Tax Act, and flexibility in terms of contribution amounts and frequency. Managed by the Pension Fund Regulatory and Development Authority (PFRDA), it provides a transparent and efficient mechanism for retirement savings, making it an attractive option for individuals looking to secure their financial future post-retirement.
Real Estate:
Real estate refers to property comprising land and the buildings on it, along with its natural resources such as crops, minerals, or water. It encompasses both residential properties, such as houses and apartments, and commercial properties, including office buildings, retail spaces, and industrial facilities. Investing in real estate involves the purchase, ownership, management, rental, or sale of real estate for profit. Real estate investment can be a lucrative venture, offering potential for capital appreciation as property values increase over time, in addition to generating steady income through leasing or renting out properties. However, it requires significant capital upfront and can be associated with various risks, including market fluctuations, property maintenance issues, and regulatory challenges. Real estate markets are influenced by numerous factors, including economic conditions, interest rates, demographic trends, and government policies. The sector is known for its potential to offer inflation protection, as rental incomes and property values tend to rise with inflation. Moreover, real estate provides diversification benefits to an investment portfolio, given its low correlation with other asset classes like stocks and bonds.
Gold:
In 2024, gold investment remains a strategic asset allocation for investors seeking to diversify their portfolio, hedge against inflation, and reduce overall investment risk. Gold can be invested in through various forms, including physical gold (such as coins, bars, and jewelry), gold exchange-traded funds (ETFs), digital gold, and gold mutual funds. Investing in gold is favored for its historical preservation of value over time, acting as a store of wealth and a safe haven during periods of economic uncertainty, geopolitical tensions, or high inflation.
Gold’s intrinsic value is recognized globally, and its price is influenced by factors such as currency values, interest rates, and supply and demand dynamics. While it may not offer direct yield like dividends or interest, gold’s potential for capital appreciation makes it an attractive option for long-term investors. Additionally, the liquidity of gold investments allows investors to easily convert their holdings into cash.
Digital gold and gold ETFs have gained popularity for their convenience, lower transaction costs, and the elimination of issues related to storage and security that come with physical gold. However, like any investment, gold also carries risks, including price volatility and the possibility of not generating as high returns as other asset classes over the long term. Investors should consider their investment objectives, risk tolerance, and portfolio composition when incorporating gold into their investment strategy in 2024.
Unit Linked Insurance Plans (ULIPs):
Unit Linked Insurance Plans (ULIPs) continue to serve as a hybrid financial product that combines insurance coverage with investment opportunities. These plans allow policyholders to invest a portion of their premiums in various market-linked instruments such as stocks, bonds, or mutual funds, while also providing a life insurance cover. ULIPs offer the dual benefit of financial protection against unforeseen circumstances and the potential for wealth creation through investments in the capital markets.
The unique feature of ULIPs lies in their flexibility; policyholders can choose the allocation of their investment among the available fund options based on their risk appetite, financial goals, and market conditions. They also provide the option to switch between funds to optimize returns. ULIPs come with a lock-in period, typically five years, encouraging long-term investment perspective among investors.
In addition to the investment and insurance benefits, ULIPs offer tax advantages under various sections of the Income Tax Act of India, making them an attractive option for tax planning. However, it’s crucial for investors to understand the fee structure, including premium allocation charges, fund management fees, and mortality charges, which can impact the net returns from the investment.
Given their long-term nature, ULIPs are suited for investors looking to achieve long-term financial goals, such as retirement planning, children’s education, or wealth accumulation, while ensuring life cover protection in 2024.
Public Provident Fund (PPF):
In 2024, the Public Provident Fund (PPF) continues to be one of India’s most popular long-term savings-cum-investment vehicles, primarily due to its attractive combination of safety, returns, and tax benefits. It is a government-backed scheme, making it a virtually risk-free investment. PPF allows individuals to invest a minimum amount annually, with the government setting the maximum limit, subject to periodic reviews and adjustments.
The interest rate on PPF accounts is reviewed and announced by the government every quarter, keeping it in alignment with market dynamics while ensuring it remains a competitive and appealing option for savers. The interest earned and the principal invested in PPF are both covered under the EEE (Exempt-Exempt-Exempt) tax status, meaning the deposits, the returns (interest earned), and the maturity proceeds are all exempt from income tax, making it a highly tax-efficient investment.
PPF account has a maturity period of 15 years, which can be extended in blocks of five years thereafter, providing flexibility to investors seeking long-term growth of their savings. The scheme allows for partial withdrawals and loans against the account balance after certain conditions are met, adding a layer of liquidity to this otherwise long-term investment. Given its government backing, tax advantages, and decent returns, PPF remains a cornerstone of retirement planning and savings strategies in 2024.
Corporate Bonds and Debentures:
Corporate bonds and Debentures represent a key investment avenue for individuals and institutions looking to diversify their investment portfolios beyond equities and government securities. These financial instruments are essentially long-term debt securities issued by corporations to raise capital from investors. When investors buy corporate bonds or debentures, they are effectively lending money to the issuing company in exchange for periodic interest payments, typically at a fixed rate, and the principal amount is repaid at maturity.
Corporate bonds and debentures offer higher interest rates compared to government securities, reflecting the higher risk associated with lending to corporations. The risk levels, however, vary significantly across issuers, depending on the company’s creditworthiness, which is often indicated by credit ratings assigned by rating agencies. High-rated (investment-grade) bonds offer lower yields but are considered safer, whereas lower-rated (high-yield or junk) bonds pay higher yields but come with increased risk of default.
Investing in corporate bonds and debentures in 2024 provides investors with the opportunity to achieve potentially higher returns compared to traditional fixed-income investments, along with the benefits of regular income and capital preservation. However, investors need to carefully assess the issuer’s financial health, the bond’s credit rating, maturity period, and interest rate environment to make informed decisions.
Peer–to–Peer (P2P) Lending:
Peer-to-Peer (P2P) lending has emerged as a prominent alternative investment platform that connects individual borrowers directly with individual lenders (investors) through an online marketplace, bypassing traditional financial institutions like banks. This innovative model enables investors to fund loans in small increments to a diverse range of borrowers, seeking returns that are typically higher than those of traditional fixed-income investments. P2P platforms offer various loan types, including personal loans, business loans, and sometimes secured loans against assets.
For investors, P2P lending presents an opportunity to diversify their investment portfolios beyond conventional asset classes while potentially earning higher yields. The returns on P2P lending investments are generated from the interest paid by borrowers, which can be significantly higher than interest rates offered by savings accounts or fixed deposits, reflecting the higher risk associated with unsecured lending.
However, the risk of default is a critical factor investors need to consider, as the loans provided through P2P platforms are not insured, and the recovery of the invested capital can be challenging if a borrower fails to repay. To mitigate risks, investors in 2024 often spread their investments across multiple loans (diversification) and carefully review borrowers’ credit profiles, which P2P platforms facilitate by providing credit assessments and risk categories for potential borrowers.
