Every investor wants to get maximum return from his investments with the lowest risk possible. While no investment in the world can guarantee you returns, long term investments are still considered to be a safe haven comparatively as the risk involved here is lower and the investment horizon is longer.
However, a high return low risk combination in an investment instrument is not possible. Usually risk and returns are two quantities which are directly proportional to each other which means that, higher the risk involved, higher will be the returns, and probably this is the reason that investors usually search for the best investment options available in the market for all their investing needs.
Every investor wants to double their money in few months or few years, but this is not possible unfortunately. This is the reason investors usually look out for the best long-term investment options available in the market where they can invest their money and expect decent returns with least risk possible.
Here are the best investment instruments available for the Indian investors:
1. Equity Mutual Funds
The mutual funds which primarily invest in equity stocks are known as equity mutual funds. As per the mutual fund governing authority – Securities and Exchange Board of India (SEBI), it is mandatory for all the equity mutual funds to at least invest 65 per cent the total assets in stocks or other equity related instruments. Active management and passive management, both are possible in case of equity mutual funds.
When an equity mutual fund is actively traded, the generated returns are dependent on the ability of the fund manager. In case of passively managed funds, which include Index funds and ETF (Exchange Traded Funds), the underlying index is tracked. All the equity schemes are classified based on market capitalization and the sectors where the investment is being made. They can be further classified as domestic and international depending upon the investments in domestic and overseas companies.
2. Direct Equity
Investment in the direct equity or stock market is one of the riskiest investment instruments due to the volatile nature of the financial markets. It is not everyone’s cup of tea to make money in the market because there are various parameters like picking the right stock, choosing the correct time for your entry and exit etc. But still, this is amongst the most preferred investment instrument, because in the long term, direct equity has generated returns which are higher than inflation adjusted returns.
However, stock market comes with its own set of risk which may include losing a considerable portion of your investment capital. It requires experience and research to pick the right stocks for long term investments in direct equities. Market Neuron is a product which helps you with your long-term investments by providing a bouquet of stocks which you should pick, based on a strategy por theme.
3. Debt Mutual Funds
Debt mutual funds are recommended for those investors who need a steady return. These are usually less volatile and thus, less risky when compared to the equity mutual funds. These funds primarily invest in interest generating instruments which include securities like treasury bills, corporate bonds, commercial papers and other financial instruments.
Debt mutual funds are less risky, but there are risks associated with these including credit risk and interest rate risk. It is very important for an investor to study all the risks involved before investing in any fund.
4. Public Provident Fund (PPF)
PPF is considered as one of the safe investments available because the principal amount invested, and the interest earned are backed by a sovereign guarantee. PPF usually has a long tenure of 15 years and is amongst the most preferred long-term investment options available. However, the rate of interest on PPF is not fixed. It is revised by the government after every quarter.
5. National Pension Scheme (NPS)
The NPS is an investment option which is primarily focused at retirement. The Pension Fund Regulatory and Development Authority (PFRDA) is responsible for managing the NPS scheme. The NPS is a mix of fixed deposits, equities, liquid funds, corporate bonds and government funds. The minimum annual investment in the NPS tier-1 account is INR 1000.
6. Bank Fixed Deposit (FD)
The FD is considered as one of the safe investment options in India because under the DICGC rules, every bank depositor is insured for a maximum of INR 5 lakhs with effect from 4thy February 2020 for bot interest and principal amounts.
One may opt for any fixed duration of FD depending on the investment horizon, however, longer the horizon, greater will be the compounding returns on it. The earned interest varies across banks and schemes.
7. Senior Citizens Savings Scheme (SCSS)
The SCSS is the most preferred choice of retirees. This scheme is reserved only for senior citizens and early retirees. This scheme can be availed from a bank of postal office. The SCSS has a lock in period of 5 years which can be further extended by 3 years after the maturity of the scheme. The interest return on the scheme is paid after every quarter and incurs taxation.
The interest rate on the scheme is revised after every quarter. The interest rate prevailing at the time of investment remains fixed till the maturity of the scheme. A deduction of up to 50,000 can be claimed under section 80TTB.
8. Pradhan Mantri Vaya Vandana Yojana (PMVVY)
The PMVVY is reserved for citizen above the age of 60 years and provides an assured return of 7.4 per cent per annum. This scheme provides pension scheme every month, quarter, half yearly or yearly as opted by the investor. The minimum amount of pension is INR 1000 and the maximum amount is capped at INR 9250 per month.
No more than INR 15 lakhs can be invested in the scheme and the tenure is fixed at 10 years. The scheme is live till 31st March 2023. In case of the death of the investor, the maturity amount is paid to the nominee.
9. Real Estate
The primary property or house where you live should be considered as an asset and not an investment. The subsequent properties that you buy will fall under the category of investments.
Real Estate investments generate returns in two ways, rental income and capital appreciation. However, when compared to other investments, real estate investments are highly illiquid. Another limitation of real estate investment is that the initial capital required is usually very high and requires various necessary regulatory approvals.
10. Gold
Physical gold is also amongst the most preferred form of investments for Indian investors due to high sentimental value it holds. However, investments in physical gold comes with its own set of safety risks. Investments in gold jewelry incurs making charges which are in the range of 6-14 per cent of the total cost of Gold.
An alternative way of investing in gold is through paper gold. It is cost-effective and safe. Investments in paper gold can be done through ETFs on a stock exchange with gold as the underlying asset. Sovereign Gold Bonds are another way of owning paper gold.
Conclusion
Both fixed income and market linked investments serve a purpose in the process of wealth creation. Market linked investments are high risk instruments, but they deliver higher returns too whereas fixed income instruments help in preserving the accumulated wealth to achieve the desired goal. For effective long-term investments a perfect blend of both investment instruments is needed.
