High Return Investments for Long Term Wealth Creation in India
Investing is an important financial decision that can help individuals grow their wealth and achieve their long-term financial goals. However, with numerous investment options available in India, it can be overwhelming to choose the best ones. This article aims to provide an overview of the best investment options in India, considering factors such as returns, risk, liquidity, and tax implications.
1. Public Provident Fund – A Must Have in Your Investment Portfolio
The Public Provident Fund (PPF) is considered one of the best debt investment plans in India that offers guaranteed, fixed returns. This 15 year sovereign-backed small savings scheme offers an attractive 7.1% per annum interest rate currently, which compounds yearly.
The PPF maturity amount grows substantially over the long term compared to bank fixed deposits. It allows partial withdrawals after 6 years. The PPF account also makes you eligible for loans against your balance. Most importantly, it offers lucrative EEE tax benefits, making it a key vehicle for 80C deductions.
With one of the highest safety of both principal and returns amongst fixed income instruments, the Public Provident Fund is a core pillar of a balanced investment portfolio for Indians targeting wealth creation.
2. Fixed Deposits (FD) - Guaranteed Returns With Flexible Tenure
Fixed deposits (FDs) offered by banks and other financial institutions continue to be the most popular assured-return investment vehicles in India. FDs provide fixed interest rates upfront for a defined period, ranging from 7 days to 10 years.
The maturity amount and interest payout frequency - monthly, quarterly or cumulative, are all predetermined based on your liquidity needs. FDs bring stability to your portfolio with guaranteed returns. The flexible tenure allows aligning investments to specific financial goals. While returns are comparatively lower than debt funds, FDs score higher on capital protection. Income tax is applicable on FD interest earned, depending on your tax slab. Overall, FDs are a secure parking avenue for short and medium term savings for risk-averse Indians.
3. Mutual Funds - Professionally Managed Investment Vehicle
Mutual funds have emerged as the preferred investment vehicle for Indians looking to participate in equity and debt markets. A mutual fund pools capital from thousands of retail and institutional investors to create a consolidated investment corpus. The fund is professionally managed by expert fund managers who construct a diversified portfolio of stocks, bonds and other securities in line with a defined mandate.
Mutual funds offer the benefit of portfolio diversification and risk adjustment based on investor risk appetite. They also provide ease of investment through Systematic Investment Plans (SIPs) starting with small monthly instalments. Equity funds, debt funds, hybrid funds, index funds and sectoral funds allow alignment to specific goals. Direct plans and lower expense ratios have enhanced post-tax returns. Overall, mutual funds provide structured market participation with flexibility to moderate risk.
3.1 Equity Mutual Funds - High Returns Over Long Term
Equity mutual funds invest predominantly in shares of publicly listed companies across market capitalization. Based on market conditions, between 65-100% of the corpus is allocated to equities by the fund manager. Equity funds aim to generate inflation-beating returns by capitalizing on the long term growth potential of stock markets.
However, they carry higher short term risk due to volatility in share prices. Equity mutual funds are ideal for investors who have a high risk tolerance and an investment duration of at least 5-7 years to ride out intermittent corrections. Systematic investment plans allow buying units at different price points to average out overall purchase cost. Index funds and sector funds are passively managed variants. With an expected CAGR of 12-15%, equity funds are suitable for wealth creation over long investment horizons.
3.2 Debt Mutual Funds - Stable Returns With Lower Risk
Debt mutual funds invest in fixed income instruments like corporate bonds, government securities, money market instruments and more. The fund corpus is mostly allocated to low-risk debt assets based on the fund mandate - short duration, medium duration, dynamic bond etc.
They offer stable returns of 8-10% along with low to moderate risk profile, making them ideal for conservative investors who prioritize capital preservation. Debt funds provide regular income through dividends along with nominal capital appreciation on maturity. They act as a stabilizing component in an investor's portfolio.
Debt funds allow parking short term surpluses to earn better tax-efficient returns than bank fixed deposits. Dynamic bond funds offer interest rate play to tactically shift duration. Overall, debt funds offer predictable returns for investors averse to equity volatility.
3.3 Hybrid Mutual Funds - Balance of Growth and Stability
Hybrid mutual funds invest across equity and debt assets, providing the best features of both classes. Based on market outlook, fund managers dynamically vary equity allocation between 20-80% and park the rest in fixed income.
They provide superior risk-adjusted returns for investors targeting moderate growth over medium-long term. Hybrid funds reduce volatility compared to pure equity funds via smart asset allocation between growth and stable assets.
The part equity delivers inflation-beating returns while debt anchors stability. Hybrid mutual funds suit investors wanting to limit downside risk in market corrections yet benefit from long term capital appreciation. For risk-averse equity investors, hybrid funds ensure balance between growth aspirations and capital conservation needs.
4. Real Estate Investment - Tangible Asset For Long Term Wealth Creation
Real estate has traditionally been a favored avenue for Indians to create generational wealth. Property markets have given consistent capital appreciation of 8-12% over last 2 decades in India, outpacing most asset classes. Residential or commercial realty deliver twin benefits - steady rental income along with long term price appreciation on sale.
However, substantial capital is required for down payment on purchase. Property ownership also entails regular maintenance expenses, not to mention illiquidity challenges in downturns. Thorough research of project credentials, developer reputation and micro-market dynamics is imperative before investing in Indian real estate. For well informed investors with an investment horizon of at least 8-10 years, property remains a tangible, high-yield asset for wealth creation.
5. National Pension Scheme - Tax-Efficient Retirement Planning
The National Pension Scheme (NPS) is a long-term retirement-focused investment product backed by the government of India. It provides steady pension payouts to individuals post-retirement or 60 years of age via annuity plans. NPS offers flexibility of Active Choice and Auto Choice plans based on investor preference.
Under NPS, the corpus accumulates tax-free over decades. Further, contributions are eligible for tax deduction under 80C. At maturity, 60% of the corpus can be withdrawn as tax-free lumpsum while the remaining 40% must be used to purchase annuities. The tailored product design, high equity exposure, compounding effects and tax efficiency have made NPS a preferred retirement planning tool for millennials.
6. Stock Market Investment - Create Equity Wealth Over Long Term
The stock market offers a viable avenue for equity wealth creation for Indians over the long run. One can invest in shares of publicly listed companies across market capitalizations via stocks or equity mutual funds. Stock investing carries higher risk arising from price volatility.
However, equity as an asset delivers superior inflation-adjusted returns of 12-15% CAGR based on historical NIFTY 50 returns. This enables wealth creation over long durations despite intermittent corrections. Thorough research and monitoring of fundamentals is imperative for direct stock investing. For passive investors, index funds and ETFs offer diversified market participation. Overall, equity investing requires a long term outlook but has the ability to create significant wealth.
7. Gold Investment - Hedge Against Inflation And Market Risks
Gold has traditionally been a preferred investment asset for Indians to hedge against economic risks and create wealth. The precious metal acts as an effective hedge against rising inflation, currency devaluation, geopolitical turmoil and financial market crashes due to its intrinsic value.
Investors can opt to buy physical gold coins, jewelry or paper gold through gold ETFs and sovereign gold bonds. Gold generates returns through capital appreciation over long periods rather than regular income. It also offers portfolio diversification. However, prices are volatile based on global demand-supply dynamics and dollar movement. For long-term, risk-averse investors, allocating 5-10% wealth to gold provides financial insurance in times of crisis.
Investing in gold through sovereign gold bond is one of the best option if you want to invest in gold.
8. Post Office Schemes - Guaranteed Returns And Safety
Post office small savings schemes have emerged as a lucrative investment option for risk-averse Indians prioritizing capital protection. Some popular options include Post Office Time Deposit, Senior Citizen Savings Scheme and Monthly Income Scheme among others.
These deposit schemes are backed by government guarantee of both principal and interest payments. Post office investments offer assured returns of 6.7-7.7% along with sovereign backing, making them safe avenues in turbulent markets. While returns are lower than debt funds, safety takes priority given principal is not at risk. Investors also benefit from easy account opening, pre-mature withdrawals and loan facilities against the deposit. Overall, post office schemes deliver stable fixed income with sovereign protection.
9. Initial Public Offerings - Early Equity Exposure Of Growth Companies
Initial Public Offerings (IPOs) allow investors to gain ownership of private companies before public listing and access exponential growth. IPOs offer avenue to buy shares at the offer price before stock market debut. Investing in IPOs can deliver superior returns through strong listing gains as well as long term price appreciation.
However, IPOs also carry risks associated with unproven business models, evolving corporate governance and unanticipated market events. Proper due diligence around company's financial performance, industry trends, valuations, competitive landscape is critical before applying to high-quality IPOs. For informed investors, IPOs provide early entry into growth stories at attractive prices for generating equity wealth over time.
10. Government Bonds - Safety With Regular Income
Government bonds issued by RBI and state governments are considered one of the safest fixed income instruments in India. These sovereign securities offer fixed coupon rate annually currently between 6-8% based on tenure. Government bonds come with high credit quality and negligible default risk which appeals to conservative investors.
They provide stable, predictable returns better than bank FDs, along with liquidity in secondary market. Government bonds can be held to maturity or sold earlier for minor capital gains. Key benefits include assured returns, low risk profile, liquidity and potential tax benefits. Hence, government bonds offer stable income stream along with safety for risk-averse investors seeking capital preservation.
Conclusion
Choosing the best investment options in India depends on various factors such as risk appetite, investment horizon, and financial goals. It is recommended to diversify investments across different asset classes to minimize risk. Before investing, individuals should carefully evaluate each option, consider their risk tolerance, and seek professional advice if necessary. Regular reviews of investments are essential to ensure they align with changing financial goals and market conditions.
FAQs
1. What is the best investment option for beginners in India?
For beginners, a diversified mutual fund portfolio is often considered an ideal investment option. It allows individuals to invest in a mix of equity and debt instruments, providing growth potential and stability.
2. Which investment option offers tax benefits in India?
Investment options such as Public Provident Fund (PPF), National Pension Scheme (NPS), and Equity-Linked Saving Scheme (ELSS) offer tax benefits under different sections of the Income Tax Act.
3. Can NRIs invest in these options?
Yes, NRIs (Non-Resident Indians) can invest in most of these options, subject to specific guidelines and regulations set by the Reserve Bank of India (RBI).
4. Are there any risks associated with investing in the stock market?
Yes, investing in the stock market carries risks such as market volatility, company-specific risks, and economic factors affecting the overall market performance.
5. Is it advisable to invest solely in one investment option?
No, it is recommended to diversify investments across multiple options to spread the risk and maximize potential returns. Diversification helps balance the portfolio and minimize the impact of market fluctuations.
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