Want to make your money work for you? There are many ways to earn money and all methods have their own benefits and drawbacks. In investment, there are a huge variety of avenues available depending on your capital and risk appetite. However, despite the numerous investment options available, people often stick with traditional fixed deposits and gold, often due to lack of knowledge and trust in other types of asset classes. Hence, to help investors gain an overview into the vast investment options available, we provide you with a list of investment options.
A Comprehensive List of the Best Investment Options in 2021:
1. Fixed Deposits
One of the most popular types of investment, fixed deposit involves depositing a sum of money for a long time period of more than 5 years. These schemes have low risk and low return, and the interest earned is fully taxable as per your tax bracket, unless it’s a tax-saver fixed deposit.
2. Recurring Deposits
Unlike fixed deposits, recurring deposits allow you to deposit a small amount of money every month and earn interest on it. This is suitable for those who don’t have large savings to put in a fixed deposit, but have a stable income every month to save and invest from.
3. Savings Account
Deposits in one’s savings account also earn an interest rate, although this is lower than the interest rate offered in fixed and recurring deposits. Nevertheless, they offer easy withdrawal options, and the risk-free interest earned makes them a better alternative than keeping cash in hand.
A favorite of the world since time memorial, gold as an investment option offers very low risk and low return. In the modern era, new routes to invest in gold have emerged that are safer and more cost-effective than physical gold, such as holding digital gold, paper gold, gold mutual funds or ETFs, which avoid making charges, and sovereign gold bonds, which even offer periodic interest payments.
5. Government Bonds/Securities
Government bonds offer periodic interest payments, also known as coupon payments, and repay the face value of the bond at maturity. They are backed by the government, making them very low risk.
6. Corporate Bonds
Corporate bonds are offered by corporations to fund their operations and expansion, and are riskier than government bonds. Though they offer higher interest to compensate for the higher risk, it is very important to analyse the financial position and stability of the company before investing in these products.
7. Equity Mutual Funds
Equity mutual funds are actively-managed funds that invest primarily in equity assets, and buy shares of different public companies on the stock exchange. They are subject to share market risks, and suitable for investors who have a good risk appetite.
8. Debt Mutual Funds
Debt mutual funds invest in fixed income generating assets, such as government securities, corporate bonds and other money market instruments. They are less risky than equity mutual funds, though they carry interest rate and credit risk.
9. Balanced Mutual Funds
Balanced mutual funds invest in a mixture of debt and equity securities, and are ideal for investors who want a medium risk investment product.
10. Exchange-Traded Funds (ETF)
ETFs are passively-managed funds that aim to replicate the returns of an index, such as the Nifty 50 index or the Sensex index. They are an equity investment, and are less risky than actively managed equity mutual funds but also offer lower returns, though ETFs can beat most actively managed equity mutual funds in the long term.
11. Index Mutual Funds
Similar to ETFs, index mutual funds also replicate returns of the chosen index. The difference between them is that index funds are not traded throughout the day on the stock exchange, and can only be bought and sold at the end of the day.
12. Direct Equity
One of the riskiest forms of investing, direct equity involves picking and investing in individual stocks on the stock exchange. They offer the highest return in the long term, and have the highest risk among the assets mentioned above. One needs knowledge of fundamental analysis and research to pick stocks for long-term investment. To guide you in your investment journey, we offer you 12 tips to help you pick the right stock for the long term.
13. Foreign Equities
Digitalization has opened up the opportunity for people to invest in major foreign markets, such as the USA or UK stock markets. One can either buy shares of foreign companies directly, or invest in ETFs and index funds available on the stock exchange.
14. Real Estate
Another popular asset class, real estate investment offers many nuanced options. One can invest in residential, commercial, agricultural or industrial plots, or buy existing buildings or partially completed buildings in construction. They are illiquid in nature and the value of each property can differ significantly, making them a very long-term investment.
15. Real Estate Investment Trusts (REIT)
REITs are a new-age investment product that pools money from many investors to generate a fixed income by owning, operating and financing real estate. They are run by experienced professional management, have more liquidity and require lesser capital to invest in than traditional real estate.
16. Unit-linked Insurance Plans
A hybrid of investment and insurance, unit-linked insurance plans provide life insurance while investing a part of your premium into the stock market. They also offer tax-saving options, and can provide a return on your insurance expenses. However, one must consider multiple factors when choosing life insurance.
Cryptocurrencies are a form of decentralized digital currency that aim to replace traditional fiat money worldwide. Bitcoin is the largest cryptocurrency in the world, commanding nearly 50% of the market value of all cryptocurrencies. Altcoins refer to coins other than bitcoin, such as Ethereum, Litecoin, dogecoin etc. They are even riskier than bitcoin, as they are less well-known and have fewer institutional investors and active traders in the market. Currently, cryptocurrency is a highly volatile and speculative asset class, and one must invest in crypto only if one is prepared for higher volatility than in equity markets.
18. Own Business/Startup
Investing in one’s own startup/business also provides great returns, as one has total control over operations of the business. Although there is a risk of losing your entire capital, there is also potential for huge gains and you have more control on how your money will be utilized, which makes it an attractive avenue for investment.
19. Public Provident Funds (PPF)
Investment in the Indian government-backed PPF lasts for a tenure of 15 years, although withdrawals are permissible from the 7th year. The interest earned in a PPF is tax-free, and it is backed by the Indian government, which makes it a very safe investment for Indians.
20. National Pension System (NPS)
India’s National Pension System is a long-term investment product that provides pension on retirement, offered by the Pension Fund Regulatory and Development Authority (PFRDA). NPS invests in a mixture of equity, fixed deposits, corporate bonds, liquid funds and government funds; it has an active choice option to allow investors to choose allocation to different assets, and a default auto choice option.
That ends our list of the best investment options available in 2021. There are many types of modern investment products in the market that offer different combinations of risk and return, and one must choose their investments according to their risk appetite, capital available and financial goals. If you liked this article, please share and comment below.