Investment Options: Top Investment Options In India in 2024
Any investment journey is full of ups and downs. It demands constant monitoring and evaluation. Moreover, one should always keep exploring the best investment options to keep one’s portfolio balanced and diversified.
India is witnessing an increasing growth of new investment options, with the evolution of technology. In the wake of this growth, some traditional investment options can light up the portfolio with their mere presence. Let us explore some of the best investment options in India.
Plan For Best Investment Options
Selecting a suitable investment option involves some considerations for the investors. One should check the following options while analysing it:
- Financial Objective
Every investor is different, and each one’s needs and future aspirations will differ. Therefore, analysing your future needs and specific financial objectives by comparing various facets is a crucial part of the analysis.
- Risk Appetite
The risk averseness or appetite of an investor differs based on their investment options, time, personal demographics, investment capacity, and so on. An investor can be risk-seeking, risk-averse or risk-neutral.
- Investment Option
There are varied investment options available for investors. Their features differ and investors need to check their alignment before making an investment.
- Tenure of Investments
There are short-term, medium-term and long-term investments. The liquidity requirements of an investor should be checked, and it should match the tenure of that investment.
- Knowledge
Where to invest is one of the most crucial financial decisions of a person’s life. Therefore, one should have proper knowledge of prospective investments to avoid situations of panic. If one is not equipped with the required knowledge, they can consult their financial advisors.
Top Investment Options Available In India
Investors aspire for their portfolios to be equipped to handle every phase of the market. They want the best investment options with high returns, beating market volatility, liquid enough, modern and with multiple features. However, fulfilling all the needs in one instrument can be difficult. Therefore, the need to diversify arises.
Here are some of the best investment options that can be a potential part of your portfolio!
Fixed Deposit
It is one of the oldest and preferred investment instruments in India. A fixed deposit (FD) is a type of investment option where you put a lump sum amount of money in a bank account for a fixed tenure at an agreed rate of interest. They are also known as term deposits or time deposits.
Investing in FDs has multiple advantages such as guaranteed returns, regular income, flexible tenure and more. With no market exposure, FDs are also a safe investment option.
There are different types of FDs available that cater to various investment needs.
Types Of Fixed Deposits
- Standard: These are regular facilities.
- Senior Citizen: These FDs have higher returns than regular FDs for senior citizens.
- 5-Year Tax-Saving: These offer tax benefits under Section 80C of the Income Tax Act, 1961.
- Flexi: These allow withdrawal up to certain limits.
Pros And Cons of Investing In FDs
Pros | Cons |
The simple concept of a fixed deposit account makes investment lucrative. | Liquidity can be blocked, and one can lose interest by early withdrawal. |
Low risk due to lack of market exposure. | Lack of market exposure may not match offered interest with hedging against inflation risk. |
Tax benefits and loan facility against fixed deposits. | It is also perceived as an orthodox investment. |
Direct Equity
The stock market is one of the most popular avenues for investing in India but is accompanied by high market risk. Through this platform, an investor invests in listed companies and gains fractional ownership in the form of shares. Equity investment can make a valuable addition to your portfolio.
The equity market is mainly categorised into two. These are:
- Primary markets are where investments are raised for the first time in the form of an Initial Public Offering (IPO).
- The secondary market is where one can buy or sell shares of listed companies on exchanges.
Such investment is affected by several factors, such as news related to the company, market conditions, geo-political events, government policies etc. Direct equity investments may be accompanied by potential risk, which requires investors to be risk-averse or risk-seeking.
Types Of Direct Equity
As per the suitability of investors, one can invest in different ways, such as:
- Regular Equity: These are investments in equity shares directly through the exchanges. One may invest for the long-term or trade as per the feasibility.
- Equity Mutual Funds: Mutual funds offer part or full investment in equities through equity-oriented funds. Investors can benefit from a professionally managed pool of funds and facilities of Systematic Investment Plans (SIPs).
- Futures And Options: These are derivatives traded with underlying assets of equity shares. However, they are accompanied by high inherent risk.
- Arbitrage Schemes: Here, the same stock is bought or sold at the same time on different exchanges. It helps investors hedge their potential positions.
Pros And Cons Of Investing In Direct Equity
Pros | Cons |
Market exposure offers an opportunity to access potential returns from market movements. | The risk of market volatility lurks over the investments. |
One can directly transact shares in the market through a demat account. | It is affected by several factors. Therefore, gauging the correct risk can be difficult. |
Investors can benefit from dividend income paid by the company. | The gains from this investment are taxed under capital gain norms. |
Bonds
Debt investments are lesser known but can be one of the best investment options for investors. Bonds are issued to the investors in exchange for debt raised by the organisations. They offer fixed-interest payments at a decided interval at the rate of interest, which is known as the coupon rate.
Also, bonds have a maturity period. At the end of this period or at the time of redemption, the investors get the principal amount back from the entity. One should ascertain the credit rating, coupon rate, redemptions norms, maturity and issuing organisation while investing in bonds.
Types Of Bonds
- Government Bonds: These are instruments issued by the central/state government or municipalities for specific purposes. They are known as G-Secs in India (Government Securities).
- Corporate Bonds: Companies issue secured and unsecured bonds.
- Zero Coupon Bonds: As the name suggests, these are bonds with no interest rate, and investors can gain only at the time of redemption.
- Floating Rate Bonds: They do not have fixed coupon rates, but vary as per the benchmarks, like repo rates.
- Perpetual Bonds: They do not have any fixed maturity. In the case of this bond, the issuer pays the interest like in the case of any other bond, but does not repay the principal amount on maturity.
Pros And Cons Of Investing In Bonds
Pros | Cons |
Usually, the secured bonds are backed by collateral from the issuing entity. | The bond price and interest rates have an inverse relationship, which may create interest risk. |
At the time of liquidation of the company, such debts are paid off earlier in the order. | Debt investments are usually accompanied by the credit risk. |
Can help in the diversification of portfolios. | If the inflation rate surpasses the regular rates, it may lower the bond value. |
Liquid Funds
It is a mutual fund investing in a specific set of debt instruments that have short maturity. They are issued for specific purposes. Commercial papers, certificates of deposits, treasury bills, and other short-term money market instruments are part of it. It has a maximum maturity of 91 days.
The main aim is to invest in a fund which can find buyers immediately and can gain market returns in the meantime. They do not charge any entry or exit load from the investors. Due to its short period, the fund has one of the largest Assets Under Management (AUM) among the debt fund options. As of September 2024, the AUM of liquid funds is INR 5,12,029 crores1.
Pros And Cons Of Investing In Liquid Funds
Pros | Cons |
It offers flexibility with its highly liquid features. | Lower returns compared to other mutual fund investment options. |
No entry and exit load. | It is not feasible from a long-term wealth creation perspective. |
The short duration also reduces the risk attached to these investments. | The capital gain taxation of liquid funds may discourage investors. |
Alternative Investments
Striking a balance between traditional and modern investment options can potentially help investors gain exposure to varied investments. In modern times, alternative investments are gaining popularity with evolving aspirations. They invest in varied assets like venture capital funds, commodities, real estate, hedge funds, etc.
In India, Alternative Investment Funds or AIFs are one the best investment plans that attract new-age investors. As of June 30, 2024, a total ?4,32,248 crores of alternative investment fund investments have been made in India2.
Types Of Alternative Investment Funds
Investors can invest in these funds through three main categories as follows:
- Category I: These types invest in early-age ventures, startups, social ventures, infrastructure funds, and other private equity investment avenues.
- Category II: These are investments not included in the other two categories. They include investments like private equity funds and distressed asset funds.
- Category III: These employ complex trading mechanisms and invest in hedge funds and other potential avenues.
Pros And Cons Of Investing In Alternative Investment Funds
Pros | Cons |
They offer unique diversification for the portfolios. | The trading strategies and unique investments may pose a market risk. |
Strategies and instruments can potentially hedge against inflation. | The investments are unconventional and may not suit all. |
AIFs in India are managed by professional experts. | AIF needs a minimum investment of INR 1 crore. |
Summary
Investment preference and suitability may differ for every investor. Therefore, assessing personal needs is crucial. Investors can explore these best investment options to equip their portfolios in 2024.
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References
1. Association of Mutual Funds in India (AMFI), Accessed from https://portal.amfiindia.com/spages/amsep2024repo.pdf.
2. SEBI, Accessed from https://www.sebi.gov.in/statistics/1392982252002.html.
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