Different Types of Investment Options Available in 2024
Post-COVID, many people have realized the importance of savings and investment in India. Everyone wants to invest their money and make quick profits without taking any risks. However, we should be aware that returns and risks are directly proportional to each other. The more risk we take, the chances of positive returns will be high.
Not every investment product will suit your needs. You need to carefully assess your risk appetite, and time horizon and accordingly choose the best investment. There are numerous options for investments to choose from and each option has different risks and features. So, here are the different types of investment options you may consider:
Types of Investment Options:
1. Stocks:
Purchasing stocks or shares allows investors to own a portion of a company. Investors buy stocks to earn regular income in the form of dividends as well as capital appreciation. When stock prices rise, investors can profit by selling shares. Buying a stock is also known as an equity investment.
Investing in equity is risky as it is market-lined. Stock prices are highly volatile and there is no return guaranteed. However, it is one of the investments that provides you with inflation-adjusted returns in the long run.
Investment amount
No minimum amount is required to invest.
Return on Investment
The average return you can expect in equity markets is 12-15% annually.
Risk level
High risk
Taxation
Any profit or loss from the sale of equity shares is reported under the head ‘Capital Gains.’ Short-term capital gains (STCG) and long-term capital gains (LTCG) are the two types of capital gains.
If you sell your shares within 12 months of purchase, you will attract short-term capital gain.
If you sell your shares after holding them for more than a year, then it will be a long-term capital gain.
Short-term capital gains on equity shares are taxable at 15%.
Long-term capital gains on equity shares are taxable at 10% in excess of ₹ 1,00,000.
2. Mutual funds:
Mutual funds are investment vehicles that pool investors’ money and invest it in assets such as equity and debt. A mutual fund invests strategically in stocks, government bonds, corporate bonds, and other assets. A portfolio manager or fund manager, who is an investment professional is appointed by the fund house to manage the mutual fund. Find the best mutual fund app in India. The two major options in mutual fund investment are:
- Equity mutual fund: These are the schemes that invest a pooled corpus mostly in stocks of different companies. These are market-linked instruments that invest a minimum m 65% of their assets in equity equity-related instruments. They are suitable for long-term investors who can take moderately high risks.
- Debt mutual fund: Debt funds invest mainly in debt and money market instruments like bonds, and government securities to earn regular income from interest payments. These are for investors who have a low-risk tolerance and want safe instruments to invest in.
Investment amount
While the majority of mutual funds need a minimum initial investment of between ₹ 1000 and ₹ 10,000, investors can start SIPs in these funds and make monthly contributions of as little as ₹ 100.
Return on Investment
Equity mutual funds may offer you around 12% annual returns in the long run.
Debt mutual funds may offer you around 8-10% annual returns in the long run.
Risk level
Equity mutual funds- Medium to high
Debt mutual funds- Low to medium
Taxation
Equity mutual funds:
In the case of a short-term capital gain, the tax rate is 15%
Long-term capital gains are tax-free if profits are less than ₹ 1 lakh in a financial year.
If long-term capital gains exceed ₹ 1 lakh, a 10% tax is levied.
Debt mutual funds:
You will receive short-term capital gains when you redeem your debt fund units within three years. These gains are added to your taxable income and taxed at the rate specified in your income tax slab.
You realize long-term capital gains when you sell debt fund units after three years. These gains are taxed at a flat rate of 20% after indexation.
3. Public Provident Fund (PPF)
The PPF is a long-term savings product that can be used to save for retirement and other objectives. It can be opened in specified banks and post offices. It is a product for voluntary savings which is backed up by the Government of India. It is a low-risk investment that offers guaranteed returns. PPF has a lock-in period of 15 years, which can also be extended in the block of 5 years.
The interest rates are announced quarterly and the current rate is 7.10% per annum. It is one of the best options for tax saving as you get the exemption of ₹1,50,000 p.a. under section 80C of the Income Tax Act 1961.
Investment amount
The minimum contribution amount in PPF is ₹ 500 and the maximum PPF amount you can invest is ₹ 1.5 lakh.
Return on Investment
The current interest rate is 7.10% p.a.
Risk level
Low risk
Taxation
PPF comes under the category of EEE category, which is Exempt-Exempt-Exempt. It means all the contribution made under PPF is tax-free. The deposits you made, the interest you received, and the maturity amount, all are tax-free.
4. Bonds
It is a debt instrument in which an investor lends money to the Government and corporations to raise capital. In return, an investor will earn regular interest which is pre-defined at the time of purchase of a bond. An investor will get his full principal amount at the time of its maturity. These are safe instruments but carry low-interest rates. However, there are certain types of risks that need to be considered while investing in bonds, and the most common is default risk.
The possibility that the bond’s issuer will be unable to repay the underlying principal amount or make scheduled interest payments is known as default risk. Credit rating agencies’ ratings are used to assess the risk of default. So, always consider the bonds with AAA ratings.
Investment amount
The bond price is also announced by the government at the time of the bond announcement. Usually, it starts with a minimum payment of ₹1,000.
Return on Investment
Corporate bond funds provide significantly higher returns than other market debt instruments. Corporate debt instruments can provide average yields of 8-10%, whereas government-held bonds only provide about half of that.
Risk level
Low to medium risk
Taxation
The interest received will be taxed as per the investor’s tax slab rate, and any capital appreciation will be treated as capital gain, so will be taxed accordingly.
5. Fixed Deposits
It is one of the most popular investments in India offered by banks and financial institutions. You deposit a lump sum for a set period and earn a fixed rate of interest. These are very safe and offer you guaranteed returns. You have an option to invest for a period ranging from a minimum of 7 days to a maximum of 10 years. Also, senior citizens are offered higher rates of return on their FD investments.
FD interest rates are higher than your savings account rates, however, the FD returns are not inflation-adjusted. You also have an option to choose the return payments tenure i.e., monthly, quarterly, half-yearly, annually, or at the time of maturity.
Investment amount
The minimum amount that can be invested in FDs is ₹1000 to ₹25,000.
There is no maximum limit that can be invested in FDs.
Return on Investment
The interest rates of fixed deposits vary between 3%-7%
Risk level
Low-risk
Taxation
Interest income earned on FDs is fully taxable. If your interest income exceeds ₹40,000 per year (₹50,000 for senior citizens), the bank will deduct 10% TDS (20% TDS if your PAN Card is not disclosed).
6. National Pension Scheme (NPS)
It is a voluntary retirement scheme opened to all Indian citizens to save for their retirement and offers pension solutions. It is managed by the PFRDA (Pension Fund Regulatory and Development Authority) and backed up by the Central Government. After retirement, you have an option to take out a certain percentage of the corpus, and the remaining amount will be given in the form of a monthly pension.
There are two types of NPS accounts- NPS Tier I account and NPS Tier II account.
The Tier I account is a mandatory account to open, that offers you various tax advantages, but you cannot withdraw your contribution until you reach the age of 60. The Tier II account has no restrictions and allows you to withdraw funds whenever you want. Tier II can only be opened if an investor has a Tier I account.
Investment amount
Minimum amount to be invested: Tier I: ₹500 and Tier II: ₹1000
Return on Investment
So far, it has produced annualised returns of 8% to 10%. In NPS, you can also change your fund manager if you are dissatisfied with the fund’s performance.
Risk level
Low risk
Taxation
Tax benefits are available for NPS investments up to ₹1,50,000 under Section 80C. A further ₹ 50,000 is tax deductible under Section 80CCD of the Income Tax Act, 1961.
Tier II does not have any tax benefits.
7. Unit-linked Insurance Plans (ULIPs)
ULIPs provide you with the dual benefit of insurance and investment. You are required to make regular payments in ULIPs a part of which is used in your life insurance policy. The remaining amount will be invested in different financial instruments like equity and debt. You can withdraw your money after completing 5 years. You have an option to choose the asset allocation between equity and debt as per your risk appetite.
Most of the ULIPs provide you with a life cover of a minimum 10 times of your premium amount. You also have an option for partial withdrawal of your money in case of any emergency or immediate expense like children’s marriage, family vacation, etc.
Investment amount
The investment amount depends upon the company to company. Generally, the minimum amount to be invested is ₹1500 per month and the maximum is ₹1,50,00 per year.
Return on Investment
It depends on the asset allocation of your funds. The average returns you can expect can be between 10%-12%.
Risk level
Medium-risk to high-risk
Taxation
Before February 1, 2021, any returns on the maturity of a ULIP plan were tax-free under Section 10(10D) of the Income Tax Act. You may also be able to claim a tax deduction under Section 80C.
However, The Finance Act, 2021, introduced some new amendments which are applicable from February 1, 2021.
The policies are issued on or after February 1, 2021, and if you paid an insurance premium of at least ₹ 2.5 lakh in any of the previous years, the amount you get at maturity will be taxable.
If an individual purchases multiple ULIP plans and the total amount paid exceeds ₹ 2.5 lakh, the purchase is subject to taxation.
In the case of a short-term capital gain, the tax rate is 15%
Long-term capital gains are tax-free if profits are less than ₹ 1 lakh in a financial year.
If long-term capital gains exceed ₹ 1 lakh, a 10% tax is levied.
8. Sovereign Gold Bonds (SGBs)
SGBs are government securities issued by the Reserve Bank of India (RBI) which is an alternative to physical gold. It is considered to be the safest option as these are backed by the Government. It can also be stored in a demat form and can be traded in the secondary market. Buying SGBs as compared to physical gold is cheaper and hassle-free. The lock-in period for SGBs is 8 years, however, you can take an exit from the bond from the 5th year.
On your initial investment, you earn an interest rate, which is currently 2.50% per year. It is paid twice a year (semi-annually). Returns are typically linked to the current market price of gold. SGB can also be used as collateral for applying for any loans in the banks.
Investment amount
The minimum initial investment is 1 gram of gold, and the maximum limit is 4 Kg of gold per investor (individual and HUF), and 20kg of gold for trusts.
Return on Investment
The fixed interest rate of 2.5% pa.
Risk level
Low risk
Taxation
There is no capital gain tax on SGBs, but the interest earned is taxable.
9. REITs
Real estate is an investment made in land, building or any kind of property for the long term. Real estate is not affordable for everyone, so a new concept has been introduced known as Real Estate Investment Trusts (REITs). These are similar to mutual funds, in which they collect money from multiple investors and invest in income-generating properties. REITs are regulated by SEBI, so there are no chances of any kind of fraud.
They are managed through capital appreciation of the property as well as from the regular rental income. An investor can earn regular income in the form of dividends. Apart from other financial instruments like equity and debt, you can invest in REITs to diversify your portfolio.
Investment amount
The minimum investment to be done in REITs is ₹10,000- ₹15,000 with a lot size of one unit.
Return on Investment
You can expect a return between 12% to 20% if you remain invested for at least 5-7 years.
Risk level
Medium to high-risk
Taxation
The interest income received from REITs is taxed. The tax on dividend income is determined by whether the REIT received a special tax concession from the government. If so, the dividend is taxable in the investor’s hands. Otherwise, no tax is levied.
If held for less than a year, capital gains from the sale of Indian REIT units are subject to a 15% short-term capital gains tax.
If held for more than a year, capital gains from the sale of Indian REIT units are subject to a 20% long-term capital gains tax, in excess of ₹1,00,000.
10. Senior Citizen Savings Scheme (SCSS)
This is a tax-saving scheme for senior citizens, i.e., above 60 years. It is a government-backed retirement scheme, in which an individual can invest a lumpsum amount and receive regular income and tax benefits. SCSS account can be opened in any of your nearest banks or post offices. It is one of the safest investment options which offers you the high-interest rates.
You receive guaranteed returns every quarter. Also, the tenure for this scheme is 5 years (you can also extend it for 3 years). However, if you make a premature withdrawal, a penalty will be imposed.
Investment amount
The minimum investment amount is ₹1,000 and the maximum amount is ₹15 lakh.
Return on Investment
The interest rate for the second quarter of FY 2022–23 (July–September) is 7.4% p.a.
Risk level
Low risk
Taxation
Under section 80C of the Income Tax Act of 1961, the principal amount deposited in the SCSS is entitled to a tax deduction of up to ₹ 1.5 lakh each year.
The interest is taxable according to the investor’s tax bracket. If the interest earned is more than ₹50,000 p.a., Tax deducted at source (TDS) will be applicable.
Conclusion
The golden rule of making a wise investment is to have a thorough understanding of the various types of investment options available in the market. Most investors’ investment goals vary depending on their financial objectives, time horizon, risk tolerance, and expected returns. To make money grow, an individual must invest in smart investment options that can generate lucrative long-term returns. Also, it is essential to review your portfolio periodically to keep in check if your investments are aligned with your goals.
Frequently Asked Questions
Q1. What are the common types of investment options available in India in 2024?
Ans– Common investment options in India include stocks, mutual funds, fixed deposits, government bonds, real estate, gold, and various savings schemes. Each option has its own risk and return profile.
Q2. How does investing in stocks work in India?
Ans– Investing in stocks involves buying shares of publicly traded companies. Investors can trade stocks on stock exchanges like BSE and NSE. Stock investments offer the potential for capital appreciation and dividends.
Q3. What are mutual funds, and how do they function in India?
Ans– Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Investors in mutual funds own units of the fund and returns are distributed based on the fund’s performance.
Q4. Explain fixed deposits as an investment option in India.
Ans– Fixed deposits (FDs) are low-risk investment options offered by banks and financial institutions. Investors deposit a lump sum amount for a fixed tenure, and in return, they receive a fixed interest rate. FDs provide capital protection.
Q5. How do government bonds function as an investment in India?
Ans– Government bonds are debt securities issued by the government. Investors lend money to the government in exchange for periodic interest payments and the return of the principal amount at maturity. They are considered relatively low-risk.
Q6. What is the current scenario of real estate investment in India in 2024?
Ans– Real estate involves investing in physical properties like residential or commercial spaces. The real estate market can offer capital appreciation and rental income. However, it is influenced by factors like location and market conditions.
Q7. How can one invest in gold in India in 2024?
Ans– Investors can buy physical gold (jewelry, coins) or invest in gold-related financial instruments like Gold ETFs (Exchange Traded Funds) and sovereign gold bonds. Gold is often considered a hedge against inflation.
Q8. Are there any government-backed savings schemes for investment in India?
Ans– Yes, the government offers various savings schemes like the Public Provident Fund (PPF), National Savings Certificate (NSC), and Senior Citizens Savings Scheme (SCSS), providing fixed returns with specific tax benefits.
Q9. What are the risks associated with investing in equity-based options like stocks and mutual funds in India?
Ans– Equity investments carry market risks, including price volatility. Factors like economic conditions, company performance, and global events can impact stock and mutual fund values.
Q10. Can non-resident Indians (NRIs) invest in these options in India in 2024?
Ans– Yes, NRIs are allowed to invest in several investment options in India, subject to certain conditions and regulations. The types of investments available to NRIs may vary, and it’s advisable to check the latest guidelines from regulatory authorities.
by Instockbroker Team | February 9, 2024