Choosing the best investment alternatives intimidates a lot of people. There are so many options out there that it can easily be an overwhelming experience to select the best investment for your portfolio.
Why is it important to choose the best investment options?
Choosing the best investment option is important because of two main reasons:
- You reap good profits in the future
- You accomplish your investment objective
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This guide walks you through 12 of the best investment options and explains why you should consider including them in your portfolio.
But before we get into that, you need to know the:
- Types of investment goals
- Factors to consider while selecting the best investment options
Types Of Investment Goals
Each individual has unique goals, depending on their age, financial situation, and lifestyle. There are typically three types of investment goals:
- Short-term goals: A short-term goal is something you want to accomplish soon, within 5 years. These goals are usually made for paying for expenses you anticipate in the next few years. For short-term goals, you need liquidity and hence there should be a minimum risk to your assets.
- Medium-term goals: An intermediate-term goal or medium-term goals may take from up to 10 years to accomplish. For mid-term goals, you need to strategically balance your financial security and investment growth.
- Long-term goals: A long-term goal can take more than 10 years to accomplish. Long-term goals are for realising your dreams and calls for a persistent and growth-oriented investment strategy.
It is recommended that you take your time to list down your goals and then define them to understand where they fit – short, medium or long-term timeframes – because, for each type of your goal, there is a right type of investment alternative.
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Factors to consider when selecting the Best Investment Alternatives
The investment type you choose should give you the expected returns required to achieve your financial goals. Therefore, when you are planning your retirement, you need to determine which investment option fits your financial goals and your risk tolerance the best.
Factors to consider when selecting the Best Investment Alternatives are:
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Age
Age is an essential factor to consider when selecting the best investment alternative. Why? Because when you are young, you have fewer responsibilities and have very little to lose. This means you can afford high-risk investment options. For senior citizens, it’s best to go for low-risk investment alternatives.
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Investment Objective
Before you start investing, you need to figure out your investment objective. Your objective should be clear, such as:
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Short term goals:
- Increase saving
- Save tax
- Vehicle purchase
- Travel
- Fight inflation
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Long term goals:
- Buy a house
- Child’s marriage and education
- Retirement
Having a clear objective will help you choose the right investment alternatives that will fulfil your goals.
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Short term goals:
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Liquidity
Liquidity is how quickly you can convert your asset into cash.
- For your short-term goals, invest in highly liquid investment alternatives.
- For your long-term goals, invest in low or medium liquid assets.
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Tenure
It is the time for which you hold your asset for maximum returns.
- For short-term goals, invest in a short tenure investment alternative.
- For long-term goals, invest in assets with a long-tenure.
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Risk Tolerance
Risk Tolerance simply means how much risk in investments can you tolerate. The amount of risk you can tolerate is directly proportional to your return on investment- The higher the risk appetite, the higher are the returns and vice versa. The amount of risk you can take depends on how much disposable amount you have available for investing. Accordingly, you can decide whether high risk, medium risk or low-risk investments are best for you.
Note: Risk can be minimised by proper planning, research and diversification.
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Diversification
It means investing your money in various asset classes to diversify your investment portfolio to reduce risk.
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Best Investment Alternatives in India for 2022
The 12 Best Investment Alternative in India are:
- Direct equity (Stocks)
- Equity mutual fund
- Debt mutual fund
- Public provident fund
- Fixed Deposit
- Real Estate
- Gold
- Sukanya Samruddhi Account
- National Saving Certificate
- National Pension Scheme
- Recurring Deposit Account
- Chit Funds
How can you save money from your salary and invest?
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Direct equity (Stocks)
Direct equity investing is about long term growth. When you buy stocks of a company, you become a part-owner in that company. This makes you eligible to share both profit and loss made by the company.
Who can invest? If you want to maintain liquidity and make quick profits. Best for high-risk taker with a long-term horizon Risk High Liquidity High Tenure Long- term Risk-Reward Ratio High -
Equity mutual fund
Equity investments are one of the most popular asset classes. They deliver diversified and objective-driven exposure to nearly every corner of the equity market.
Who can invest? If you are looking for a long-term investment option with moderate risk Risk Moderate Liquidity High Tenure Long- term Risk-Reward Ratio High -
Debt mutual fund
A debt fund is a mutual fund that invests in debt instruments. Debt funds are of different types designed for investors with varying investment horizons, risk-return profiles, and financial goals.
Who can invest? If you are looking for comparatively less risky options than shares Risk Moderate Liquidity High Tenure 1 day to 7+ years Risk-Reward Ratio Moderate -
Public provident fund
Public Provident Fund (PPF) is a tax-free saving scheme. It is a long-term investment scheme, regulated by the Indian Government.
Who can invest? If you are planning to invest in safe investment options for a long-term Risk Low Liquidity Low Tenure 15 years lock-in period Risk-Reward Ratio Low -
Fixed Deposit
A fixed deposit or FD is an investment product offered by banks and NBFCs. In FDs, you invest for a set amount of time and get a fixed interest rate.
Who can invest? If you have a lump sum amount to invest for a fixed period. Best for retirees (60 years of age) and low-risk profile investors Risk Low Liquidity High Tenure 7 days to 10 years (premature) Risk-Reward Ratio Moderate -
Real Estate
Real estate investment involves buying a real estate property, such as an apartment and office, and operate it to collect cash as rental income.
Who can invest? Investors with the view of future appreciation of the property Risk Moderate Liquidity Low Tenure Long-term Risk-Reward Ratio Depends on the location of the property -
Gold
Gold is considered one of the safest investments as it has always recovered its value quickly through economic downturns.
Who can invest? If you wish to diversify your investment and want to hedge against inflation Risk Low Liquidity High Tenure Long-term Risk-Reward Ratio High -
Sukanya Samruddhi Account
This is a Government of India backed saving scheme targeted at the parents of girl children. The scheme allows parents to build funds for education and marriage of their girl child.
Who can invest? Parents of a girl child who wish to save funds for her education and marriage Risk Low Liquidity Low Tenure 21 years Risk-Reward Ratio Low -
National Saving Certificate
NSC is an Indian Government savings bond. It is a popular small savings and income tax saving instrument in India. It can be purchased from any Post Office in India
Who can invest? If you want a tax saving investment Risk Low Liquidity Low Tenure 5 years Risk-Reward Ratio Low -
National Pension Scheme
National Pension Scheme (NPS) is a government-sponsored pension scheme. It was designed to secure the financial future of the people after they retire. .
Who can invest? If you are looking to save money for your retirement with tax benefits Risk Low Liquidity Low Tenure Matures at the age of 60 Risk-Reward Ratio Low -
Recurring Deposit Account
Recurring deposit is a term deposit offered by banks. It allows people deposit a fixed amount of money into their recurring account every month and earn interest on it.
Who can invest? If you are looking to save systematically and earn guaranteed returns on your investment Risk Low Liquidity High Tenure Short-term Risk-Reward Ratio Low -
Chit Funds
A chit fund is based on rotating savings and credit association system. Chit fund schemes may be organized by financial institutions, or informally occur between friends, relatives, or neighbours.
Who can invest? Investors who want to earn more than savings account without taking a risk Risk Low Liquidity High Tenure Short-term Risk-Reward Ratio Low The Money Club is India’s trusted AI-driven digital chit fund platform regulated by the Registrar of Chit Funds. It offers a reliable, new-age platform for flexible savings, high returns and easy borrowing. The main aim is to provide a savings solution that’s better, cheaper and more reliable than banking systems. Chit funds are one of the oldest forms of investments to grow your money. FDs and RDs offer low interest rates of 3%-6%. On the contrary, chit funds are a much more attractive investment where you can invest a certain amount every month and earn high returns (25% annually), and more value for money. If you want high liquidity, low risk, high returns and minimal paperwork, a chit fund is the best option.
Since its inception, The Money Club has created more than 46,000 groups/clubs and has more than 2.72 lakh registered members/subscribers.
With over more than 1 million transactions so far, The Money Club is the most preferred online chit fund platform to start your journey of savings!
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Basic investment plan for Goal-based Wealth Creation
| Goal | Best Investment Alternative |
|---|---|
| Emergency funds | Chit fund + Fixed Deposit + Other Liquid Funds |
| Child’s education | SIP in Blue Chip Stocks + SIP in Mutual Fund |
| Buying a car | Recurring Deposit + Fixed Deposit |
| Buying house | SIP in Blue Chip Stocks + SIP in Mutual Fund |
| Retirement corpus | SIP in Blue Chip Stocks |
