Best Investment Options Available in India

investment options

Investment Options Available in India

There are umpteen investment options available in India. In this article, we try to list most of them and indicate their advantages and disadvantages for the investors.

  1. Public provident fund (PPF)

Public provident fund (PPF) was started in 1968 to promote savings culture across India. In PPF an investor should invest for a period of 15 years. After 15 years renewal can be done in a block of 5 years during which investments are optional.PPF account can be opened at all major public sector banks, Post offices, ICICI Bank and Axis Bank. Documents required to open PPF account are ID proof (PAN Card), address proof, Passport size photo and filled in application form.   Deposits can be made via cash, cheque or online transfers. Minimum ₹500 should be deposited every year and the maximum amount to be deposited is 1,50,000 Rs. Any amount deposited above Rs. 1,50,000 will not be eligible for interest or tax benefit.  Deposits can be one time or installments with a maximum limit of 12 installments per year.

Current interest rate applicable is 7.8%.


  • Risk-free investment, since the scheme is backed by Govt of India virtually there is no credit risk involved.
  • The Scheme comes under EEE tax status, which means Investments made under this scheme are exempted from income tax (subjected to 80C limits), Interest earned are exempted from tax and returns are also exempted from income tax.
  • PPF funds carry “no attachment” benefit. This means funds in PPF cannot be attached under court order or claimed by creditors.


  • Lock in period is 15 years. Partial withdrawals can be made only after 6 years.
  • Interest rates of PPF are been reduced gradually and hence returns generated may not be able to beat the inflation.
  1. Fixed Deposits

Fixed deposits can be done at any bank in India. The interest rate varies according to the tenure of the deposit, bank, and category. Unlike PPF they don’t have a lock-in period of 15 years (except tax saving FDs with 5-year lock-in period). Even though a term is declared initially the liquidity is high as premature withdrawals are permitted.

Current interest rate for a 5 year FD is applicable is 6.25%.


  • A wide range of tenures ranging from 1 week to 10 years.
  • Very low credit risk.


  • The interest earned is taxable.
  • Returns post inflation are low.
  • Premature withdrawals attract penalty.
  1. NPS (New pension scheme)

NPS was launched in 2004 for government employees and later in 2009 this was extended to all citizens of India with age 18 to 65.  A unique PRAN (Permanent Retirement Account Number) is allotted to the subscribers at the time of joining. There are 2 accounts allocated one is mandatory Tier 1 and an optional Tier 2 account. Investments under Tire 1 account have a lock-in period till your retirement. Investments and account opening can be done either online or offline mode.  There are 3 categories of funds into which the investments are allocated. They are equity (maximum 50%), Govt bonds and private bonds. These are similar to mutual funds with passive management.


  • Promotes long-term investments and helps to meet retirement goals as minimum 40% of the corpus should be used to buy annuities.
  • Provides additional ₹50,000 income tax benefit under 80CCE above and beyond the ₹1,50,000 from 80 C limits.
  • Freedom to decide allocation % across the 3 asset classes.


  • Falls under EET tax regime where 60% of the corpus generated is taxed under investor’s tax slab ( 20% lump sum and 40% invested in annuities)
  • Very high lock-in period and low liquidity.
  • A limited number of fund options when compared to mutual funds.
  1. Government/Corporate Bonds

A bond is debt security issued by a Company/Govt with varying interest rate and tenure to public and anchor investors to meet their expenditures. They are similar to bank FDs but are usually offered with a better rate of interest. Infrastructure bonds (and few other Govt bonds) up to ₹20000 are exempted from income tax under section 80CCF.


  • Better interest rate than bank fixed deposits.
  • The demat holding of bonds makes them liquid.


  • Corporate bonds carry credit risk & interest rate risk.
  1. NSC

NSCs are a form of fixed deposits issued by post offices.  The term can be between 5 years to 10 years. Investment amount can be as low as ₹100 and there is no upper limit. Mode of holding can be single or joint unlike in PPF where joint holding is not allowed. The scheme comes under ETE where interest earned is alone taxable. However since the interest is automatically reinvested next year, virtually it’s EEE for all years except last year.

Current interest rate applicable is 7.8%.


  • Investments are exempted from tax under 80C limits.
  • Very less credit risk as the certificates is backed by Govt of India.


  • Returns post inflation are low.
  • Very low liquidity.
  1. Post office schemes

Post offices provide an array of saving schemes similar to banks such as fixed deposits, PPF, RD, NSC and etc., However, there are 2 more notable schemes namely Senior citizens saving scheme and Kisan Vikas Patra. Under Kisan Vikas Patra Amount Invested doubles in 115 months. There is no maximum limit on the value of the investment. Senior citizens saving scheme is designed for citizens above 60 years. They get 0.5% better returns than NSCs. Premature closure is allowed after one year on deduction of an amount equal to 1.5% of the deposit & after 2 years 1% of the deposit. TDS is applicable on interest more than ₹10,000/- p.a. Both these schemes are exempted from 80C limits of income tax.

Current Interest rate applicable for Senior Citizen Savings Scheme is 8.3%.

Current Interest rate applicable for Kisan Vikas Patra is 7.5%.


  • Eligible for tax exemption under 80C.
  • Very low credit risk.


  • Low post inflation returns.
  • Low liquidity.
  1. Stock markets

Investing in stock markets can be done through any of the stockbrokers registered with SEBI. In order to invest, you need to open a DEMAT account and trading account by submitting the application form with ID, Address proof, and a passport size photograph.


  • High Growth potential
  • Very easy to redeem


  • Highly Risky
  • There is no capital guarantee
  • Requires extensive research and knowledge
  1. IPOs

IPO’s is a primary market where the company offers its share to the public for the first time before getting traded in stock markets. In general IPO’s see a huge subscription for their anticipated listing gains. They are similar to stock markets for long-term investments.


  • High Growth potential
  • Very easy to liquidate
  • Opportunity to get better price than secondary market


  • No past stock market performance is available
  • There is no capital guarantee
  • Requires extensive research and knowledge
  1. Real Estate

Real-estate industry is one of the fast growing unorganized sectors in India. Investment return depends on the area of investments. Over 80% of the properties across the country have provided more or less bank fixed deposit returns only, Windfall gains can be reaped only when you know an area will be developed in x year otherwise they underperform with stagnant real estate price.


  • Windfall gains are possible if you are lucky.


  • Very low liquidity
  • Extensive research required
  • Cannot be tracked like stocks or mutual funds or gold.
  • Unorganized sector, hence scams, delays etc. are rampant.
  1. Gold

In India, gold is the most preferred traditional class of investment. Gold can be purchased either physically in form of coins, bars, and ornaments. Also, digital gold can be bought through Gold mutual funds, Sovereign gold bonds and other e-gold vendors like paytm.  However based on research taking into inflation Gold investments with its volatility and risk into consideration they generate returns that are far lesser than equities.


  • Inflation protected returns
  • Can apply for loans easily as gold is the most accepted security in India.


  • Lower returns as compared to mutual funds.
  • Less resale value
  • Difficult to store
  1. Debt Mutual Funds

Debt Mutual Funds are funds that invest in debt securities like Treasury Bills, Government Securities, Corporate Bonds, Money Market instruments and other debt securities of different time horizons. Generally, debt securities have a fixed maturity date & pay a fixed rate of interest. There are various categories of debt mutual funds based on where they invest and investment horizon.  Here is the list of debt mutual fund categories.

Liquid funds – These are meant for parking the money for short-term needs, as these funds invest in securities with maturity less than or equal to 91 days.

Ultra short-term funds – These funds invest in securities with maturity up to 1 year. Ideally suitable for investors who would like to get better returns than liquid funds with investment duration up to 1 year.

Short-term funds – These funds invest in securities with maturity from 1 year to 3 years. These are ideally suitable for investors with low-risk appetite with horizon up to 3 years.

Dynamic bond funds – These are actively managed funds that invest in all debt category securities. Ideally for investors who want to benefit from interest rate movements.

Credit-opportunities funds invest in corporate debentures and bonds having low credit ratings to generate higher returns.

Short-term and medium- and long-term gilt funds – These funds Invest in govt securities only.  These funds are prone to interest rate risk higher the maturity dates higher the risk.

Fixed-maturity plans (FMPs) – They are similar to bank FDs and they invest in debt instruments with maturity less than or equal to the maturity date of the scheme.

These funds can be considered as an effective alternative to fixed deposits and recurring deposits as they have potential to generate higher returns than conventional fixed deposits.


  • Highly liquid
  • Better post-tax returns than fixed deposits.


  • Some categories like Credit Opportunities funds are risky.
  1. Equity Mutual funds

Equity mutual funds are funds that invest mostly in stocks. These are the ideal vehicle for investment for investors who possess less knowledge on stock markets and investing. In case of direct equity investor may lose money due to concentration but in equity mutual funds due to diversification and fund management. These are suitable even for small investors as the minimum investment required is as low as ₹500 per month for SIPs.

There are more than 1000 schemes in order to cater every type of investor’s needs. Here is a broad list of different type of equity mutual funds.

  • Small cap funds – These funds invest in stocks that have small market capitalization. Ideally, they have high risk and reward ratio.
  • Mid-cap funds – They invest the majority of the investments in companies that have medium market capitalization. They have less risk-reward ratio than small-cap
  • Large-cap funds – They invest in companies that have very large market capitalization. They will offer stability and sustainable returns, over a period of time.
  • Multi-cap funds – They invest across all 3 caps (small medium and large) and are actively managed by fund managers to generate higher returns to the investors. Ideally suitable for every investor.
  • Index funds – Index funds are funds that invest typically similar to a benchmark They are often passively managed. In India, the success of index funds is not as in overseas markets. These funds generate stable returns with minimal risk.
  • Sectoral funds – These funds are aimed to invest in a particular sector such as banking, Pharma, FMCG, Infra etc., In order to get best results investors should have knowledge on each
  • ELSS – They are similar to multi-cap funds except for the lock-in period of 3 years and tax exemption status. Let us see more about this in next section.


  • Highly liquid in nature
  • They are diversified in nature hence the risk is lower than investing directly in stock markets.
  • The best in class investment option to provide high returns.
  • Investment can be made as low as ₹500 per month.
  • Returns are non-taxable if sold after 1 years


  • Since, they invest in stock market, they carry market risk.
  1. ELSS – Equity linked savings scheme

ELSS funds are funds that were created with the intention to promote equity investments in India by providing them tax exemption under section 80C. They work similar to diversified mutual funds but they have a lock-in period of 3 years. These funds have EEE tax status which means for any money you invest in ELSS you are not required to pay income tax at any stage. This is suitable for any type of investors as these are actively managed by fund managers.


  • They provide superior returns when compared with other 80 C investment options.
  • They have the lowest lock-in period among all the 80C investment options.
  • They are classified under EEE tax status.


  • Since, they invest in stock market, they carry market risk.

There are many investment options available, choose one according to your risk profile and time horizon. Mutual funds offer an option for every risk appetite and time horizon.

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