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Types of Investment in India

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Over the years, the Indian financial market has evolved. With this evolvement, financially savvy types of investors in India have been given a plethora of short-term investment plans and long-term investment options to consider. Let’s check the various types of investments available in India.

Top 10 Types of Investment 2021

Following are the types of investment available in India:

  • Stocks
  • Certificate of Deposit
  • Bonds
  • Real Estate
  • Fixed Diposits
  • Mutual Funds
  • Public Provident Fund (PPF)
  • National Pension System (NPS)
  • Unit Linked Insurance Plan (ULIP)
  • Senior Citizens’ Savings Scheme
     

Let’s discuss the types of investments available in detail below:

1. Stocks

Investments in equity markets or stocks provide avenue for wealth creation over a long period of time. It takes a great deal of research and prudence to understand the different types of investment opportunities and identify the right stocks to invest in. You also need to time your entry and exit prudently, and it involves continuous monitoring of investments. Capital appreciation happens over long period of time and is dependent upon market volatility.

Depending on the types of investors in India, stock investments can bring good returns on the basis of risk-appetite. The good news is that in the long run, some of the stocks has been shown to deliver greater inflation-adjusted returns when compared with many other classes of assets.

Types of Investment

2. Certificate of Deposit 

Among the many investment types in India, Certificate of Deposit is a money market instrument which is issued against the funds deposited by an investor. It is invested with the bank in a dematerialized form for a certain period of time. Certificate of Deposit is issued by Federal Deposit Insurance Corporation (FDIC) and regulated by the Reserve Bank of India (RBI).

Investment tips for Certificate of Deposit  

  • A CD can be issued to a single issuer for a minimum of Rs.1 Lakh and its multiples
  • Maturity period of a Certificate of Deposit issued by the commercial banks can range from 7 days to 1 year. Whereas, maturity period for a certificate of deposit issued by financial institutions ranges from 1 year to 3 years

3. Bonds 

Bond is one of the debt investment types in India. Investors lend money to the issuer company in exchange of a bond and in return of the bond, the issuer is obliged to pay interest on the principal amount. The issuer is required to repay money borrowed along with a fixed rate of interest on the amount borrowed. Nowadays, variable rate of interest is also quite common.

Investment tips for Bonds in India 

  • Bonds come with maturity dates by which the borrower is required to pay principal amount back in full or risk default
  • Bond are the types of investment in India which traditionally comes with a fixed rate of interest (also known as coupon). But, nowadays variable rate of interest option is also available

4. Real Estate

Investing in real estate involves purchasing residential or commercial properties to allow your capital to appreciate or to generate regular rental income. With such investment types, you get to enjoy a steady stream of income in the form of rent. Another strategy is to purchase real estate units, hold them, and then sell them at a later point in time for a higher price, thus earning a significant return on your initial investment. 

Investment in Real Estate Tips

  • If you are looking to score a higher rate of appreciation, make simple improvements and upgrades to your real estate investment. This can go a long way in increasing the market value of your property
  • Understand the additional costs you may have to incur on your real estate purchase. These may include annual maintenance and upkeep outgo, taxation, utility expenses and more

5. Fixed Deposits (FD)

Fixed Deposits, which are offered by banks and non-banking financial organisations (NBFCs), are an excellent option to grow your funds while maintaining the highest level of safety. Among the different types of investments in India, this remain a popular choice since it allows you to deposit a lump sum cash with your lender and choose a tenor that suits your needs. Following the conclusion of the pre-determined tenor, your deposit begins collecting interest at the interest rate you locked in for the duration of your deposit.

Investment tips for Fixed Deposits

  • Premature withdrawals from your FDs will incur a penalty. Hence, it is advisable to choose a suitable deposit tenure after keenly evaluating your future financial goals
  • While FDs are generally assumed to be risk-free types of investments in certain circumstances, they carry with them an amount of risk.  In the event that a bank fails financially, you are insured an amount of Rs.5 lakh per bank per depositor. By splitting your investment across different banks, you can effectively safeguard a good chunk of your finances

6. Mutual Funds

Mutual funds (MFs) invest in market-linked instruments such as stocks, bonds, or a mix of both equity and debt instruments. The different types of investors in India can choose between equity funds, debt funds, and balanced funds depending on your financial goals and requirements. Furthermore, you can also invest small amounts periodically in MFs using a Systematic Investment Plan (SIP).

Investment tips for Mutual Funds

  • Review your risk preferences before choosing from the different types of investment options. Invest in equity mutual funds if you have a higher risk appetite; for conservative investors, debt schemes are ideal. The options exist to suit the preferences of varying types of investors in India.
  • Understand the prevalent taxation system before investing. You can invest in tax-saving mutual funds such as the ELSS (Equity Linked Savings Scheme) to help maximize your returns
  • Understand the various charges you may incur while choosing different funds in these investment types. This is commonly known as the expense ratio.

7. Public Provident Fund (PPF)

Considered to be one of the safest option among the different types of investment in India, Public Provident Fund (PPF) is an instrument backed by the government. You can invest in PPF by opening an account with any bank or post office. While opening the account, the minimum investment amount is as low as Rs.100 in some of the banks (can vary for every bank). Thereafter, the annual limits for PPF deposits range from a minimum of Rs.500 to a maximum of Rs.1.5 lakh. These investment types come with a lock-in period of 15 years and are eligible for tax deductions under section 80C of the Income Tax Act, 1961.

Investment Tips for PPF

  • PPF interest is calculated on the basis of the minimum balance in one’s PPF account between the 5th of the month and the month end. Thus, you should make it a practice to invest before the 5th of every month
  • Investing in a PPF through a bank that provides the facility of online transfers is a must. This spells convenience and efficiency for investors and helps facilitate regular contributions.

8. National Pension System (NPS)

The National Pension System (NPS) is another investment plan backed by the government of India. It falls under the types of investments in India that focuses on saving for the long term, making it the perfect addition to your retirement investment plan. The amount you park in this scheme is invested in a variety of other investment vehicles like equity, deposits, government securities, corporate bonds, and other funds. You can remain invested till you reach the age of 60.

Investment Tips for NPS

  • Make the most of your NPS investment by claiming the applicable tax benefits
  • NPS contributions are investment types that qualify for deduction under sections 80CCD (1), 80CCD (1B), and 80CCD (2)

NPS Investment plan Max Life Insurance

The National Pension System (NPS) is another investment plan backed by the government of India. It falls under the types of investments in India that focuses on saving for the long term, making it the perfect addition to your retirement investment plan. The amount you park in this scheme is invested in a variety of other investment vehicles like equity, deposits, government securities, corporate bonds, and other funds. You can remain invested till you reach the age of 60.

Investment Tips for NPS

  • Make the most of your NPS investment by claiming the applicable tax benefits
  • NPS contributions are investment types that qualify for deduction under sections 80CCD (1), 80CCD (1B), and 80CCD (2)

NPS Investment plan Max Life Insurance

  • You can choose from two different types of investment choices i.e. active choice or auto choice. In an auto choice investment, the proportion of investment in different asset classes is predetermined. In active choice, you can determine the asset allocation, as per your preferences. If you are financially adept, you can go for the active choice types of investment options. If one doesn’t possess the required financial literacy, auto choice would prove ideal.

9. Unit Linked Insurance Plans (ULIP)

Unit Linked Insurance Plans (ULIPs) are among types of investments in India that come with tax benefits as well. It is an instrument that offers you the advantage of investment combined with insurance. The premium you pay to remain invested is divided into two portions. One part goes towards providing you a protective life cover, while the other is invested in market-linked instruments or funds. ULIPs also provide deductions under Income Tax Act 1961 as per prevailing tax laws, since the premium paid is deductible, and the maturity benefits and long-term capital gains are tax-free.

Investment Tips for ULIPs

  • Make note of the charges you may incur upon investing in these types of investment. These may include premium allocation charges, administrative charges, fund management charges, mortality charges and more. Invest in a ULIP from an insurer provider that levies a minimum amount of charges
  • Opt for a ULIP that provides an optimum amount of flexibility. You should pick a plan that offers flexibility in terms of premium payments, customizable plans with different fund options. To cater to the needs of different types of investors in India, ULIPs allow the ability to easily redirect your premiums and switch funds, according to market movements and evolving risk appetite.
  • ULIPs are investment types that offer flexibility to opt for an asset allocation strategy depending on the risk appetite and goal in mind. Policyholder can opt for a fixed proportion to be maintained in equity and debt throughout the policy term.   

10. Senior Citizens’ Savings Scheme

SSenior Citizens’ Savings Scheme (SCSS) is one of the types of investments backed by the Government of India. Indian residents over 60 years of age can open an SCSS account and invest in this scheme for a block of 5 years. Thereafter, the investment can be extended by another 3 years, if needed. You can deposit up to Rs.15 lakh in your SCSS account in multiples of Rs.1,000 only. Deposits up to Rs.1 lakh can be made in cash. However, deposits over Rs.1 lakh need to be made using a demand draft or cheque. Investments in SCSS also qualify for deduction under section 80C, up to a limit of Rs.1.5 lakh.

Investment Tips for SCSS

  • While investors do have the option of premature withdrawal, they must bear in mind that a penalty charge ranging from 1-1.5% of the deposit will be levied
  • While the SCSS provides a high rate of interest as compared to other fixed income instruments, this interest rate may be subject to change based on a quarterly review. Investors must keep track of this rate of interest.

Things to Bear in Mind While Investing

If you are a beginner to investing your money, you may find it challenging to choose from the different types of investments in India. In such a scenario, some sound financial advice may be just what you need to help identify suitable investment types for you.

Here are some investment tips that will prove useful -

  • There are different types of investors in India, hence, it is crucial to identify your tolerance for risk. The types of investments you choose will depend greatly on your risk tolerance.
  • Use an investment calculator to get a rough estimate of how the instruments you are planning to invest in will yield returns after their term is up. There are many investment calculators available for free online
  • Chart out your short-term and long-term financial goals, and pick the different types of investments that align with those objectives
  • Diversify your investment portfolio, so it has a balanced mix of high-risk and low-risk investments
  • Ensure that you have a retirement investment plan in place, because it’s important to save for your golden years
  • Review the different types of investments in your portfolio periodically to verify if they continue to remain aligned with your personal goals

Recognize Suitable Types of Investments for Your Goals

With this comprehensive guide to getting started with different types of investments in India, you can begin the process of charting out your financial plan. By investing your earnings prudently in varying investment types, you can ensure that your hard-earned money is parked in instruments that help you meet your short-term and long-term financial goals.

Investment planning or financial planning is also a great way to plan for retirement, so you can finally exit the rat race and take some time to do what you have always wanted to do in your golden years, whether it’s something as simple as learning a new skill or something as grand as traveling the world.

With Max Life, you can fulfill your investment and retirement goals by investing in plans such as the Max Life Forever Young Pension Plan, Saral Pension Plan, Guaranteed Lifetime Income Plan and more. Besides this, you can also opt for financial security and wealth creation with the Smart Wealth Plan to meet your specific financial requirements.  

Please consult your financial advisor before investing.

Frequently Asked Questions (FAQs)

Q. What is the meaning of Investment?

A. An investment is an asset that is created with a view to grow money with time. The wealth created making investment can be used for fulfilling various objectives or goals like retirement planning, planning for child education, purchase of other tangible assets, loan repayment etc. You will find different types of investments in India best-suited for particular financial goals. 

Q. What are the key points one should consider before investing in India?

A. Before you invest your hard-earned money in any of the investment types in India mentioned above, you should keep the following points in mind:

● Identify your risk appetite

● Use an investment calculator online to calculate possible returns

● List short term & long term financial goals to choose the right investment types

● Diversify your investment portfolio

● Plan for your retirement

● Review your investments periodically

 

ARN No: Oct21/Bg/21C

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