The top ten investment options in India

Top ten investment options in India

We live in this modern-day era where change is the only constant, and the investment world is no different. Economies worldwide are more connected than ever. As a result, many investment options are available to investors. Furthermore, technological advancements are beyond belief, making investing highly convenient. Any investment opportunity is just a click away. However, it is vital to assess which investment suits the personal investment journey. In other words, the selection of investment results from assessment on suitability and availability. Here is a recap of the top ten investment options in India. And, we encourage you to learn more about financial planning here.

Above all, and despite the plethora of options, one thing remains constant: the expectation of good returns from an investment. In other words, the objective is to protect the capital value and achieve the best possible risk-adjusted returns.

Per the above principle, which is the underlying truth, here are the top investment options for your consideration:

Fixed deposits (FD)

Fixed deposits are investment vehicles usually offered by banks, NBFCs and other authorized institutions. Investors create deposits for a pre-determined period/duration and earn interest. Further, there is a choice to get the interest paid or reinvest.

Typically, the deposits would mature at the end of the duration. In other words, the investors can withdraw the amount upon maturity and redirect the proceeds. Alternatively, investors can reinitiate the fixed deposit at the prevailing interest rates for another fixed duration.

Premature withdrawal from an FD is possible and straightforward. Just an intimation is considered good enough. However, the interest on early withdrawals is lower than the initially promised interest rate for the entire duration.

Post office savings scheme

As the name suggests, investors can create these deposits in post offices. The modus operandi is similar to the fixed deposits, just that the offerer is India Post in this case.

Post offices in India are widespread and have a deep presence. Therefore, the savings scheme got introduced to habituate people about the financial planning process at all socio-economic levels.

Mutual Funds

Mutual funds appoint asset managers to manage the pool of money contributed by the investors. Their background, experience, and presence among people with knowledge of the financial market put them at an advantage. Of course, mere knowledge alone does not guarantee better performance or immunity from the downside. However, they are undoubtedly well-equipped than a typical investor to make investment decisions.

How does the investment work?

First, investors subscribe to a mutual fund and contribute money. Second, the fund managers invest in shares, bonds, commodities, etc., as per the mutual fund’s investment objectives. It is imperative to note that investors do not choose investment time or securities. Third, since the money gets invested into several stocks, mutual funds provide a great deal of diversification. Finally, the redemption of a mutual fund is relatively simple. A request, once placed, gets processed in two to three days, and therefore, mutual funds are considered highly liquid.

Systematic Investment Plan (SIP)

Mutual funds offer an option to invest via a Systematic Investment Plan (SIP). A SIP means spreading investment into equal instalments over time. Usually, investors must consider an investment horizon of 7-10 years. Investors generally contribute a fixed amount in the same scheme in the SIP.

Here are some of the features of a systematic investment plan:

  1. An equal amount gets invested on pre-defined dates and at pre-set intervals
  2. SIPs apply the concept of cost averaging over a long period
  3. Investment can happen with small amounts
  4. The SIPs usually require a long-term commitment to remain invested
  5. Investing via SIP imposes discipline to save and invest regularly. That feature is especially beneficial for investors with irregular cash-inflows
  6. The benefits of compounding are available as interest/dividend get reinvested, thereby improving returns
  7. Investments in mutual funds are highly liquid

Equity Linked Savings Scheme (ELSS)

Investment into Equity Linked Savings Scheme (ELSS) is deductible from taxable income under section 80C of the Income Tax Act of India. The maximum deduction available under this section is Rs1.5 Lakhs in a financial year.

The section covers several other options like PPF, NSC, etc. The tax exemption limit of Rs1.5 Lakh is cumulative for all the investments. Further, the income from ELSS schemes is classified as Long-Term Capital Gain (LTCG) and is taxed at 10% if the gain is more than Rs1 lakh in a financial year. However, do remember to refer to the latest capital gains rules, as these are subject to change.

ELSS mutual funds invest most of their corpus fund into equity and equity-linked instruments. Equity investment happens across many sectors and the size of companies. Given the tax-efficient nature, any investment into ELSS comes with a mandatory three-year lock-in period from the investment date. An investor may choose to remain invested for as long as the investor wishes. In other words, premature withdrawal from ELSS during lock-in is not possible. Still, continuing post the lock-in is a possibility.

Liquid Funds

Liquid funds are like mutual funds. The money gets invested into fixed-income securities, treasury bills, and other government securities. There is no lock-in period, and hence withdrawal is easy. The fund house usually processes the redemption requests within a day.

These are safe investments and are suitable for risk-averse investors. In addition, the returns are slightly better than bank fixed deposits. Therefore, ideal for investors who would like to park their money for the short term.

Direct Equity

Investing directly in stock is equivalent to becoming a part-owner to the extent of shares purchased. That is because the ownership rights like the right to transfer ownership, voting power, bonus, splits, dividends, etc., accrue with the purchase of shares.

Direct investment requires significant time and energy on research to identify an investible opportunity. In addition, investors must possess decent analytical skills, economic and market understanding to spot suitable investment consistently.

If you are a novice investor, here is a detailed guide to investing in the stock market for beginners.

Initial Public Offer

Initial Public Offer (IPO) offer an exit route to existing shareholders. An IPO allows initial investors an opportunity to unlock their investment.

Primarily, there are three types of offers:

New offer where a company raises capital for the first time. The IPO proceeds act as a source to inject money into the business.

Offer for sale (OFS) is when the promotors, anchor investors, or both sell their shareholding via an IPO. In other words, an OFS does not require any fresh equity of shares. Therefore, only the shareholding pattern changes as a result of the IPO.

Follow-on offers are the ones where an already listed company issues stocks. The follow-on offers can be dilutive or non-dilutive. For instance, when a company gives new equity shares, the Earnings Per Share (EPS) reduces, meaning the offer is dilutive. Alternatively, a company can offer already existing shares, making it non-dilutive.

Fixed income securities

Fixed-income assets pay regular interest income regularly or accumulate the interest income. Usually, corporates, government bodies, financial institutions issue bonds to the public markets. Then, the interested investors can subscribe to the bonds to help offerers raise money. In other words, the fixed income investment options are loans made by the investors to the borrower entity.

The risk profile here is related to the financial profile of the issuer. For instance, well-rated issuers like government, large corporates, government-backed companies, etc., are considered secure. Therefore, risk-averse investors can subscribe to fixed income securities by government and state issuers.

National Pension Scheme (NPS)

National Pension Scheme (NPS) is a pension cum investment option that acts as a security for the participants. NPS is relatively modern as it integrates investing in the market but still offers the desired safety to its subscribers. Essentially, NPS helps subscribers plan for their retirement through safe and secure market-based income methods.

NPS has become popular amongst investors. That is because NPS offers a safe, contemporary investment style allowing investors to modernize the portfolio. Essentially, NPS is a social security initiative for the public, private, and even employees from the unorganized sector.

In conclusion, National Pension Scheme is an investment tool that focuses on your retirement needs. However, if your objective is to meet any short term financial goals, avoid the NPS route.

Key features:

  1. NPS offers its subscribers market-based returns
  2. The costs of investment are minimal
  3. The NPS scheme provides flexibility to choose the critical variables like the fund manager, investment options, service provider, etc.
  4. Experts manage the assets under management
  5. NPS provides an additional tax advantage to individuals to the tune of Rs 50,000 per annum
  6. Investors can participate with as low as Rs 500/-
  7. There is a minimum lock-in for ten years
  8. NPS is technologically advanced and allows participants to make contributions online and even track investment performance digitally
  9. The scheme participants can operate their accounts from anywhere, even if they change cities or employment

We invite you to read our detailed note on National Pension Scheme, where we have explained the scheme at length.

Public Provident Fund (PPF)

In 1968, the National Savings Institute of the Ministry of Finance launched Public Provident Fund (PPF) scheme. The focus of this scheme was to mobilize small savings. Further, PPF offers a risk-free investment option with decent returns and brings along the benefits under section 80C of the Income Tax Act.

PPF is one of the best choices for investors with a low-risk appetite. The scheme is fully government-backed, and the investment is not market-linked. Further, PPF offers guaranteed returns and ensures capital protection.

Key features:

  1. The minimum investment for 15 years
  2. Minimum investment of Rs500 and a maximum of Rs1.5 Lakh for a financial year. You can invest in a lump sum or instalments, up to a maximum of 12
  3. Deposits into PPF must be made once every year for 15 years

Comparison with other tax saving investment options

Several schemes offer tax savings investment options, and below, you can see a comparison table:

Investment option Expected annual returns Lock-in period Tax on returns
Public Provident Fund (PPF) 7-8% 15 years Not taxable
National Savings Scheme (NSC) 6-7% 5 years Taxable
National Pension Scheme (NPS) 7-8% Until retirement Partially taxable
5-year bank fixed deposit 5-6% 5 years Taxable
ELSS 7-12% 3 years Partially taxable

Senior Citizen Savings Scheme (SCSS)

GoI launched the Senior Citizens Savings Scheme (SCSS) in August 2004 for senior citizens (as the name suggests). SCSS offers a continuous income stream at relatively better interest rates than most traditional savings vehicles like bank fixed or recurring deposits. In other words, SCSS is a compelling long-term savings option that is safe and convenient at the same time.

The scheme rules specify who can be a depositor:

  1. One who has attained 60 years of age
  2. One who has reached 55 years of age and has retired under a voluntary retirement scheme
  3. Retired personnel from defence services (excluding civilian Defence employees) irrespective of the age limits subject to fulfilment of certain conditions

Above all, reference to the ‘age’ mentioned above is as on the date of opening of the account.

Non-resident Indians (NRI) and Hindu Undivided Family (HUF) are not eligible to open an account under these rules. However, if a depositor subsequently becomes an NRI, the SCSS account may continue until its maturity but can’t be extended. You may read more about Senior Citizen Savings Scheme here.


Investment in gold happens in numerous forms, such as jewellery, physical bars, coins, digitally, etc. Therefore, gold is a multipurpose asset, i.e., used for occasions, regular consumption, investment, etc. In other words, gold is utterly typical in most Indian households, and investors purchase gold in various forms and for multiple reasons.

A family gold reserve is considered a matter of pride. So, for example, it is quite natural for an average Indian to have seen the grandparents buy (and accumulate) gold.

Further, family gold acts as a saviour that helps tide over any adverse financial circumstances. In other words, gold serves as a support system.

Essentially, the value of gold has two facets: what is displayed on the screen when you enter a jewellers shop, and the second is the emotional value. Therefore, from an investment perspective, we should tackle gold as just one option and make investment decisions based on the same. Therefore, we encourage investors to evaluate gold within a broader umbrella of their investment strategy. Read more about investing in gold here.

Should gold form a part of your portfolio?

Simply put, gold does not have any returns of its own. Essentially, returns from gold result from a change in the price of the yellow metal. Further, global demand and supply of gold determine its costs. So, despite being a non-earning asset, is still having gold in your portfolio is essential? Probably yes, and here are a few reasons:

First, investing in gold provides diversification.

Second, gold prices increase during difficult times. In other words, investment in gold provides a natural hedge to the market’s uncertainties. For example, the gold prices escalated when the equities market underperformed during 2008-2010.

Third, gold comes from mines, and there is a limited supply of gold. Therefore, we expect the global gold demand to continue to exist and rise.

Finally, secondary gold markets have existed for an extended period like equities. And a secondary commodities market will continue to exist and provide investors with an avenue to trade and invest in gold.

Above all, it is imperative to note that any reference to gold investment is not gold jewellery. That is because jewellery comes with additional expenses of making and wastage costs. So instead, investors must buy gold bars, ETFs, mutual funds, etc. In conclusion, investors can consider allocating about 10-15% of their total portfolio in gold.

Real Estate

Traditionally, investment in real estate has been the most common avenue, especially land. Real estate is a long term investment as any appreciation happens over a significantly long time. Further, real estate prices depend heavily on location, so generalization of returns is impossible.

Real estate is a less liquid type of investment. You cannot convert a real estate asset to cash for immediate needs. At least not without a significant loss in value.

The cost of holding is also an essential factor to consider. Any household property will require proper maintenance. The rental income may cover the wear and tear, but the net yield may not be sufficient to justify the cost of holding.

There is also a possibility to indirectly invest in real estate through a Real Estate Investment Trust (REIT). It is relatively a modern-day concept but a highly prevalent investment option in western markets.

Alternate Investments

Generally, alternative investments have unique dynamics, and investors must evaluate them separately. A few examples of alternate assets are:

  1. Work and collection of art, like, stamps, paintings, etc.
  2. Vintage cars
  3. Precious and semi-precious stones

Risk-averse investors must avoid these alternative investments as standard demand-supply economics can never explain returns. Further, the cost of holding is usually relatively high, and the ability to immediately convert into cash is significantly low.

To invest in start-up’s

India has become a land of start-ups, and every hour, new and promising entrepreneurs are joining the spree. Not just that, people enjoy being entrepreneurs; they often like to join hands with entrepreneurs. Investors can buy a share or a portion of a start-up company (also called Equity Crowdfunding).

Many investors are expanding their portfolios by investing small to mid-size amounts in different start-ups directly within their network or through intermediary firms who assist the process.

Peer to peer lending (P2P lending)

One of the recent innovative financial products allows potential creditworthy borrowers to profile themselves and attract investors directly or through a platform. E.g. Faircent. The platform pulls together money to form a larger pool of funds. People seeking capital for business can borrow from the collection of funds.

A quick recap

The above note only reflects how the investment avenues have evolved within the traditional asset classes and how new asset classes emerge. Investors will always find exciting options to invest in, but they must remain vigilant in determining an investment’s efficacy. Evaluate the opportunity in-depth, and when these decisions get complicated, you must consult your financial advisor.

Here is a quick summary of the risk-return profile of the investment options mentioned earlier:

Investment option Risk Returns (annual)
Fixed deposits Nil It depends on the duration and financial institution. Generally between 3-6%
Mutual funds Low to Medium Market linked and usually ranges from 7-15% over a long period
Direct Equity Medium to High Market linked, and one cannot assess and generalize
Fixed income securities Low 5-8%
National Pension Scheme Low to Medium Market linked and usually ranges between 7-10%
Public Provident Fund Nil 7-8%
Senior Citizen Savings Scheme Nil 7-8% (governed by India Post)
Gold Low to Medium Market linked to the price of the yellow metal
Real Estate Medium 5-20% depending on location and time for which you hold the investment
Alternate investments High One cannot assess the same


We have not included cash in the list of investment options as we believe keeping money idle is an opportunity lost. Therefore, investors would refrain from keeping cash beyond what is necessary. In other words, an investor will invest excess cash into one of the above avenues.

In conclusion, every investment option is good, but remember that one size does not fit all. What is suitable for one investor may not be for the other. Choosing an investment should be personal to the investor’s profile.

Happy investing!

About the author

The author is a senior finance professional with over fifteen years of work experience in corporate finance. He has an affinity for matters relating to personal finance and investment management. The author wants to share his knowledge and understanding of the subject through his writing.

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The author has used his knowledge, experience, and understanding of the subject and has exercised extreme caution to avoid possible mistakes. However, the author does not take responsibility for any error that exists.

The article’s views, opinions, and thoughts belong solely to the author and not necessarily to the author’s employer (past or current), organization, committee, or other group or individual.

Under any circumstances, the author shall not be liable for any views or analysis expressed in this note. Further, the opinions expressed are not binding on any authority or Court. We advise readers to consult their financial advisor for assistance in their specific case.

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