Before starting the article about best investment options in India in 2021, let us understand that the asset classes mentioned in the article may not be not suitable for all. The selection of various investments in various proportions, to create a portfolio to suit your requirements, is the most important step in financial planning. Similarly, there are lots of areas where we have to be careful, in selecting these investments.
So, let us list down the list of asset classes for best investment options in India 2021
- Bank Deposits
- Employees Provident Fund (EPF)
- Public Provident Fund (PPF)
- National Savings Scheme (NSC)
- Post office Monthly Income Scheme (POMIS)
- Senior Citizens Savings Scheme
- New Pension Scheme (NPS)
- Life Insurance
- Gold / Silver
- Real estate
- Shares
- Mutual Funds
Now, we will discuss the merits/demerits of best investment options in India 2021 and our recommendations.
Best Investment Options in India 2021
Bank Deposits
Why to invest –Offers guaranteed returns, without any risks attached. Deposits upto 5 Lakh is insured by Deposit Insurance and Credit Guarantee Corporation of India. It is a Liquid investment because, premature withdrawal is allowed with a small penalty.
Why not to invest – Offers poor returns, sometimes lower than the inflation. Interest earned is taxable also.
What to do – We can park our contingency fund in Bank deposits. This can ideally be our compulsory expenses for 5-6 months including EMIs. Keeping more than 10% of our portfolio in Bank Deposits will pull down your investments in the long term. Our savings account also can be converted to a linked account, whereby the amount in excess of a particular level will be automatically converted into a fixed deposit, without losing the facilities of a savings account.
Employees Provident Fund (EPF)
Why to invest – It is a decent debt investment, allowed only for organized sector. It offers Section 80 C benefits and the withdrawal is totally tax free, if withdrawn after 5 years service or on retirement.
Why not to invest – This is a compulsory scheme for employees, returns are around 8% declared every year.
What to do – Even though it is a debt instrument, the tax-free withdrawal makes it a good investment avenue for employees. Please avoid in between withdrawals and withdrawals when you are changing jobs. It is better to transfer the accumulation to the new employer so that the amount will be growing and can be used for retirement.
Public Provident Fund (PPF)
Why to invest – This is one of the best debt schemes with Sec. 80 C tax benefit. The entire accumulation is tax free on retirement. Flexibility in depositing any amount between 500 -1.5 Lakhs in a year is an attraction.
Why not to invest – The liquidity is less during the 15-year period.
What to do – This is a must for everybody, as part of their debt portfolio. The tax free withdrawal will be useful for retirement benefits.
Also Read : PPF Account Rules and Regulations
National Savings Scheme (NSC)
Why to invest – Another debt scheme with Sec 80 C benefits, which offers around 8% returns.
Why not to invest – There is no liquidity in the 5/10 years period and return is only around 8%, which is not tax free.
What to do –Better not to invest, because there are better debt options available. If liquidity is not an issue, you can go for it.
Post office Monthly Income Scheme (POMIS)
Why to invest – Ideal product for retired persons to ensure a monthly income. It gives around 8% return payable monthly and interest rates are set on quarterly basis
Why not to invest – return of around 8% is taxable and there is very little liquidity during 6 year period.
What to do – Retired persons can have some exposure to this for their monthly needs.
Senior Citizens Savings Scheme
Why to invest –offering the highest return of 8.5% in the debt category, and interest is payable quarterly. You can extend 5 years term by another 3 years.
Why not to invest –Return of 8.5% is taxable. Upper limit for investment is 15 Lakhs only.
What to do – Ideal debt scheme for retired persons to ensure quarterly money inflow.
New Pension Scheme (NPS)
Why to invest -The scheme is similar to Mutual Fund, with equity exposure and least fund management charges. This can create better returns over long term.
Why not to invest – Very poor liquidity till retirement. 40% of the corpus need to be invested in annuities which give very poor returns.
What to do –NPS is under EEE category (Tax free withdrawal) now, which will make it very attractive. This may emerge as one of the best retirement planning tools.
Also Read: NPS Tier I & II
Life Insurance
Why to invest – This is a unique instrument which gives protection to the family in case of untimely death of the bread winner.
Why not to invest – Investment oriented plans offers poor returns because of their limitations in investments and high charges under various heads.
What to do –Treat insurance premium as an expense and not as an investment. Go for Term Insurance policies and enjoy the low premium benefits and invest the balance amount in instruments with good returns. But ensure, you take life insurance as per the human Life Value (roughly 15-20 times of your annual income). Please ensure that, you disclose all existing diseases at the proposal stage itself, to avoid any confusion latter.
Also Read: What should be the tenure of Term Insurance?
Gold / Silver
Why to invest – Almost zero or negative correlation with other asset classes, makes them ideal to include in the portfolio. Silver and gold had the highest returns in 2010.
Why not to invest – Problems in storage, Safety and quality.
What to do – We can have 5-10 % of our portfolio invested in this, to diversify. Gold ETFs and e-silver will be the ideal way for investments instead of material investments.
Real estate
Why to invest – very good appreciation till 2010-11. Easy availability of bank loan for housing sector and attached income tax benefits.
Why not to invest – real estate prices have sky rocketed and scope for further appreciation is limited. Interest rates are on the rise and tax benefits are under review.
What to do – Everybody could go for one house for self-use and avail tax benefits too. Anytime is the right time for this. Investment in the second house has to be considered only after constructing a portfolio with more liquid assets like mutual funds. Otherwise a small percentage in interest rate can make your EMI unaffordable.
Shares
Why to invest –World over, equities have delivered the highest returns over the long term. In a growing economy like India with GDP growth is around 8%, equity returns will be high in the coming years.
Why not to invest – Companies with good management, with low debt burden and operating in high growth sectors can give good returns. Selection of good companies to invest is a difficult task for the common man.
What to do – Don’t procure any shares without understanding the business and fundamentals of the companies. Don’t listen to the tips and rumors from anybody and invest. Invest in good companies on a regular basis for long term wealth creation.
Mutual Funds
Why to invest – This helps the investors to invest in equities with the help of professional fund managers. Their research and analysis will help them in identifying good companies to invest which will reduce the risk.
Why not to invest – since the investments are in equities, this can create short term volatility, which can upset the investor.
What to do – Regular investments in mutual fund by way of SIPs is one of the best ways to create long term wealth. Investor can create a core portfolio with 1 or 2 large cap funds/multicap funds with long term performance history and then can go for 1 or 2 midcap funds. For Debt allocation, they can think of debt funds .
Also Read: Best ELSS Mutual Funds in 2019
Conclusion
Always follow the asset allocation as per your age and years to retirement. For equity exposure, mutual funds will be the ideal option, to benefit by the professional fund management. Withdrawal from equity mutual funds after 1 year is taxable at 10% if it is above 1 Lakh. For Debt investment, PPF will be the ideal option because of it’s tax free status on withdrawal. After retirement, we can think of POMIS and Senior Citizen’s savings scheme for a regular income. Real Estate could be one house for self use. Investments in Gold/silver can be to 5-10% our total portfolio. Insurance premium is to be treated as an expense. Also, go for Term insurance policies for a decent value to ensure protection to the dependents. Go for health insurance also to protect against the huge medical inflation and increasing longevity.
Hence, by careful selection of ideal investment instruments and regular reviews, we can accumulate enough money for our retirement to ensure a decent standard of living for those Golden years in Life.
So, what is your view on Best Investment Options in India in 2021 ? Also, Which is your favorite instrument to invest your money?
Hi,
All of your articles are very informative..Thanks for ur effort.
Thanks Albin