Best Investment Alternatives in India for 2021

By March 15, 2021 No Comments
Best Investment Alternatives In India

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 right investment for your portfolio.

Why is it important to choose the right investment option?

Choose the right investment option important because of two main reasons:

  • You reap good profits in the future
  • You accomplish your investment objective

This guide walks you through 12 of the most common types of investment 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.

    Type of Investing Goal Timeframe
    Short Term 5 Years
    Medium Term 5 – 10 Years
    Long Term 10+ Years

    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.


    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:

    1. 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.


    3. Investment Objective

      Before you start investing, you need to figure out your investment objective. Your objective should be clear, such as:

      1. Short term goals

        • Increase saving
        • Save tax
        • Vehicle purchase
        • Travel
        • Fight inflation
      2. 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.

    4. 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.
    5. 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.
    6. 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.

    7. Diversification

      It means investing your money in various asset classes to diversify your investment portfolio to reduce risk.

    Best Investment Alternatives for you in 2021

    Best Alternative investments in India are:

    1. 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
    2. 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
    3. 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
    4. 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
    5. 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
    6. 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
    7. 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
    8. 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
    9. 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
    10. 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
    11. 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
    12. 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

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    Basic investment plan for Goal-based Wealth Creation

    The philosophy behind the goal-based investment planning strategy is that – it should help you achieve your life goals as and when you want. The success of your strategy is measured by how much progress you have made towards achieving each of your stated investment goal. Your goals should be able to help you build a purposeful asset allocation. Also, each of your goal needs to have a dedicated investment portfolio.

    Goal Suitable 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

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