Types of Investment Options in India

Saving or investing money forms a crucial part of any financial plan. Investing means allocating your money towards different asset classes with the aim of generating high returns. After all, it makes no sense to keep your money idle when you can use it to earn more money. By making wise investment decisions, you can grow your money by several times in the long run.

In this article, we will talk about why investing is important, what are the types of investments available in India, and why you should invest in them. Let’s get started.

Why is Investing Important?

Investing your money is essential to achieving your future financial goals. In today’s world, you cannot rely merely on your savings to fulfil your long-term financial objectives. You need to invest your money in appropriate instruments so that they can grow and accumulate into a large corpus over time.

Furthermore, investing allows you to nullify the impact of inflation by generating inflation-beating returns. You can also benefit from the power of compounding by investing in a long-term savings plan. Even small investments made regularly can consolidate into a large pool of funds after, say, 20 to 30 years and help you meet your various financial goals, such as funding your child’s marriage, building your retirement corpus, etc.

Apart from that, making regular investments instils financial discipline in you as you learn the habit of setting aside a particular amount every month or every year for investing. 

A savings plan such as the Public Provident Fund (PPF), National Pension Scheme (NPS), Equity Linked Savings Scheme (ELSS), and Unit Linked Insurance Plans (ULIPs) even allows you to reduce your tax outgo.

Top 10 Types of Investment (2024)

1. Stocks
2. Real Estate
3. Certificate of deposit
4. Fixed Deposit
5. Unit Linked Insurance Plan (ULIP)
6. Mutual Funds
7. Public Provident Fund (PPF)
8. Senior Citizen Saving Scheme
9. National Pension System
10. Bonds

All investment vehicles can broadly be classified into two segments: Growth-oriented investment vehicles and fixed-income investment vehicles. It's vital to choose the right option for your investment profile.

While growth-oriented instruments can help you gain high returns on your investments, they also involve a fair deal of risks. On the other hand, fixed-income instruments provide stability and security to your investments in exchange for comparatively lower returns. 

Below are some popular investment vehicles where you can invest your money:

1. Life insurance plans
   

   Though life insurance plans are mainly meant to provide financial security for you and your family members, they can also act as investment instruments. There are two types of life insurance plans available in the market – term insurance plans and return of premium plans.
   
   While term insurance plans are pure protection plans with no investment component, the return of premium plans allows you to grow your capital as well. Some examples of such plans include endowment plans and Unit-linked insurance plans (ULIPs).



2. Stocks and equities
   

   Stocks and equities are some of the most common growth-oriented investment avenues, and they can help you grow your money multiple times over a short to medium interval of time. However, they are high-risk instruments and can quickly degrade your money as well. Therefore, you need to be very careful and diligent while investing in these instruments.
   
   

3. Mutual funds
   

   Mutual funds are another popular investment avenue for medium to long-term investors. Mutual funds are comparatively less risky than stocks since professional fund managers manage them. You can select from a pool of debt and equity mutual funds to create a portfolio that suits your financial goals and risk appetite.



4. Government-sponsored savings plans

   There are many Government-sponsored savings plans where you can invest your money to gain decent returns. These plans offer substantial capital appreciation along with investment security and are mainly beneficial for creating long-term corpus. A few examples of such a savings plan include the Public Provident Fund (PPF), Employee Provident Fund (EPF), and National Pension Scheme (NPS).



5. Fixed Deposits

   Fixed deposits are one of the most common and traditional fixed-income investment avenues. They are mainly preferred by risk-averse investors who do not mind gaining limited returns in exchange for wealth security. Fixed deposits are offered by banks and non-banking financial institutions and come with various short to long-term tenures.



6. Bonds

   Bonds are debt investment instruments that traditionally come with a fixed rate of interest. When you invest in a bond issued by a company, you are basically lending your money to that company in exchange for periodic interest payouts. Bonds are issued by private corporations, municipalities, and government agencies.



7. Real Estate

   Real estate is another popular investment option for high-net-worth Individuals (HNIs). It involves purchasing residential or commercial properties with the aim of capital appreciation or regular income generation through rent. However, unlike other investment avenues, real estate is highly illiquid, and you need a significant amount of wealth and time to invest in it.



8. Commodities

   Another popular instrument for investing is various commodities or raw materials, such as oil, metal, gold, rubber, and agro products. Investing in commodities allows you to hedge against inflation. Prices of these products tend to rise in the future (mainly due to inflation), and hence, you can gain good returns by investing in them.



9. Senior citizen's savings schemes

   These are special investment instruments that are tailor-made for retirees and senior citizens. These avenues are offered by various banks, NBFCs, and post offices in India and come with fixed returns that are fully taxable. The returns are payable on a monthly, quarterly, half-yearly, or annual basis.

10. Certificate of Deposit

    A certificate of deposit is a money market instrument issued to an investor against the funds deposited by him. It is regulated by the RBI and issued by the Federal Deposit Insurance Corporation. One can invest a minimum amount of ₹1 lakh and its multiples. You can invest in a CD with commercial banks with a maturity period of 7 days to 1 year.

Why is Investing Better than Savings?

Let us understand the meaning of investment and savings to find out which is a better option:

Investment is a better option than saving due to the following reasons:

• Helps to Beat Inflation: The number one reason why investing is better than saving is because it helps you to beat inflation. When you invest, the money multiplies and increases your purchasing power.
• Helps to Achieve Your Financial Goals: Investing is the right thing to do if you want to achieve your goals, such as buying a house in the future, buying a car, or paying for your children's education.
• Provides Returns: Investing money wisely in stocks, mutual funds, and other assets provides you with returns or profit, which increases the money.

Read more to know more about the difference between investment and savings.

What are the Benefits of Investment?

Some of the top benefits of different types of investments include the following:

1. Creates Wealth: Investing money allows you to create more wealth for yourself. The returns on investment increase your wealth and also increase your power to spend.
2. Empowers You to Fight Inflation: Investing enables you to increase your wealth, enhance your purchasing power, and maintain a decent standard of living.
3. Secures Your Retired Life: Investment allows you to secure your retired life as you can expect returns on investment even when you stop working.
4. Monetary Discipline: Regularly investing your money makes you more disciplined. You develop a habit of saving money for the future and refraining from unnecessary spending.

Things to Keep in Mind While Investing

Having the proper knowledge and combining it with the right investment decision can do wonders for your hard-earned money. Consider the following tips before you make tax-saving investments to reap maximum returns:

• Ascertaining your financial goals is crucial as it helps you choose the best investment option for your needs. For instance, a short-term goal can be achieved by investing in a low-risk portfolio, whereas a long-term goal requires investing in a high-risk, high-return portfolio.
• Educate yourself and read about the various investment options available and how each option works.
• Be sure about your risk tolerance. This will help you identify the type of investment that matches your appetite.
• Opt for a diversified portfolio and invest in various types of assets. This ensures that risk is minimised and that losses are limited.
• Identify the most appropriate type of investment according to your goals.

Conclusion

With so many types of investment and savings plans available in India, you might find it challenging to choose between them. However, by considering some crucial factors such as your age, monthly income, long-term financial goals, investment horizon, and risk appetite, you might be able to make a better decision.

PNB MetLife offers many life insurance plans and long-term savings plans that can help you meet your financial goals. Browse through our investment plans and pick a suitable one for yourself!