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Best Investment Options  – Know Where to Invest Money in India

Best Investment Plans in India

India is the world’s fourth largest economy and also emerging as the fastest major economy according to projections of Central Statistics Organisation (CSO) and International Monetary Fund (IMF).  Backed by its strong democracy fuelling a robust economic growth, strong fiscal consolidation with improved tax structures like GST implementation has transformed the economy on a positive note.  The last fiscal year marked high agricultural output, revived exports, growing FDI and lower inflation rates making the economy fundamentally strong and boosting prospects of investment in India. Thanks to the growing access to the internet and digital mode of payment complimenting better public consumption, India boasts of a favourable business environment with a huge market base.

Apart from all such aspects, India has a well-organized capital market, a vast network of banks, financial institutions and a broad legal framework to match its vibrant democratic setup. The government of India has formulated attractive foreign investment policies and initiatives that are favourable to foreign investors providing India with a competitive advantage over many other economies. This has strategically made the Indian market a wonderland for investments.

Difference between Savings and Investment

We all understand the mantra of finances in our everyday lives, earn, save and spend. Perhaps, most of us are reasonably good with the concept of savings. As a matter of fact, savings are the stepping stone for the next financial act of making investments.However, savings and investments are often correlated and confused as one. Actually, they are not the same and have different objectives.

The objective of savings is to simply accumulate money so as to maintain some liquidity to meet future expenses usually short to medium term. Whereas, the significance of making investments ensures not just a secure tomorrow but also helps one achieve varied unforeseen contingencies such as children’s education, medical emergencies, and marriages or for meeting leisure time’s expenses on foreign tours, buying assets or retirement planning.  The fundamental difference between the two is that when you save your money sits idle, but when you invest your money multiplies. It follows that, if you want your money or your savings to work hard, you must invest.

Meaning of Investments

In financial terms, investments can be defined as an asset intended to produce income or capital gains over a period of time factoring risk and volatility. Investments can be in the nature of stocks, bonds, mutual funds, jewellery, land, derivatives, real-estate or anything that the investor expects a return on (profit) or a higher value. The ability to take risk varies with investors as some investors are less risk tolerant than others, however, safety is a primary concern in any investment. Therefore, one should always research every detail of an investment before deciding to opt for one.

How to Invest Money in India?

Before you embark on to investments, you must consider some areas of importance that would define your financial roadmap. Choosing the right investment is the key to meet your financial goals and the wrong one can be a hit on your hard earned money. While it is true that almost every investment carries some amount of risk and some of us are risk-loving while some are risk-averse. So your risk appetite would decide on the pattern of your investment.  In order to invest your money you must focus on the below parameters that will help bolster your investment goals namely:

  • Risk tolerance
  • Age
  • Return on investment objective
  • Tenure
  • Tax considerations
  • Liquidity
  • Understanding of financial products

Best Investment Plans in India

Now that we know that one’s investment strategy essentially depends upon individual investment goals and the ability to take risks, finding an investment avenue among the myriad schemes may be a daunting task. Apart from the popular investment products like PPFs and Fixed Deposits that ensure your money is safe, they barely beat factors like inflation or guarantee tax-free returns.

Keeping a holistic view of your individual needs and resources here are 6 best investment options to suit the requirement of every type of investor and keep up with the changing times:

  • Equity

Going by financial experts, the coming decade is predicted to be golden years for India’s equity market. The bullish trend in the market is a strong plus for investors to make money grow with equity. Investment in equity can be done directly through Stocks or indirectly in the form of mutual funds. The growth in equity investment is compounded and hence the returns are high.

  • Direct Equity or Stocks

For investors having a long-term holding period, equity remains the most attractive investment option with high potential for returns. Besides high returns, most equity investments offer the advantage of instant liquidity and flexibility.

Investment in stocks also enjoys tax benefits. For example, many companies give regular dividends to its shareholders which are totally tax-free in their hands. Other direct equity investments like Rajiv Gandhi Equity Savings Scheme provides tax benefits to investors under Section 80CG up to an investment of Rs 50,000. While Long-term capital gains tax on listed equity is exempt from tax till 31st March 2018 the Short-term gain gets taxed at a concessional rate of 15% only.

  • Income Schemes of Mutual Funds

Investors who are not comfortable with a long period of holding or the volatility and risks associated with equity markets can opt for monthly income plans (MIP) which essentially are debt oriented mutual funds. With a small part of the funds invested in equities (15-25%), these offer regular income (dividend payouts) monthly, quarterly or half-yearly.

  • Equity Linked Savings Scheme (ELSS)

You can also save taxes and gain attractive returns on investment made on a type of mutual fund called equity-linked savings scheme (ELSS). This is a tax saving mutual fund providing you the exemptions under Section 80C and a smart investment tool that allows you to enjoy the gains arising out of a booming stock market. ELSS also offers great liquidity with a lock-in period of just 3 years.

  • TaxFree Bonds

As the name suggests, they gained popularity due to the tax benefits they offer to the investors. These are fixed income instruments that come with guaranteed returns which are higher than regular bank deposits and a fairly attractive option for investors in a falling interest market for individuals in high tax brackets. They are thinly traded in the market, hence your returns largely depend upon the price you buy them at. Tax-free bonds are long-term investments and carry the disadvantage of non-redeemability and may not be the best option for investors looking at liquidity. Some of the popular names of such bonds offering average interest rates of 8-8.2% are HUDCO, NHAI, REC. They are generally offered by government backed entities and the proceeds of which are invested in infrastructure projects.

  • EPF and PPF (Employees Provident Fund and Public Provident Fund)

As compared to other debt instruments that offer low interest rates, EPF and PPF still remain one of the most attractive, fixed income options in India. Investors with low to moderate risk profiles can seek this investment option best suited for individuals with limited retirement benefits. Backed by the government of India they are one of the safest long-term investment option offering interests that are also tax-free. PPF scheme can be opened in any nationalized or some private banks like HDFC, Axis and ICICI with a minimum annual investment of Rs 500 and maximum of Rs 1,50,000. PPF has a tenure of 15 years being the only drawback, though you can withdraw money subject to certain conditions. 

EPF schemes are managed by Employees’ Provident Fund Organisation (EPFO) under which employer pays a certain contribution, normally 12% of basic wages and dearness allowance towards the scheme. An equal contribution is paid by the employee also.  On retirement the employee gets a lump sum amount including self and employer’s contribution with interest on both.

As an investor you also have an option to increase your EPF contribution (up to 100% of the basic) by investing in a Voluntary Provident Fund (VPF). VPFs are amongst the best options for salaried individuals as it earns them upto 8.4% tax-free interest and help to build a good retirement corpus. Both EPF and VPF contributions are eligible for tax exemptions under Section 80C of the Income Tax Act.

[ Read: Guide on Public Provident Fund ]

  • NSC (National Savings Certificate)

NSCs are risk-free savings bonds by the Government of India (Indian postal service) primarily used for small savings and tax savings. Carrying a fixed term of 5 years the rate of interest is compounded annually. The minimum amount for investment is Rs 100 although no maximum limit is specified.

While NSC and tax saving FDs have common features with lock-in period of 5 years, NSC may sound like a better investment choice over an FD. The reason being that the interest earned on NSC is not paid out to the investor but re-invested and qualifies for tax deduction under section 80C. Current interest rate of NSC is better than tax saver FDs also NSC investment can be used to borrow money in case of any emergency but no loan can be taken against the security of tax saver FD.

[ Read: Guide on National Savings Certificate ]

  • Senior Citizen Savings Scheme

Senior citizens are some of the most common victims of falling bank interest rates. The Senior Citizens Savings Scheme operated by the Government of India (Post Office) offers a great investment avenue with higher returns as compared to other investment tools like FDs. Under the scheme, senior citizens (60 years & above) are eligible to receive a fixed interest rate of 8% for a period of 5 years on deposits up to Rs 7.5 lakhs and 8.3% p.a on deposits up to Rs 15 lakhs. The interests are paid out monthly and the scheme qualifies for the benefit of Section 80C of the Income Tax Act.

Investing your hard earned money appropriately is very important to make it grow and save on taxes. Our tax experts at H&R Block India can help you make right tax-saving investment decisions as well as file your Income tax return accurately so that you can reduce your tax burden.


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CA Madhuri Marne
CA Madhuri Marne
Madhuri is a tax expert at H&R Block (India) with over a decade of professional experience. Having co-authored a book on economics for the ICAI exam, she now enjoys writing about tax-related topics in a simple and easy manner. Outside of work, Madhuri is passionate about teaching students who are appearing for professional exams.