2023 is the year to counteract the impact of inflation on everyday spending and saving, and as Indian netizens shift their emphasis to investing in financial instruments that may potentially help them beat inflation, here’s a list of the top investment possibilities rated in order of risk.
n 2023, investment trends like emphasizing post-covid well-being, preparing for a potential global recession through wealth-building, hedging against the impact of rising costs of everyday utility goods and services like gas, crude oil, and electricity supply, as well as managing tax implications, are expected to influence investor decisions.
1) National Savings Certificate (NSC)
The NSC, a government-backed fixed-income investment plan, is considered a risk-free investment.
- Availability
The certificate is widely available at Indian public banks, certain private banks, and all post offices.
- Maturity
NSC has a five-year lock-in duration.
Premature withdrawal is possible in some circumstances, such as the death of the certificate holder.
- Amount of Investment
A minimum investment volume of ? 1,000 is needed.
You can invest any multiple of 100 in 12 installments over one fiscal year, or the desired contribution all at once.
There is no investment cap.
- ROI (Return on Investment)
Interest accumulates yearly at the quarterly rate set by the Ministry of Finance.
The interest is paid at the conclusion of the maturity term.
- Taxation
Section 80C of the Income Tax Act exempts investments up to INR 1.5 lakh per year from taxable income.
Every year, we consider interest as reinvestment, and it remains untaxed. However, your standard tax slab applies taxes to the final portion of interest.
Risk Level: Low
2) Public Provident Fund (PPF)
This government-backed fixed income programme is a risk-free investment since the government guarantees the rewards.
- Maturity
A PPF fund matures after 15 years.
After five years after account inception, partial withdrawals are permitted.
- Amount of Investment
The minimum annual investment is INR 500.
The maximum annual amount is INR 1.5 lakh.
You can deposit between one and twelve times throughout a fiscal year.
ROI (Return on Investment)
The current annual interest rate is 7.10%.
PPF interest rates are floaters, which means they might fluctuate every quarter. In general, interest rates fluctuate between 0.25% and 0.75%.
- Who can Invest
Almost all Indian banks and post offices carry it.
You are only permitted to open one account.
There are no age restrictions for opening an account. Until the age of 18, a minor’s account is managed by their guardian.
- Taxation
PPF investments are tax-free.
Your investment’s interest is also tax-free.
Risk Level: Low to Nil
3) Government Bonds
To increase domestic involvement in the sovereign bond market, the Indian government has enabled direct purchase of bonds for private investors, who could previously only trade in government bonds through gilt mutual funds.
- Maturity
A government bond’s maturity length might range from a year to several years, depending on the issue.
- Amount of Investment
The bond price is also declared by the government at the time of the bond announcement. The e-Kuber App, the app of choice for India’s central banking body, the Reserve Bank of India, is the simplest way to invest in G-Secs.
The alternative option is to engage through a commercial bank or a main dealer approved by the government. You will need to create a securities account for this.
You may also purchase it on stock markets. For example, the Bombay Stock Exchange’s internet platform for this purpose is NCB-GSec, whilst the National Stock Exchange provides the NSE goBID mobile application. It can also be purchased through trading sites.You can also invest in mutual funds that hold government securities. These funds make investments in government bonds.
- Who can Invest
The government advertises its bond offering before the auction date. Both state and federal governments issue these bonds.
The state issues State Development Loans as bonds, while the center issues G-Secs or government bonds.
To acquire government bonds, you must have a bank account. Investors can hold government bonds in a demat account.
- Taxation
PPF investments are tax-free.
Your investment’s interest is also tax-free.
4) Post Office Monthly Income Scheme
The post office monthly income programme is popular in domestic families, particularly among housewives and those who get passive income and want to invest it to make some money.
- Maturity
You can close the account after five years from the date of inception. However, premature closing before one year is not allowed. Similarly, if you close the account between one and three years, 2% of the principal is deducted, and 1% between three and five years.
If the depositor dies before the maturity term, nominees may make a claim.
- Amount of Investment
To initiate an account, you need a minimum investment of INR 1,000, and the account has limits of INR 4.50 lakh and 9 lakh for single and joint accounts, respectively.
- Who can Invest
The Indian postal service provides single accounts, joint accounts (up to three individuals), guardians or parents of minors and/or people of unsound mind, and even accounts under the name of a minor over the age of ten.
- Return on Investment
The plan provides a 6.60% annual interest rate, which is disbursed on a monthly basis. The interest amount can be automatically credited to the depositor’s savings account or processed electronically.
- Taxation
The interest on the deposit is taxed.
Risk Level: Nil to Low
5) National Pension Scheme
The National Pension Plan targets individuals who desire to construct a strong retirement fund through their investments in a government-managed pension fund. This fund invests in diverse assets such as stock government bonds, corporate debentures, and stock market portfolios. Individuals use the returns on these investments, or the accumulated pension wealth, to purchase a life annuity. Additionally, a portion is accessible for withdrawal at the end of the plan cycle.
There are two types of NPS accounts: Tier I NPS Accounts and Tier II NPS Accounts.
Tier 1 NPS Account Benefits
- Who can Invest
Indian nationals between the ages of 18 and 65 are eligible to invest. You can open an account by visiting an authorized bank or one of its branches referred to as a point of presence (POP), designated by the Pension Fund Regulation and Development Authority. Instead, you can access the eNPS online interface. Upon submitting a request to open an account, the system will assign you a 12-digit number, establishing a permanent retirement account for you.
- Amount of Investment
This account may be opened by depositing INR 500. You must deposit at least INR 1,000 in a fiscal year to keep the account operational. There is no maximum amount you may invest every year.
You cannot withdraw your investment until you reach the age of 60.
- Return on Investment
Pension funds from different banks declare the net asset value, which calculates returns. These returns are not predetermined. Instead, the performance of your investment over time determines them.
- Maturity
At reaching the age of 60, you can withdraw a maximum of 60% of your entire sum. The remaining 40% must be utilised to purchase a pension plan of your choice.
- Taxation
Section 80 C and Section 80CCD exempt investments of INR 2 lakh per year from tax.
Returns made on NPS tier I accounts are tax-free.
Tier II NPS Account
- Who can Invest
This is a voluntary account that may only be established if a person already has an NPS Tier I account. Offline, you can establish an account at any approved bank or its POP designated by the PFRDA. By visiting the eNPS site, you may create an online account.
- Investment Amount
A minimum investment of INR 1,000 is required when starting the account. There is no requirement for a yearly payment, as with an NPS Tier I account. TThere is no limit to the amount you can invest.. You pick how much of your money to invest in each of the four asset classes accessible each year: government bonds, corporate bonds, stocks, and alternative assets.
- Return on Investment
The return on your investment is not guaranteed. It is determined by the net asset value stated by pension funds at the end of each investing cycle.
- Maturity
Beyond the age of 60, you can take up to 60% of the whole corpus. The remaining 40% is utilised to purchase a retirement plan of your choice.
- Taxation
There are no tax advantages, and income is taxed according to your tax bracket. Only government personnel are eligible for tax breaks if their investment is held for three years.
Risk Level: Low. Click Here to Invest
6) Sovereign Gold Bonds (SGBs)
The Reserve Bank of India (RBI) issues SGBs, which value government securities based on gold weight. They release these securities in increments of grams, with a minimum investment requirement of one gram.
- Availability
SBGs will be auctioned off on dates set by the national government. The RBI issues these bonds many times a year.
You must have a PAN Card to buy an SGB.
SGBs can be purchased both online and offline via banks, post offices, and stock brokerage firms.
- Investment Amount
Based on the average closing price of gold over the preceding three business days, each bond unit you acquire is worth one gram of pure gold. Individuals may acquire up to 4 kilogram of SGBs while trusts may purchase up to 20 kg. You presently enjoy an INR 50 discount on each gram purchased online.
- Return on Investment
2.5% released twice a year.
- Maturity
It’s been eight years. After five years, you can redeem early.
- Taxation
Interest payments are taxed according to your tax bracket. All gains made at maturity are tax-free.
Risk Level: Medium Click here to Invest
7) Equity Mutual Funds
An equity mutual fund is a type of investment instrument that gathers money from investors and invests it in equities in order to create profits.
- Availability
You may easily invest online through SEBI-authorized, agencies, and stock brokerage firms. Egg: Groww,Zerodha,AngelOne
- Investment Amount
Most mutual funds need a minimum commitment of INR 1,000, with no maximum amount that may be invested.
To invest in equities mutual funds, you must have both a demat and a trading account.
Investors can pick from eight different types of equity mutual funds.
Growth funds are equity mutual funds that may be invested in. This is possible without establishing a demat account.
- Maturity
Investors in open-ended equity mutual fund schemes have the option to redeem their assets.
There is a three-year lock-in period for equity-linked savings programmes under the equity mutual fund umbrella from the date of investment.
- Return on Investment
Equity mutual funds are renowned to produce the best returns of any type of mutual fund investment. For example, in a year of record highs in 2021, certain stock mutual funds have provided a 5-year annualised return of up to 35% and as high as 117%.
The return is determined by market movements as well as the broader economic condition.
- Taxation
In the case of a short-term capital gain, the tax rate is 15% + 4% cess.
If the earnings from long-term capital gains are less than INR 1 lakh in a fiscal year, the investment return is totally tax-free.
If the long-term capital gains exceed INR 1 lakh, a 10% tax plus a 4% cess is paid.
Risk Level: Medium to High
8) Unit-linked Insurance Plans (ULIPs)
ULIPs are insurance and investment plans that offer clients the best of both worlds. The operation of ULIPs is straightforward: the policyholder can acquire an insurance plan in which the premium paid is utilised to provide coverage and the remaining is invested in equity and debt funds.
Availability
ULIPs can be purchased from any bank or insurance provider in India.
Because that ULIP is a long-term investment programme, financial institutions will ask you to submit evidence of income.
- Investment Amount
The minimum investment in a ULIP varies depending on the financial company. In general, a monthly premium payment of INR 1,500 is required.
Because ULIPs fall under the Section 80 C tax exemption category, an investment of up to INR 1.5 lakh per year is tax deductible.
The maximum investment in a ULIP insurance relies upon one’s capacity to pay yearly over the duration of the policy.
Costs for acts such as premium allocation, fund management, fund switching, partial withdrawal, premium redirection, and termination, among others, are in addition to the yearly ULIP subscription.
- Maturity
ULIPs feature a five-year lock-in period after which the policyholder can withdraw their cash without penalty and continue the policy based on its terms and conditions.
You can stop premium payments after three years, but you can only withdraw invested assets after a five-year maturity term. People consider ULIPs as long-term investment plans, with an average investment duration of up to ten years.
Partial withdrawals before the maturity date may result in a loss of a percentage of your anticipated returns.
- Return on Investment
You can compute the predicted yearly rate of return by dividing the ULIP NAV by the total number of outstanding units on a certain date: Calculate NAV using the formula (Value of current assets + value of investments) – (Value of current liabilities plus provisions).
To compute the rate of return upon maturity or at the conclusion of the policy period, you utilize the technique of compounding. It’s advisable to get in touch with your financial services provider to understand the accuracy of the rate of return for your ULIP.
- Taxation
ULIPs belong to the EEE category of Section 10 D, indicating that authorities exempt them from taxation on investment, proceeds, and withdrawal of money once you complete the five-year lock-in term of a ULIP.
Risk Level: Medium to High
9) Gold Exchange-Traded Funds (ETFs)
Gold ETFs are the equivalent of purchasing actual gold without the burden of holding real gold. They require investors to create a demat account and hold gold units in a dematerialised form, much as how mutual fund units are held.
- Availability
You can purchase gold units by creating a demat account, just as you would invest in shares through stock brokerage firms and agencies registered with SEBI.
If you do not have a demat account, you can invest in gold funds offered by some banks or several gold ETF funds if you do not have one.
- Investment Amount
You can purchase gold units by creating a demat account, just as you would invest in shares through stock brokerage firms and agencies registered with SEBI.
If you do not have a demat account, you can invest in gold funds offered by some banks or several gold ETF funds if you do not have one.
- Maturity
If the price of gold rises, so will the worth of your unit, and vice versa. There is no lock-in period when it comes to gold ETFs.
- Return on Investment
Like equity mutual funds, investors can trade ETFs on stock exchanges. As a result, the market performance of gold ETFs determines their return.
- Taxation
If you sell your gold ETF within 36 months after purchasing it, you will be taxed according to your tax bracket. Long-term capital gains tax of 20% + 4% cess is applied after 36 months.
Risk Level: Medium to High. Click here to Invest
10) REITs
REITs allow investors to participate in a portfolio of income-generating real estate assets by acquiring REIT units, which are comparable to mutual fund shares. The REIT distributes any revenue earned by the underlying real estate assets to its unit-holders.
- Availablity
REITs trade on the stock market similar to equity shares, so investing in REITs in India requires an individual to have a demat account.. There are now three REITs that allow investors to invest in India. These are some examples:
- Embassy Business Park REIT
- Brookfield India REIT
- Mindspace Business Parks REIT
- Investment Amount
The minimum investment criterion of INR 10,000 to INR 15,000 apply to investments made through initial public offerings (IPOs) and follow-on offers (FPOs) of publicly traded REITs.
- Maturity
REITs have no maturity date.
- Return on Investment
REITs are required to pay out 90% of their portfolio’s net rental revenue as dividends or interest to shareholders. As a result, as a REIT investor, you can profit from dividends and the appreciation of your shares.
Commercial real estate typically yields between 8% and 10% per year. Grade A office spaces and commercial spaces in good locations, on the other hand, have the potential to generate superior returns. With minimal risks, investors can expect a predicted return on investment in REITs ranging between 8% and 14% in the short to medium term (after adjusting for fund administration fees, which deduct before paying out to unitholders).
- Taxation
Revenue received by REITs in the form of dividends, rent, and interest and dispersed to unit holders is of the same character, i.e., regarded as dividend, rental, and interest income in the unit holder’s hands. Here’s a breakdown of the tax on each of the investment and return categories:
| Type of Income | Taxability in the hands of unitholders |
|---|---|
| Dividend | |
| 1. If the special purpose vehicle (SPV) has elected a 22% tax rate under Section 115BAA, which allows some domestic corporations to pay tax at a 22% rate rather than the standard rate of 25% or 30%, subject to certain circumstances. | Taxable at the standard tax rates applicable to unit holders. |
| 2. If SPV has not opted for taxation under Section 115BAA. | Dividend income is exempt in the hands of unit-holders. |
| Capital Gains | |
| Listed Units | |
| I. Long-term capital gains on sale of units held for more than 36 months. | Long-term capital gains only exceeding INR 1 lakh, taxable at the rate of 10%. |
| II. Short-term capital gains on sale of units held for up to 36 months. | Taxable at the rate of 15%. |
| Others | |
| Capital gains, arising out of sale of units in SPV or sale of property directly by REIT. | Exempt in the hands of unitholders. |
| Interest Income | |
| Received by the REIT from SPV and distributed to the unitholders. | Taxable at the normal tax rates, as applicable for the unitholders. |
| Other Interest Income | |
| REIT investment in mortgage-backed securities or debt instruments issued by qualifying Indian enterprises. | Exempt in the hands of unitholders. |
| Rental Income from the property that is owned directly by the REITs. | Taxable at the normal tax rates, as applicable for the unitholders. |
Risk Level: Medium to High
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