A complete guide on investment types in India

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Jun 27, 2022

Sure, there are various investment options available in India, but not every investment type is the right choice for everyone. When we think about it, different investment types carry a different degree of risk and return. 

Therefore, it is important to assess your needs and risk tolerance before choosing the best investment type for your needs. In this article, we list the 5 most popular investment types in India to help you make an informed investment decision. 

Best Investment Options in India for 2022

While there are a lot of investment options available, here are the 5 best investments for you that can help you achieve your investment objectives. 

1.1 Bank Fixed Deposits

We all have heard about FDs at least once. It is one of the most popular among different types of investment in India. 

It is a great source for generating a passive source of income and is suitable for those investors who are not willing to spend a lot of time managing their investments. Even if you don’t want to block your capital for a long period, don’t worry, as the tenure of an FD can range from anywhere from 7 days to 10 years. 

Any change in FD interest rates is not driven by market fluctuations, making them a safe option for risk-averse investors. Although FDs are relatively safer, it is worthy to note that lesser risk means fewer returns.  

Did you know that your money loses value due to inflation? With retained inflation looming at around 7%, an FD with an interest rate of 5% is not enough to retain the value of your money. Therefore, it is justifiable why FDs are losing their charm. 

 

1.2 Mutual Funds

Mutual funds are the type of investments that pool money from investors and invest them in different instruments like debt and equity. Whether you are looking to invest in short-term or long-term, mutual funds are a perfect choice.

The value of a mutual fund changes with the change in market prices, making them less secure than Fixed Deposits. Having said that, it is also worthy to note that the returns on mutual funds can be much higher than that of FDs. 

They not only offer flexibility in terms of the investment tenure but also in terms of risk appetite. So, whether you are risk-averse or have a high-risk tolerance, you can still invest in mutual funds. 

Mutual funds are generally managed by expert fund managers who invest your money on your behalf. While this sounds good, you must not forget that the fund managers charge a high salary to maintain the investments. This salary is ultimately charged to you and results in fewer returns.

 

1.3 Equity Shares

If you are someone with a high-risk tolerance and want to earn higher returns as compared to other options, equity investment is the most suitable investment type for you. Along with high returns, it also provides you with the right to receive a share in the company’s profits in the form of dividends. 

Moreover, equity shares are highly liquid. In other words, they can be sold at any time. Despite the pros of equity investment, it is important to note that equity investment is very risky, and one needs proper knowledge of the markets to be successful in it. 

 

1.4 Public Provident Fund

If you are someone looking for a long-term investment having a fixed rate of interest, PPF is your go-to option. Not only the returns on PPF are tax-free, but it also carries a very low risk, making it a great choice for risk-averse investors. 

Talking about taxability, you can get a deduction of up to 1.5 lakhs on any investment made within a year under the Income Tax Act of 1961. 

Your money remains blocked for the initial 5 years, after which you can withdraw up to 50% of the amount. 

Sure, PPF is safer compared to other investment options, but remember that it doesn’t allow the flexibility of investment tenure and provides fewer returns than mutual funds. 

 

1.5 Peer-to-Peer Investment

P2P investment eliminates the middlemen and helps you reach out to the borrowers directly and lend money to them. P2P investment provides a fixed rate of return that is higher than that of FDs or the PPF investment. 

In addition to that, the P2P investments are free from market risk, making them better than mutual funds. Moreover, it is possible to diversify your risk by lending to multiple borrowers and have the risk mitigated in this manner. 

Whether you are a short-term investor or a long-term investor, you can invest in P2P lending and earn handsome returns. It is one of the best investment types in India as it provides higher returns than most of the other options, and that too at low risk.

 

How to Choose the Best Investment Options? 

As mentioned earlier, there are many investment options available in India. Choosing the best one requires a careful analysis of one’s needs and requirements. Let us now talk about the things you should consider before selecting an investment option –

Before planning to invest your hard-earned money, you must have thought of an objective you want to achieve through it. For instance, purchasing an asset, increasing your wealth, planning your retirement, etc. Depending on your investment objective, you can opt for different types of investments in India

Risk tolerance refers to the degree of risk that an investor is capable of and willing to bear. The type of investment largely depends on the risk tolerance of an investor. If you are someone with moderate risk tolerance, investment options like P2P investment are the perfect choice for you. 

  • Time Horizon for Investment

The investment horizon refers to the time period for which you want to make the investment. It is an important factor that helps you decide the type of investment to opt for and also the returns and the risks involved. 

What do You Mean by a Diversified Investment Portfolio? 

A diversified investment portfolio is a portfolio that has different types of investments having different risks and returns, thus limiting the investor’s exposure to any single asset or investment. Portfolio diversification can be done as follows – 

  • Diversification across asset classes: Investors can diversify their portfolios by investing in different types of assets like equity, debt, PPF, P2P, etc. This reduces the risk by creating an optimum mix of less risky assets and more risky assets. 
  • Diversification within asset class: Investors can also diversify their investments within the asset class. For instance, they can invest in stocks from different industries or lend money to different borrowers to reduce their overall risk. 

What Types of Investment Options in India are Suitable for an Average Person?

Who is an average person? An average person is someone who has a moderate risk appetite and wants a stable income source that earns them a fixed rate of interest. Out of all types of investments in India, the best option for an average person is P2P investment. Let us understand why –

  • Get Higher Returns: P2P investment generally provides you with a higher rate of interest than other fixed-income investment options. 
  • Diversification of Risk: It is easier to diversify risk as there are no middlemen involved. The lenders can diversify their risk by lending to multiple borrowers having different credit scores. 
  • Lower Chances of Default: P2P marketplaces like LenDenClub conduct a thorough background check of all the borrowers, ensuring a low default risk. 

Why is LenDenClub the Best P2P Marketplace?

LenDenClub not only brings together the lenders and the borrowers but also eliminates the need for middlemen and promotes direct lending. There are various types of investment companies in India, but LenDenClub is the best among them. Here’s why –

  • It uses AI technology to match the lenders with the borrowers based on their needs and requirements.
  • Not just individuals but NRIs and institutions can also invest. 
  • Provides high returns that are free from any market volatility. 
  • It allows you to diversify your portfolio by lending to multiple borrowers.
  • Borrower screening is done by leveraging 200+ data points to ensure a low risk of default.
  • Provides a security blanket for investors through an Escrow account. 

Of all the available investment types in India, P2P investments can balance out the risk and reward for you and help you achieve your investment objectives. So, start your P2P investment journey. Register now with LenDenClub!

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