Complete Guide on best investment options in India – Short and Long Term

(Last Updated On: November 4, 2016)


Everyone wants to make the best use of their money. However, as financial industry  evolved, lot of financial products have emerged making it difficult for investors to chose suitable products which can help them meet their financial goals and build a sustainable long term financial portfolio.

This blog tries to present the best investment options for sh available for Indian investors as of April 2016.

In general before we get to looking at the best options to invest in India, I want to introduce our framework on how you should look at making your investments, Broadly your investments should be done to satisfy the following goals,

  1. Invest for  Security ( Investments you ensure you are secured emergency funds in short term, Retirement funds in long term are on example)
  2. Invest  for Comfort ( These investments ensure you are able to access short term comforts like house/cars/ travel etc)
  3. Invest for Wealth Creation ( These investment help you create long term wealth over your lifecycle)

Infographic on how to plan your investment

How to Invest

Now lets move to discussing what are the  key investment options if you are an investor in India, before we reach there, lets look at how Indians currently save there money, India’s national saving rate is in the range of 30 % of GDP, which is higher than the average saving rates of the world which is in the range of 25 %, to read more on this, read my post how Indians save

Inspite of such high savings majority of savings for India are currently locked up in 3 asset classes Gold, Real Estate & Fixed Deposit , disproportionately high savings in bank savings/deposits means not lot of money is available to be invested in stock equity instruments,resulting lesser direct funds available for companies to  carry our economic activities on one side, and sub optimal inflation adjusted returns for normal public.

Read my post on Why investments in Fixed Deposits is not the smartest thing to do 

Moving on, In last few years SEBI, RBI and other regulators have been trying to create alternative investment options for public both in primary and secondary market now we have a relatively stable and well regulated stock market as well as Mutual fund mark, we still have challenges in mainstreaming Mutual funds and stock investments, but regulators are working hard to reduce friction and ensure distribution network and friction to invest in Mutual funds reduce.

India because of it wide demographics and  population with great diversity in economic prosperity, an economy which has opened up in last 20 years and hence not fully modern has wide range of investment products with different levels of penetration and different level of accessibility, In the next part of my post we will go in more details on some of the important ones.

Before we go into details here is the list of key investment options available in India ( I have divided it into  2 parts – short term and long term ).

Short term Investment Options in India

1. Savings Account

2. Fixed Deposit

3. Money market Instruments ( Liquid funds etc)

See also  Fixed Deposit Interest Rates – All You Need To Know

Long Term Investment options in India 

1. Mutual Funds ( both debt and Equity based, ELSS for tax saving)

2. Equity Shares

3. Bonds & Debentures

4. Post office schemes

5. Public provident Fund (PPF)

6. Company Fixed deposits

7. Life insurance ( endowment plans/term insurance plans/Unit linked Insurance plans etc)

Good Long Term Investment Options in India : Details

Let spend some time to understand these investment options in detail.

Post office Schemes

Post office schemes has in general broadly 3 types

  •  Structured Saving instruments ( Savings deposit/ Recurring Deposit/Term deposit )
  •  Monthly Income schemes
  • Long term deposits ( PPF/NSC Certificates / Kisan Vikas Patra)

Whats good /Whats bad :  Well good part is the Post office deposits pay 50 to 100 bps more interest then normal bank deposits, NSC certificates also provide tax rebate under section 80C

Post office also investment schemes for special groups like Sukanya Samridhi Account, to see details of different schemes run by post office, read my post on Post office Saving Schemes

Fixed Deposits in Banks 

Bank fixed deposits or term deposits are available with all the banks ( public sector, private sector or Cooperative banks), minimum term of the deposit is 30 days, interest rate varies with tenure of deposits and also changes with time, most of the Fixed deposit schemes have penalty charges on premature withdrawal, so you should check  with your bank, Key issue with bank deposits is there is tax deduction at source and post tax deduction they hardly provide Inflation protection,  read my post on  5 Reasons why you should not be investing in Fixed deposits .

Money Market Instruments ( Liquid Funds)

Liquid funds are a class of mutual funds which invest in money market instruments like treasury bills, CDs ( Certificate of deposits ), CP ( commercial papers), it is called liquid funds because underlying assets they invest in have short maturity period , hence fund can give you back the money at short notice, its is a great alternative to savings account and FDs.Liquid funds  are one of the best short term investment options in India.

To understand more about liquid funds, read my post on  All you want to know about liquid funds 

Mutual Funds

Most of you will know, but just to reiterate he definition: Mutual fund is a professionally managed pool of funds/investments which investments in securities which can be debt/equity or commodity, Mutual funds in India are regulated by AMFI and SEBI , there are 3 types of mutual funds

  • Open ended –> these you can enter and exit at any time
  • Closed Ended –> there is a
  • Semi open ended

Classification of Mutual funds based on Investment types

  • Debt Funds
  • Money Market ( liquid funds)
  • Equity growth funds
  • Index funds
  • Sectoral Funds
  • Tax saving funds (ELSS)
  • Capital protection
  • Fixed Income funds

For more details on Mutual please read  my blog post on  All you want to know about Mutual funds in India

Public Provident Fund (PPF)

Public provident funds is a long term investment option backed by government of India, which provides attractive interest rates normally 50 to 100 bps higher than other long term investments ,returns on these investments are exempted from tax and these investments are also eligible for tax breaks , you can invest upto 150,000 per year in PPF .

See also  Mutual fund vs ETF: Performance, pros and cons, how to invest

Company Fixed Deposits 

Company fixed deposits are deposits placed by investors with different companies for a fixed tenure and prescribed interest rates, these deposits are governed by companies act 1967 , most of these Fixed deposit schemes are rated by ICRA/Fitch/Crisil etc , these deposits are unsecured , which means if company defaults investors wont get his money back., apart from companies Non banking financial Institutions can also accept these deposits

So which is the best Investment option for me…

Well short answer is – it depends what your objectives are below info graphic tries to map the type of investment you should be making.

Best Investment options for Emergency fund

Emergency funds require that your investments should be liquid and easily available , Fixed deposits/short term deposits, liquid mutual funds and ultra short term debt funds

Best Investment Option in India

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fit the bill, hence these should be your preferred instruments for creating an emergency fund, within these instruments, I would recommend that  you invest more in liquid funds   as they provide higher returns with great liquidity and minimal risk.

Best Investment options for Growth fund

Once you have emergency fund covered next step is to start investing in Growth, these are the investments which help you fulfill your financial objectives and goals like buying a house, marriage, children’s education etc for growth best investment options depends on how much expertise you have and how much time and energy you are ready to invest in making those decisions, but if you are one of those guys who wants to invest in long run and does not have time and means to find out the best stock etc, I recommend you invest in a combination of equity mutual funds and debt funds,

As a thumb rule if you are less than 30 years, invest in a portfolio of 80 % equity and 20% debt, to know what is the best portfolio for you, try the Bodhik Personalized Financial Planner

Best Investment options for Retirement Planning 

Now lets come to most important investments that you will make in your financial life,planning a safe and comfortable retirement, for details on why and how to create a Retirment plan which works read my post here .

Coming back to Investment options for retirement plan, it should again be a combination of debt and equity instruments, i recommend combination of equity mutual funds,ppfs and stocks ( if you can make the effort).

Here are 10 tips to help you create a winning retirment plan

Best Investment options for Tax planning 

Tax planning is one financial decisions which we have to make every year ,right tax planning can not only help you save taxes, but also grow the investments you make for the same and hence multiply your money, If you are employed and already have a PPF deduction my simple recommendation will be to invest rest of the money in ELSS mutual funds.

See also  Debt Fund vs Fixed Deposit : Which is better?

This completes our round up of best investment options in India, while there are multiple investment options available catering to various investor requirements the key to great investment decisions is planning, discipline and thinking for the long run and ensuring you have clearly marked goals to help you gauge the progress of your investments. In the next section i have summarized my recommendations on investment options

Frequently asked questions (FAQs) on Investment Options in India

Which is a better long term investment option FDs or Mutual Funds ?

In general well diversified portfolio of Mutual funds will outperform Fixed deposits

What is the difference between RD and FD?

Fixed deposits are good if you are looking to take minimal risk and get a steady return, Mutual funds on the other hand lets you invest in boutique of different funds equity/debt, Mutual funds can generate higher returns which sometimes come with a risk, but a well thought out portfolio can help you optimize risk and still get good returns

What is the safest investment option to invest in India?

Safest options are obviously government bonds or securities backed by government bonds, so some of the safest options are Fixed deposits,post office schemes, PPF and any fund which invests in government bonds.

I am close to my retirement, what are the best investment options I have?

You can invest in Post office deposits, term deposits and for liquidity keep money in liquid fund

Are mutual fund investment options safe?

Depends on how you define safety, in general every mutual comes with a certain kind of risk , the risk depends on type of mutual fund and what kind of securities they invest in so large caps will be less risky then small cap and mid cap, short term debt funds will have a lower risk than large cap funds etc, so key question to answer is what is the value for the risk that you are taking

What kind of returns I should accept if I invest in mutual funds?

Mutual funds return can vary from 8-9 % for debt funds to 10-12 % for large cap funds and some more riskier funds can give you 14-15 % returns also.

What is the best investment option for a young student Mutual fund or bonds?

When you are young you can take more risk and experiment lot more with your money, i would suggest always invest in mutual fund.


One response to “Complete Guide on best investment options in India – Short and Long Term”

  1. Shubham Bhosle Avatar
    Shubham Bhosle

    Hi, To the Admin, my comments about this page, This was such a helpful, informatory as well as complete page giving on point details about the various investment option. It makes the investors aware about the exact investment which would suit their requirements. Thank you!

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