Where Can Your Money Grow? The Complete Guide to Investment Options in India

There are numerous options for investing and growing your money. The stock market, fixed deposits, and insurance policies are big favourites in India.

Almost everyone has tried to invest directly in the stock market and has repurchased money or endowment insurance policies from the friendly (or pestering) neighbourhood insurance agent.

We in India are a curious mix of aggressive and risk-averse investors. We invest in stocks to multiply our money and buy insurance because it's 'safe' and provides us with 'guaranteed returns'.

Every investment option can be described in terms of its risk and return characteristics.

Traditionally, the asset classes were equity and debt (bonds). However, as investment options have extended beyond the stock market, these basic categories have also expanded to include commodities, real estate, and currency trading.

The risk and return features of each asset class are distinctive. Therefore, the performance for each asset class may vary from time to time. Following is the list of generally used asset classes and their risk-return attributes:

Debt / Income Products

Bonds, also known as income products, provide a fixed return in the form of coupon/ interest income.

Bonds have relatively lower risk and return characteristics than equity, making them suitable for investors seeking regular income flows with minimal risk.

Here is a list of instruments that can be categorised under income products: public provident fund (PPF), national savings certificate (NSC), provident fund (PF), fixed deposit (FD), corporate bonds, debt mutual funds, government bonds and treasury bills.

Equities (also known as stocks)

A stock represents ownership in a company. Empirical studies suggest that this asset class provides higher returns if invested for a long time.

Here is a list of instruments that can be categorised under equity: direct investment in stocks or shares of a company, equity mutual funds and ULIPS offered by insurance companies.

Real Estate

Real estate involves investments in land or buildings. It is also considered a growth asset that has the potential to provide higher returns if invested for the long run. Real estate investments include commercial real estate, residential real estate, land, and real estate investment trusts (REITs).

Gold

A popular asset within the commodities basket is gold. Gold pricing is decided internationally and is often linked to the global economic environment. Investments in physical gold, jewellery, a gold fund, e-gold, SGB, or a gold exchange-traded fund would fall into the gold category.

Other investment options include derivatives, hedge funds, and private equity, but these are usually riskier and not suitable for retail investors.

Insurance

Many people buy insurance as an investment product. However, insurance is not an asset class. If you calculate the returns provided by insurance companies, you will be surprised, as they average 4% to 5% per annum.

Essentially, they collect money from you as a premium, provide you with minimal insurance coverage, and invest it mainly in the stock market. At the end of the policy term, they return the minimum assured sum + a small bonus, which makes you feel happy.

The bottom line is that insurance is an expense, and you should use it to secure your family's future via a large insurance cover, not your own. Please don't buy it as an investment.