Top 4 Best Investment Options In India
Though there are so many investment options available to one, making the right choice may get overwhelming. One has to choose an asset class that suits individual risk & returns appetite.
Here’s a rundown on ‘popular asset classes’ and their returns.
01. Bullions.
02. Fixed income schemes or instruments.
03. Real estate.
04. Publicly listed companies.
01. Bullions: Investment in precious metals like gold and silver is the most frequent & popular one among all common people.
Bullion investments are known to be relatively safer & over a period have appreciated in value with investments yielding a compounded annual growth rate (CAGR) of approximately 8% over the last 20 years.
02. Fixed Income Schemes or Instruments: Fixed income is an income earned from an instrument at a standard rate of return. Some of the popular fixed income instruments are,
1. Fixed Deposit in Banks, EPF, PPF, and LIC policies.
2. Bonds issued by Central & State governments.
3. Bonds issued by Private Corporations.
Fixed income instruments are exposed to very limited risk and have yielded a CAGR of approximately 8% to 10%.
03. Real Estate: Investment involves buying and selling of commercial & non-commercial land, for rental income & capital appreciation. Typical examples would include transacting in the land, sites, apartments, and commercial buildings.
Real estate investments are quite legally complex & require high initial capital. And they aren’t a liquid asset, which means you will not be able to turn the asset into cash easily in an emergency.
There are no official figures representing returns generated by real estate. In most cases and locations CAGR is not more than 10% to 12% in the long term.
04. Publicly Listed Companies: Or Equity investment involves buying and holding shares of publicly listed companies that are traded on stock exchanges for the long term.
Equity Investment involves, both capital and return risk. However, the long term returns from equity investment can be extremely attractive. Equity investment has yielded a CAGR of 14% to 15%. A skillful investment in the best companies has generated a CAGR of 20% in the long term. In addition, equity investment has a comparatively ‘lower tax rate’ than other asset classes.
Short term holdings — 15% (Holding period less than or equal to 365 days)
Long term holdings — 10% (Holding period of more than 365 days).
Asset class return comparison
Here is the example of the total sum produced by asset classes, for a fixed capital of 1, 00,000 Rs for a period of 25 years.
To conclude; Investments in Bullions and fixed income instruments will beat inflation in the long term, but won’t generate enough return to achieve financial freedom.
For the real estate asset class, the initial high capital requirement and immediate liquidity challenges create an entry barrier for the small and common investor.
To achieve higher investing goals: We have to allocate a major portion of our fund to equity investment, but equity investments come married with both capital and return risk.
Is there a way to make equity investment safe and minimize risk?
The answer is yes!
With a step by step approach if one understands equity investment pillars in detail like equity market ecosystem, basic terminologies, company fundamentals, financial ratios, & market long term cycles.
“We can not only protect ourselves from risk but also manipulate it for higher returns”.
