ASSIGNMENT 2

REPORT ON
TOP 10 INVESTMENT OPTIONS
BY
PARTH LADDA
INTRODUCTION
Investors want to make investments in such a way that they get sky-high returns as fast as
possible without the risk of losing the principal money. This is the reason why many
investors are always on the lookout for top investment plans where they can double their
money in few months or years with minimum risk and higher returns or with minimum risk.

While selecting an investment avenue, you have to match your own risk profile with the risks
associated with the product before investing. There are some investments that carry high risk
but have the potential to generate high inflation-adjusted returns than other asset class in the
long term while some investments come with low-risk and therefore lower returns.

There are two buckets that investment products fall into - financial and non-financial assets.
Financial assets can be divided into market-linked products (like stocks and mutual funds)
and fixed income products (like Public Provident Fund, bank fixed deposits). Non-financial
assets - most Indians invest via this mode - are the likes of gold and real estate.

The following are the top 10 investment options which are present for investor as per their
individual needs:

DIRECT EQUITY:
When you invest money in equity shares, historical data should suggest that you will earn
higher returns than that of many other assets. The risk is directly proportional to the returns,
which means that there is a high amount of risk involved.

The shares are expressed in terms of face value and market value. If you are planning for
long-term investment i.e over 5-10 years, you’re likely to generate a good amount of returns
in the equity market, making this an attractive option.

ADVANTAGES:

1. Dividend
2. Capital Gain
3. Limited Liability
4. Exercise Control
5. Right Shares
6. Bonus Shares
7. Liquidity
8. Stock Split

DISADVANTAGES:

1. Dividend is not fixed/ controllable

2. Fluctuation in market price
3. Residual Claim
4. High Risk
 5. Limited Control

EQUITY MUTUAL FUNDS:

Equity mutual funds predominantly invest in equity stocks. As per current Securities and
Exchange Board of India (SEBI) Mutual Fund Regulations, an equity mutual fund scheme
must invest at least 65 percent of its assets in equities and equity-related instruments. An
equity fund can be actively managed or passively managed. Currently, the 1-, 3-, 5-year
market return is around 15 percent, 15 percent, and 20 percent, respectively.

ADVANTAGES:

1. Capital appreciation - Equity funds are known to provide higher returns as compared
to other funds, such as Debt funds. They can help an investor generate huge wealth in
the long run.
2. Professional Expertise - Fund managers have experience in managing portfolios and
investors can rest assured that their hard-earned money is in safe hands.
3. Tax benefits - ELSS funds provide to its investors tax benefits to the tune of
₹1,50,000 under section 80C of the Income Tax Act.
4. Small systematic Payments - Systematic Investment Plan (SIP) allows investors to
deposit a small sum of money at regular intervals. Useful for those who do not want
to invest their money at one go. Helps investors achieve the benefit of averaging.
5. Liquidity - Most equity funds (except ELSS) are liquid in nature, meaning investors
can withdraw their money whenever they chose to do so.

DISADVANTAGES:

1. Higher costs - Since the funds are professionally managed they entail higher costs
such as salary of fund manager, exit ratio among others.
2. Higher risks - Equity funds entail higher risks as compared to debt funds and are not
suitable for those investors who want a lower risk for their investment.
3. Lock in - ELSS funds have a lock in period of 3 years, hence less liquid.

DEBT MUTUAL FUNDS:

Debt funds are ideal for investors who want steady returns. They are are less volatile and,
hence, less risky compared to equity funds. Debt mutual funds primarily invest in fixed-
interest generating securities like corporate bonds, government securities, treasury bills,
commercial paper and other money market instruments. Currently, the 1-, 3-, 5-year market
return is around 6.5 percent, 8 percent, and 7.5 percent, respectively.

ADVANTAGES:
1. Low risk:
With the proportionately high incorporation of debt-related investment options, debt
mutual funds are less risky as compared to all other types of mutual funds. Debt
mutual funds can be considered as an investment for an investor with a purpose of
short-term wealth building, as well as, for a person with a perspective a building a
sizeable corpus in long-term.
 2. Low transaction costs:
Buying and selling debt mutual fund units involves low transactional costs as against
equity mutual funds. Investors can bulk up debt mutual fund units as a uniform
transaction cost is levied by mutual fund houses be it for buying a single unit or
multiple units in a single transaction.
3. Stability:
Following the considerably low risk and minimised exposure towards equity and
equity-related assets, debt mutual funds provide unique stability to the investment
portfolio. The value of stability in the portfolio gets verified during the increased
volatility in the stock markets when the net asset value of most of the equity-based
funds decreases, while, debt mutual fund remains largely unaffected.
DISADVANTAGES:
1. Low returns:
Investors attracted with the lucrative returns of stocks and equity-related assets may
get dissatisfied with the rate of return inferred of the debt mutual funds. As 60 to 70
per cent of the funds’ corpus is invested in debt schemes, following which, the overall
return of the fund decreases substantially.
2. Lock-in period:
Most of the debt mutual fund schemes come with a mandatory lock-in period of more
than 3 years and even 5 to 8 years in several cases. An investor willing to liquidate the
debt mutual fund units before the completion of maturity period may end up paying
the extra fees levied by the mutual fund house in order to encash the fund before the
termination date.
NATIONAL PENSION SYSTEM (NPS):
The Public Provident Fund (PPF) is one product a lot of people turn to. Since the PPF has a
long tenure of 15 years, the impact of compounding of tax-free interest is huge, especially in
the later years. Further, since the interest earned and the principal invested is backed by
sovereign guarantee, it makes it a safe investment.

ADVANTAGES
1. Diversification
2. Different schemes to choose from
3. Convenience

DISADVANTAGES
1. Partial Tax Exemption
2. No withdrawals until maturity
3. Specific % limit on equity investments as per the schemes.

Public Provident Fund (PPF)

The Public Provident Fund (PPF) is one product a lot of people turn to. Since the PPF has a
long tenure of 15 years, the impact of compounding of tax-free interest is huge, especially in
the later years. Further, since the interest earned and the principal invested is backed by
sovereign guarantee, it makes it a safe investment.
ADVANTAGES:
1. Safest Investment Avenue
2. Assured returns
3. Tax benefits
4. Options to invest in PPF

DISADVANTAGES:
1. Accumulated Corpus may not high
2. Longer Lock-in Period
3. Upper limit

Bank fixed deposit (FD)

A bank fixed deposit (FD) is a safe choice for investing in India. Under the deposit insurance
and credit guarantee corporation (DICGC) rules, each depositor in a bank is insured up to a
maximum of Rs 1 lakh for both principal and interest amount. As per the need, one may opt
for monthly, quarterly, half-yearly, yearly or cumulative interest option in them. The interest
rate earned is added to one's income and is taxed as per one's income slab.

Advantages
1. The major advantage of investing in Fixed Deposit is its guaranteed return.
2. The only reason why our parents and many in our generation also have this single
concept of investment is because of its safety features.
3. Also, it is easy to raise a loan against your FD.
4. One can borrow up to 90 per cent of the FDs amount.
5. The next advantage is the flexible maturity date, it is for this feature that you can
invest for a time frame that is as less as 6 months to as long as 10 years or even more.
Disadvantages
1. Not surprisingly, FD as an investment is less risky then this aspect is the reason why
its returns are lower compared to other investment options.
2. Then there is an issue of liquidity, while your money is locked up with the bank, it is
not easy to withdraw at a moment's notice.
3. In fact, if you withdraw before the agreed duration, you will be penalised. Also, there
is no tax benefit in this investment, unlike the infrastructure bonds or the National
Savings Certificate (NSC).
4. So, even from a taxation point this is not the best of investment options.
5. Some banks charge as much as 1 per cent, if your beak the deposit early, which means
you need to either make sure that you invest in multiple deposits of small amounts.

Senior Citizens' Saving Scheme (SCSS)

Probably the first choice of most retirees, the Senior Citizens' Saving Scheme (SCSS) is a
must-have in their investment portfolios. As the name suggests, only senior citizens or early
retirees can invest in this scheme. SCSS can be availed from a post office or a bank by
anyone above 60. SCSS has a five-year tenure, which can be further extended by three years
once the scheme matures. Currently, the interest rate that can be earned on SCSS is 8.3 per
cent per annum, payable quarterly and is fully taxable. The upper investment limit is Rs 15
lakh, and one may open more than one account.
RBI Taxable Bonds
The government has replaced the erstwhile 8 percent Savings (Taxable) Bonds 2003 with the
7.75 per cent Savings (Taxable) Bonds. These bonds come with a tenure of 7 years. The
bonds may be issued in demat form and credited to the Bond Ledger Account (BLA) of the
investor and a Certificate of Holding is given to the investor as proof of investment. Read
more about RBI Taxable Bonds.

ADVANTAGES
• Low Risk Bond
• No Tax worries

DISADVANTAGES
• Lower interest rates
• Lack of liquidity

REAL ESTATE
The house that you live in is for self-consumption and should never be considered as an
investment. If you do not intend to live in it, the second property you buy can be your
investment.

The location of the property is the single most important factor that will determine the value
of your property and also the rental that it can earn. Investments in real estate deliver returns
in two ways - capital appreciation and rentals. However, unlike other asset classes, real estate
is highly illiquid. The other big risk is with getting the necessary regulatory approvals, which
has largely been addressed after coming of the real estate regulator.

ADVANTAGES

• It is easier to understand
• It is improvable
• It is a Hedge against Inflation
• Real Estate Properties exist in an inefficient market
• Real Estate can be Financed and Leveraged

DISADVANTAGES

• It has higher transaction costs

• Real estate has low liquidity
• Real estate requires management and maintenance
• Real estate markets have significant inefficiency
• Real estate creates Liabilities

GOLD
Possessing gold in the form of jewellery has its own concerns like safety and high cost. Then
there's the 'making charges', which typically range between 6-14 per cent of the cost of gold
(and may go as high as 25 percent in case of special designs). For those who would want to
buy gold coins, there's still an option. One can also buy ingeniously minted coins. An
alternate way of owning paper gold in a more cost-effective manner is through gold ETFs.
Such investment (buying and selling) happens on a stock exchange (NSE or BSE) with gold
as the underlying asset. Investing in Sovereign Gold Bonds is another option to own paper-
gold.

ADVANTAGES

• Gold is a hedge against inflation

• Liquidity
• Diversification
• Holds its value over a long period of time
• Most desired commodity

DISADVANTAGES

• Gold is not a passive investment

• Gold is difficult to store
• Price correction lead to losses