Top 10 Best investment options in India in 2021

Top 10 Best investment options in India

Last Updated on 3 weeks ago by Raj Kumar

Top 10 Best investment options in India in 2021

There are numerous investment options in India that let you earn returns depending on your risk appetite and investment horizon. In this article, we will look at the Top 10 best investment options in India in 2021 based on different criteria!

Before you try to find out best investment plan in India ; we suggest you evaluate your investment plan and ask yourself why do you want to invest and

what is your goal? It is very important that you have a very good financial planning done for yourself.

It’s a natural human tendency to get more returns on our investment but we lack to think why are you investing first of all? is it that you want to earn quick money? or is it for your retirement planning?

If you don’t have an investment plan then more often than not you will end up losing money rather than making any!

Consider reading – 13 safe investments with high returns in India

After the market crash of 2020 and interest going down for most of the small savings schemes , Gold after having a stellar run in 2020 but going down in 2021 people are wondering where to invest in 2021 in India.

How do you have a different kind of investment approach?

You should ideally split your investment goals into broadly 4 categories:-

  1. Short term goal (Anywhere between 0-2 years)
  2. Medium-term goal (Anywhere between 2-7 years)
  3. Long term goal ( 7 years +)
  4. Retirement planning ( This investment is for your retirement savings – do not mix this with Long term goal as remember, you will need some source of income to survive after retirement)

Confused after 2020 Budget related to income tax change? Try our income tax comparison calculator to check which income tax regime to opt for.

Top 10 Best investment options in India
Top 10 Best investment options in India

Here are the Top 10 Best investment options in India in 2021 :-

1. Direct equity

Rating: 5 out of 5.

Investment choice – 5/5 Risk – High

Investing in stocks may not be everyone’s cup of tea as it’s a risky asset class and there is no guarantee of returns. Further, not only is it difficult to pick the right stock, timing your entry and exit is also not easy. The only good thing about stocks is that over long periods, equity has been able to deliver higher than inflation-adjusted returns compared to all other asset classes.

Investing in stocks comes with a lot of risks associated with it. If you are not reviewing your investments periodically then you are at risk of losing your entire capital. Investors who do not want to take a lot of risks often tend to stick with good quality Blue chip stocks which mostly ensure stable and consistent returns. 

At the same time, some investors fancy their luck with Penny stocks with an intention to make quick money but more often than not they end up losing a lot of money!

You can invest in various kinds of stocks. The average returns of direct equity returns are in the range of 12-15% over the long term. You can have a look at Best performing stocks in India in 2020,  Best dividend paying stocks in 2020, and Zero debt companies in India.

Consider reading – How to start investing in the share market?

If you are starting to think about investing directly in stocks then you should have fundamental knowledge about what is Sensex and Nifty. Also, you should try to learn about stocks first before jumping into investing your hard earned money in stocks blindly!

Have a look at – Full list of upcoming IPOs 2021 in India

2. Equity mutual funds

Rating: 5 out of 5.

Investment choice – 5/5 Risk – Medium to High

Equity mutual funds mainly invest in equity stocks. As per the 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.

In an actively traded fund, the returns are largely dependent on a fund manager’s ability to generate returns. Index funds and exchange-traded funds (ETFs) are passively managed, and these track the underlying index.

Equity schemes are categorized according to market-capitalization or the sectors in which they invest. They are also categorized by whether they are domestic (investing in stocks of only Indian companies) or international (investing in stocks of only Indian companies) or international (investing in stocks of overseas companies). 

Equity mutual funds are mainly categorised as below:-

  • Large-cap mutual funds(Invests mainly in large-cap companies whose market cap is more than 20000 crores)
  • Mid-cap mutual funds(Invests mainly in mid-cap companies whose market cap is between 5000 crores and 20000 crores)
  • Small call mutual funds(Invests mainly in small-cap companies whose market cap is below between 5000 crores)
  • Multi-cap mutual funds(invests in companies of all types of market cap)

There are also mutual funds that are sector-specific like Banking focused, Manufacturing focused, etc.

Have a look at types of mutual funds in India

Don’t know how to select a mutual fund to invest in? read  – How to select mutual funds in India – 5 point checklist 

3. Debt mutual funds

Rating: 4 out of 5.

Investment choice – 4/5 Risk – Low to Medium

Debt funds are ideal for investors who want steady returns. They 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. 

The average returns of debt mutual funds are in the range of 5-9% depending on the type of mutual fund you invest in.

Have a look at types of mutual funds in India

Worried about debt fund problems recently? Consider reading – Are debt funds safe?

4. National Pension System (NPS)

Rating: 5 out of 5.

Investment choice – 5/5 Risk – Low

The National Pension System (NPS) is a long term retirement-focused investment product managed by the Pension Fund Regulatory and Development Authority (PFRDA). The minimum annual (April-March) contribution for an NPS Tier-1 account to remain active has been reduced from Rs 6,000 to Rs 1,000.

It is a mix of equity, fixed deposits, corporate bonds, liquid funds, and government funds, among others. Based on your risk appetite, you can decide how much of your money can be invested in equities through NPS. 

NPS offers two kinds of investment options. NPS Tier 1 account and NPS Tier 2 account.

NPS Tier 1 account – This is mandatory as part of the NPS account creation and you can not withdraw money until the age of 60.

NPS Tier 2 account – This is an optional account that can be created by the subscriber to get benefits of lower expense ration if you are planning to invest in mutual funds.

Read more about-  What is tier 1 and tier 2 in NPS

Consider reading  how to open NPS account

5.Public Provident Fund (PPF)

Rating: 4 out of 5.

Investment choice – 4/5 Risk – Low

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 a sovereign guarantee, it makes it a safe investment. The current interest rate for different PF instruments are as below:-

PPF – 7.1%

EPF – 8.50%(For the year 2019-2020)

VPF – 8.50%(For the year 2019-2020)

Consider reading – EPF vs PPF vs VPF vs GPF

6.Bank fixed deposit (FD)

Rating: 3 out of 5.

Investment choice – 3/5 Risk – Low

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 5 lakh for both principal and interest amount.

As per the need, one may opt for monthly, quarterly, half-yearly, yearly, or cumulative interest options in them. The interest rate earned is added to one’s income and is taxed as per one’s income slab.

The interest rate for FD in the current situation is crashing as RBI has reduced the interest rates.

Latest Bank FD rates in January 2021

BankFD Interest RatesSenior Citizen FD Interest Rates
SBI2.90% – 5.40%3.40% – 6.20%
HDFC2.50% – 5.50%3.00% – 6.25%
ICICI Bank2.50% – 5.50%3.00% – 6.30%
ICICI Home Finance6.00% – 6.50%6.25% – 6.75%
Axis Bank2.50% – 5.50%2.50% – 6.05%
Kotak Bank2.50% – 4.75%3.00% – 5.25%
PNB Housing Finance5.90% – 6.70%6.15% – 6.95%
IDFC First Bank2.75% – 5.50%3.25% – 6.00%
Bank of Baroda2.80% – 5.25%3.30% – 5.75%
Citibank2.40% – 3.50%2.90% – 4.00%
IDBI Bank2.90% – 5.10%3.40% – 5.60%
Indian Bank2.90% – 5.15%3.40% – 5.65%
Indian Overseas Bank3.40% – 5.25%3.90% – 5.75%
OBC3.00% – 5.30%3.50% – 5.80%
PNB3.00% – 5.30%3.50% – 5.80%
HDFC5.85% – 6.25%6.10% – 6.50%
Allahabad Bank2.90% – 5.15%3.40% – 5.65%
Andhra Bank3.00% – 5.60%3.50% – 6.10%
Bank of India3.25% – 5.30%3.75% – 5.80%
Bank of Maharashtra2.75% – 4.90%2.75% – 5.40%
Canara Bank2.95% – 5.50%2.95% – 6.00%
Central Bank of India2.75% – 5.10%3.25% – 5.60%
Punjab and Sind Bank3.10% – 5.25%3.60% – 5.95%
UCO Bank2.75% – 5.00%3.00% – 5.50%
Union Bank of India3.00% – 5.60%3.50% – 6.10%
United Bank of India3.00% – 5.30%3.50% – 5.80%
Corporation Bank3.00% – 5.60%3.50% – 6.10%
DCB Bank4.25% – 6.75%4.75% – 7.25%
South Indian Bank3.50% – 5.50%4.00% – 6.00%
Bandhan Bank3.00% – 6.00%3.75% – 6.75%
Lakshmi Vilas Bank2.50% – 6.00%2.50% – 6.50%
Equitas Small Finance Bank3.60% – 6.80%4.10% – 7.30%
ESAF Small Finance Bank4.50% – 6.50%5.00% – 7.00%
Karur Vysya Bank3.50% – 5.75%% – 6.15%
Yes Bank3.50% – 6.75%4.00% – 7.50%
Karnataka Bank3.40% – 5.70%3.80% – 6.95%
DBS Bank2.50% – 5.50%2.50% – 5.50%
Standard Chartered Bank2.50% – 5.40%2.50% – 5.90%
Jammu And Kashmir Bank3.00% – 5.30%3.50% – 5.80%
Ujjivan Small Finance Bank3.05% – 6.50%3.55% – 7.00%
Jana Small Finance Bank2.50% – 7.25%3.00% – 7.75%
India Post Office5.50% – 6.70%5.50% – 6.70%
IndusInd Bank3.00% – 6.50%3.50% – 7.00%
Syndicate Bank2.95% – 5.50%2.95% – 6.00%
RBL Bank3.25% – 6.75%3.75% – 7.25%
Dhan Laxmi Bank3.50% – 5.60%4.00% – 6.10%
Bajaj Finance6.10% – 6.60%6.35% – 6.85%
HSBC Bank2.25% – 4.00%2.75% – 4.50%
LIC Housing Finance5.50% – 5.60%5.75% – 5.85%
Federal Bank2.50% – 5.50%3.00% – 6.00%
AU Small Finance Bank3.75% – 6.75%4.25% – 7.25%
Latest Bank FD rates in January 2021

7.Senior Citizen’s Saving Scheme (SCSS)

Rating: 4 out of 5.

Investment choice – 4/5 Risk – Low

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 7.4%(in 2021) percent per annum, payable quarterly, and is fully taxable. The upper investment limit is Rs 15 lakh, and one may open more than one account.

Read more about-  How to invest in Senior Citizens Savings Scheme

8.RBI Taxable Bonds

Rating: 3 out of 5.

Investment choice – 3/5 Risk – Low

The government has replaced the erstwhile 8 percent Savings (Taxable) Bonds 2003 with the 7.75 percent 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.

As on 29-05-2020; RBI has withdrawn the 7.75% RBI taxable bonds citing the lowering of interest rates by RBI.

As on 26-06-2020; The Government of India has announced to launch Floating Rate Savings Bonds, 2020 (Taxable) scheme commencing from July 01, 2020, to enable person resident in India/HUF to invest in a taxable bond, without any monetary ceiling. 

RBI floating rate bond interest rate – The interest on the bonds is payable semi-annually on 1st Jan and 1st July every year. The coupon on 1st January 2021 shall be paid at 7.15%. The Interest rate for the next half-year will be reset every six months, the first reset being on January 01, 2021. There is no option to pay interest on a cumulative basis.

9.Real Estate

Rating: 2 out of 5.

Investment choice – 2/5 Risk – High

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.

Real estate performs worst in the time of recession. So unless you really need to buy a house for your own end-use. Don’t invest in real estate.

10.Gold

Rating: 4 out of 5.

Investment choice – 4/5 Risk – Medium

Possessing gold in the form of jewelry has its own concerns like safety and high cost. Then there are the ‘making charges’, which typically range between 6-14 percent 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. Read more about sovereign gold bonds.

Gold glitters when there is a recession. Since we are entering into a recession the gold prices are expected to rise significantly from the current level. Have some allocation to gold in your portfolio. The easiest way you can do it is through Gold ETFs.

Consider reading – how to invest in gold in India – 5 Best ways

Which is the best investment option in India in 2021?

We looked at Top 10 Best investment options in India in 2021. The best investment option depends on your risk-taking ability and investment horizon. Always keep in mind your investment goals.

‘The best way to get rich is not trying to get rich quickly!’

Please choose the investment option as per your needs, Consult a financial advisor before making any investment decisions.

If you have started your investing journey in 2020 and had a great success in getting excellent returns on your stock investment then do not take it granted that the stocks will go higher for ever. Please be mindful that the stock market investments have a lot of risks associated with it so you need be aware of the risks before you invest in any instrument.

If you are new to investments then please have a read on Investing for Beginners guide in India

Top 10 Best investment options in India FAQs

Which is the best option to invest money in India?

The top 10 best investment options in India in 2021 are as below:-

1. Direct Equity
2. Equity Mutual Fund
3. Debt Funds
4. PPF
5. NPS
6. Bank Fixed Deposit
7. RBI taxable bonds
8. Senior Citizens’ Saving Scheme
9. Gold
10. Real Estate

Where to invest money to get good returns?

If you are looking to generate good returns on your investment then equity(stock) investments generate very good returns over a long period in time. Thing to note though, the stock selection plays a crucial role in getting good returns.

What are the safe investments with high returns in India?

If you want to have safe investments yet looking for high returns then you can consider below investment options:-

1. PPF
2. Debt mutual funds
3. RBI taxable bonds
4. Senior Citizens’ Saving Scheme

Whats is the best investment plan for 1 to 3 years?

For a 1 to 3-year investment horizon. below are the best investment options in India :-

1. Liquid mutual funds
2. Ultra short term debt mutual funds
3. Bank FD

Which is the best investment plan in India for middle class?

Best investment plan in India for the middle class:

Short term 1-3 years
1. Liquid funds
2. Short term debt funds
3. Bank FD

Medium-term 3-7 years
1. Debt mutual funds like Banking & PSU mutual funds
2. Corporate debt funds
3. Equity mutual funds
4. Index funds
5. Bank FD

Long-term 7+ years
1. Direct equity
2. Equity mutual funds
3. Debt mutual funds
4. PPF
5. NPS

What is the interest rate for RBI floating rate bond?

The interest on the bonds is payable semi-annually on 1st Jan and 1st July every year. The coupon on 1st January 2021 shall be paid at 7.15%. The Interest rate for next half-year will be reset every six months, the first reset being on January 01, 2021. There is no option to pay interest on cumulative basis.

Which investment option gives high returns?

Looking at historic returns; investing in equity(stocks) gives the highest return over the long term period. It may be noted that investing in stocks is also risky so you need to be careful while picking the right stock for investments.

Is Gold a good investment in 2021?

Gold is expected to do well in 2021. Gold has already seen good returns in 2020 by giving more than 30% returns in a single year. It is recommended to have some part of your investment in gold. Consider investing Gold via the Sovereign gold bonds.

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