Asking best investment options in India has become a very common these days. Every second day I receive such kind of queries asking for best Investment options for child future planning, best investment option for retirement savings and how to do efficient personal financial planning. So I decided to write a complete post on it. I’ll be covering best investment options in India that can be used to generate decent Retirement corpus and do best personal financial planning.
1. Employee provident fund (EPF) :
This is one of the best investment options in India but the most ignored option available with salaried class in India. It is best as it offers safe and tax free returns and also makes your money double the moment you start contributing. Makes money double in the sense that employer contributes the same amount which you do, and most ignored because many employees treat this compulsory savings as a burden and always on lookout for options to withdraw it as soon as possible. They don’t even understood the compounding benefit involved and thus withdraw the balance in EPF account whenever changes the job, which is not at all advisable as it can hurt your personal financial planning goals.
In EPF account an employee has to compulsorily contribute 12% of his salary (basic +DA+ cash value of food allowances) and the employer contributes the same amount. The employer contribution gets divide into 2 parts i.e. 8.33% in Employee pension scheme and remaining 3.67% in Employee provident fund. Thus employer contribution on one hand supplement EPF corpus, it also helps in generating some pension amount too.
How EPF works?
If I assume Increase in income @ 10% p.a, and rate of return in EPF @8% p.a, than after 25 years the accumulated tax free corpus you will receive would be Rs 37.41 lakh and pension extra. So it’s better if you don’t play around with EPF and keep transferring to the new account whenever you change your job. (Read : Must dos…for corporate employees)
2. Voluntary provident fund (VPF):There is limit on EPF contribution which is 12 % of basic salary, but if at all you like this product and would like to contribute more into it then you may do so and increase the contribution to 100% of basic. But the extra i.e. 88% which you would like to save more will be treated as voluntary contribution by you and thus called as Voluntary provident fund. Your employer will not be under any compulsion to increase the contribution.
Once you start with VPF, it will be treated same as EPF. All rules related to EPF get applied on VPF too. If you transfer the PF balance to some other company then this VPF balance also will automatically transfer. So it’s among best investment options in India for those who are risk averse, looking for tax free returns and used the maximum limits on other same kind of investment classes to do their personal financial planning.
3. Public provident fund (PPF):
Public provident fund or as popularly known as PPF is another good debt instrument which provides safety and tax free returns. Unlike EPF/VPF which is available only to salaried class PPF is available to everyone. Thus Business persons can use this investment option for the debt allocation in the long term savings, when used judiciously this will help in good accumulation for long term goals.
One can use this product for Child future planning also along with Retirement savings. If you use this product to the full and keeps on investing Rs 1 lakh every year, then at maturity you could be able to accumulate Rs 27.15 lakh (assuming return @8% p.a), and if you extend this for another 5 years with contribution , then your corpus would be Rs 45.76 lakh. So on and so forth. (Read: All about PPF)
Contributions towards EPF/VPF/PPF are counted for tax savings u/s 80c with the maximum limit of Rs 1 lakh. And all these 3 Investment options generate tax free returns after 5 years of continuation. So these can be called as Best Investment options in India for Risk averse investors.
4. Mutual funds (MFs):
Mutual funds are those investment vehicles through which you can take exposure in any asset class under professional management as per your risk profile. There are equity funds, debt funds, hybrid funds, gold funds etc and generally people take them as best investment options in India. Fix onto your goal, decide onto the time frame and select among the variety available. As equity has always been best investment option for long term, it should be selected with caution since being a volatile asset class; it may prove to be risky also. Look out for portfolio exposure, Fund manager experience, past performance, process the mutual fund house follows and invest as per your satisfaction and don’t forget to pick best mutual funds in India in your portfolio. You can also have debt exposure through mutual funds (Read : How to select debt mutual fund). Mutual funds are very tax efficient instrument and provide you with the option to invest monthly through Systematic investment plan but you should which are best mutual funds in India to invest. Invest judiciously towards your goal through this investment option. This option can be used for every kind of goal be it very short term (7 -15 days) , Short term (3 months), medium term (1-3 years) , Long term (above 3 years). (Also read best mutual funds in india)
5. New pension scheme (NPS):
W.E.F from 1st may’2009; New pension scheme is open for everyone to invest. It is a defined contribution scheme primarily started for government employees but later extended towards everyone. This is another long term Investment option where one may invest for his Retirement goal and takes exposure to equity and debt asset classes. The cost advantage i.e. the lowest fund management charge (@0.0009%) and the recently introduced feature where employee gets tax benefit if he invest through his employer (U/s 80 ccd (2))are the major attractions in this making it among best investment options in India. You may maintain the liquidity in your investments using Type 2 accounts. Though no flexibility in using the accumulated corpus and taxability at maturity is a concern, but some of the taxation is getting taken care by provisions u/s 80ccd (2) and the balance will be taken care by Direct tax code which if implemented as it is than it may make the maturity of NPS tax free. Ask any certified financial planner and he will tell you why you must take NPS as one of your personal financial planning options. (Read : All about NPS)
Whatever personal financial planning option your chose for goal achievement, demands discipline. I have seen many cases where investor opts for endowment insurance plans and comfortably continues it for 20 years, but when the same investor was asked to invest in equity mutual fund SIP for 5 years he could not do that, and withdrew after 2 years stating reason of bad performance (Read : Stay focussed on goal). He was comparing a debt with equity. This in itself is wrong and no certified financial planner will stand for it, as every asset class works in different ways and suits differently to different risk profiles. So best investment options in India for anyone is that which suits the risk profile and helps in achieving of financial goals comfortably. The above mentioned investment options are best in India in terms of cost effectiveness and simplicity. But usage should be according to goal and risk profile.
Good insightful article !!!.
Its ben said that world economic powers dont really like PPF ( or rather the benefits) …i read an article saying tht if India wants international recognition as a economic superpower, then one fine day PPF proceeds will cease to be tax free.
Any Idea about this?? i am interested to know your opinion….
Hi Sameer!! Well, i have not heard anything like that. But it has to happen, someday government has to withdraw the tax benefit out of such instruments to reduce the burden on fiscal deficit and use the tax proceeds for the economic development of nation which is the main job of the government. Even the first draft of DTC was talking about to make PPF taxable on maturity , but later on it was put into deep freeze. Actually everything is inter related there’s no social security that’s why are these tax free intruments, there’s lot of corruption and tax evasion that’s why very high fiscal deficit. Huge Red tapism leads to delay in the process and thus slow growth rate…and so on. But on the other side i strongly beleive that india is bound to grow. In the words of Rakesh Jhunjhunwala . ” Reforms has to happen…either through consensus or through crises” and once everything’s in order these PPF like instruments will be out of scene.
Hi Manikaran, please explain what you mean by “PPF like instruments will be out of scene”? Does that mean out of fashion OR taxable at maturity?
HI DJ…i meant both. The major attraction in PPF is its tax free nature of returns and maturity..and if it becomes taxabale it will lose its shine.
nice artical manikaran. You have rightly pointed out that EPF is the most igonored investment option. In actual it is such a strong savings tool which will never let you down during retirement years. My father has got my sister married, built our house through the EPF savings only.
Yes its true. Actually its all a game of need and desire. Today’s generation has lot many desires which they call as need and thus are in a habit of changing jobs frequently, not in a habit of saving, are very impatient thus keeps on withdrawing the savings very soon etc. This will go against there long term growth. Our parents while in job was very disciplened in the expenditure and this helped the in achieveing all there goals comfortably.
I want to invest for my retirement, which option as per you is suitable as per you PPF or Mutual funds.
Sambhav, both are good instruments for long term savings bbut nature of both these are different. Where PPF is debt instrument and provides a fix return there Mutual funds is vehicle which helps you chose different asset class for investment and there returns are not guaranteed and fixed, but if chosen wisely it will surely help you generate long term wealth. So better zero on to your risk profile, time horizon , goal amount and then decide on the asset allocation
I feel investments like fixed deposits / recurring deposits also works out for short term. But investments in equity and Gold are the best bet for long term….. Enjoy your day….
[…] This article is meant for the latter ones, who search for Best Investment options for their financial planning goals and thus are serious investors. (Read – Best Investment Options In India) […]
can anybody suggest that if i want to start investment in gold then should i go for gold or gold ETFs
or can i take this option as extra income?
please suggest, i can spend only a small amount cz of financial constraints.
Sandip, if the goal is only investment and you have no passion for gold accumulation, than surely gold ETF will suit you.
I have worked in UAE for long years.I have a liquid cash of 1.2Cr. Please can you give a call on 0091-9989460523 for the investment options in India.
Can you pls mail your requirements at [email protected]. Also you may add my skype id manikaran.singal in your account and then we’ll schedule sometime to have a video call