What are the Different Types of Investments in India? How do they Work?

Investing in the right financial products and plans is the wisest way to build wealth over time, outpace inflation, and achieve your financial goals. The biggest roadblock people face while beginning their investment journey is choosing the right investment options. Since the Indian financial market has grown significantly, it now provides different types of investments in India. This article covers the top investment options in India, so you have a good starting point for your investment journey. So, let’s explore the top and most common investment options shared below:

Stocks

Also known as equities, stocks are certificates of ownership in a company. After carefully evaluating the company profile, market conditions, and other economic factors, you can purchase stocks from stock exchanges, like the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), etc. Buying a share is similar to purchasing a portion of the company, making you eligible to benefit from its growth and profits. 

Investors can benefit from stock investments by selling the shares at a higher price when share prices rise and receiving dividends from the company’s profits. Stocks are among the riskiest types of investments in India because of market volatility, but they also have higher return potential. 

Bonds

Bonds are debt instruments issued to raise money from the market for a predetermined period. When you invest in bonds in India, you’re lending money to the bond issuer for a specific period. You get rewarded for this investment by receiving fixed or varying interests at predetermined intervals, depending on the bond type and issuer. You also receive the original investment (principal) amount back upon maturity. 

Bond investments are relatively safer than stocks because they provide a more predictable return as interest. If you’re looking for investment with good returns, search for bonds issued by governments, reliable corporations, or entities with good credit ratings. Alternatively, you can invest in safer bonds via debt mutual funds.

Real Estate

Real estate is among the most common types of investment people make to generate profit. If you have enough capital, you can purchase properties and give them on rent for a fixed monthly rental income. People who don’t like the hassle of finding tenants and managing properties can invest in Real Estate Investment Trusts (REITs).

If you’re new to REITs, then refer to companies that own and operate income-generating properties. Investing in REITs makes you eligible to receive a percentage of profits. You can explore other avenues to earn profits from real estate that align with your financial goals, risk profile, and lifestyle.

Fixed Deposits

Conservative investors looking for the safest types of investment decisions may consider investing in fixed deposits. It is a secure agreement wherein you agree to deposit a fixed amount of money for a specific tenure in exchange for fixed interest income. All banks and similar financial institutions provide fixed deposits. The most notable benefits of investing in fixed deposits are their safety and stability. You will still receive the fixed interest income even if market conditions become volatile.

Mutual Funds

Mutual funds are a basket of investments comprising diversified portfolio assets like stocks, bonds, and other financial securities. When you invest in these funds, you essentially gain ownership of a portion of the fund’s assets. All returns from mutual funds are based on the fund’s performance.

Since professional fund managers manage them, you don’t have to independently research different stocks and securities before investing. Mutual funds provide diversification, liquidity, and ease of investment through a Systematic Investment Plan (SIP), making them a desirable investment option for most busy individuals.

Public Provident Fund (PPF)

It is one of the safest types of investments in India because the Indian government regulates it. Public Provident Fund (PPF) is a long-term investment option designed to support people’s retirement years. Investors can invest in PPF during their working years for a specific duration. In exchange, they receive a fixed income during their retirement years. PPF plans generally have a long lock-in period and provide tax deduction benefits u/s 80 C. If you want to diversify your investment options, you can explore our retirement plans and savings plans.

National Pension System (NPS)

Anyone wanting to create a secure income stream for retirement years must consider the National Pension System (NPS). It is among the safest types of investment you can have in your portfolio. Any Indian citizen aged 18 to 65 can invest in NPS. When you contribute to NPS, professional fund managers invest the amount in equity, bonds, and a mix of securities per your chosen investment plan. This investment grows over time, and the accumulated amount is used to give you a pension after retirement.

Unit-Linked Insurance Plans (ULIP)

Unit-Linked Insurance Plans (ULIP) are among the best investment plans in India because they provide dual benefits of investment and insurance. When you invest in ULIPs, a portion of your investment is used to provide insurance coverage and the remaining is invested in market-linked securities. These plans are ideal for people with moderate to high-risk appetites.

Shriram Golden Jubilee Plan is a unit-linked non-participating plan that provides dual benefits of investment and protection. The top benefits of investing in this plan include flexibility, partial withdrawals, tax benefits, etc. You can also explore Shriram Life Wealth Pro, a unit-linked plan designed to grow wealth and protect your family’s financial future. It provides customized life coverage, greater liquidity, multiple fund options, and more.

Senior Citizens Savings Scheme (SCSS)

SCSS is a government-backed savings scheme designed to provide steady income to retirees and senior citizens. Residents over 60 can invest in SCSS for a block of 5 years and extend it another 3 years later. Senior citizens receive interest income on their contributions, and the government reviews it quarterly. While this plan provides numerous benefits, like a nomination facility, relatively high interest rate, predictable income, etc., premature closing can attract penalties. 

Savings/Endowment Plans

Savings and endowment plans are life insurance plans that provide the dual benefits of savings and insurance. Out of all the different types of investments in India, these are suitable for people who want to secure their family’s financial future while saving money to achieve specific financial goals. Shriram Life Fortune Builder plan is an ideal example. It provides long-term life insurance coverage while giving savings benefits.

It comes with additional protection through riders, unlimited fund switches, flexible settlement options, and more. People focused on building wealth while protecting their family’s financial future must explore our Life Growth Plus plan. It provides life cover and savings benefits through market-linked earnings.

Retirement Annuity Plans

Retirement annuity plans are designed to provide a steady, predictable income during your golden years. You invest in these plans in multiple premium payments or a one-time lump sum amount. In return, the insurer provides a fixed income post-retirement for a predetermined period. It is a good retirement investment plan for senior citizens who want financial stability in their non-working years. You can further strengthen your retirement planning by diversifying your investment pool. Explore our protection plans to find a policy that complements your other investments.

Gold

Out of all the types of investment decisions you make, including gold in your investment portfolio can be the most rewarding. Gold has been used as a hedge against inflation for decades and is often seen as a safe investment asset that doesn’t slump during economic uncertainties. It is also perfect for diversifying your portfolio as it generally moves in the opposite direction of the stock market. Hence, gold prices will rise when stock prices go down, balancing the risk factor in your portfolio. Depending on your investment preferences, you can invest in physical gold, sovereign gold bonds (SGBs), gold mutual funds, or gold exchange-traded funds (ETFs).

Risk Level of Investment Options

All types of investments in India carry a certain level of risk. Common investment options typically have the following risk profiles:

Benefits of Investments 

Everyone should start investing early to enjoy its multiple benefits. The top benefits of investing include:

• Wealth Creation:

Investing in the right options will help you build and grow your wealth. Whether you invest in stocks, mutual funds, real estate, etc., you can expect to build significant wealth through the power of compounding and capital appreciation.

• Financial Security

Investing in the right securities and plans will safeguard you and your family’s financial future, bringing ease and peace of mind. It will act as a financial cushion during times of emergency. 

• Beating Inflation

Market-linked investments have the potential to generate higher returns that can outweigh inflation. It will help you preserve your money’s purchasing power. 

• Tax Benefits

Many investment options provide tax benefits on contribution amount and maturity proceeds. Since not every investment has the same tax benefits, always check tax implications specific to your investments. 

How to Invest?

The different types of investments in India can easily overwhelm anyone. You can use the following tips to invest in the right financial products or plans:

• Set Clear Financial Goals

Always start by defining your financial goals, as this can help you narrow down potential investment options. For example, retirees wanting a steady income may choose a retirement annuity plan, whereas young individuals wanting to build wealth can explore equity investing.

• Understand Your Risk Tolerance

All investment options carry a certain degree of risk, so investing is recommended based on your risk tolerance. Fixed deposits, NPS, and PPF, are ideal for people with low-risk profiles, whereas stocks, mutual funds, ULIPs, etc., are recommended for people with moderate to high-risk appetite.

• Research Carefully

The Indian financial market is vast, so always research about the investments you plan to include in your portfolio. Align it with your risk tolerance to make safer choices. 

• Diversify Your Portfolio

Never build your portfolio around a single asset class. A diversified portfolio featuring stocks, annuity plans, fixed deposits, balanced mutual funds, bonds, gold, etc., is a better option because it minimizes risk and balances returns.

• Start Early and be Consistent

Investing early will give you the benefit of compounding, and being consistent will ensure you continue building wealth while securing your family’s future. 

Things to Cover While Investing

To enjoy optimal benefits from investing in India, ensure you remain vigilant in the following areas:

• Fraudulent Activities/Platforms

Be wary of any investment plan or platform that promises unrealistic or guaranteed risk-free, high returns. Avoid investing through unregistered platforms by verifying every platform’s registration details on SEBI’s website. 

• Factor in Investment Risks

Investments are influenced by various factors, making them risky. Hence, always factor in market fluctuations and focus on building a diversified portfolio that balances risk profile and optimises returns. 

• Safeguard Your Interests

As an investor, you must take proactive steps to secure yourself and your investments. For example, never invest without doing due research or being aware of hidden fees charged by platforms or brokers. 

Conclusion

Investing is a must for every individual who wants to achieve financial stability, security, and goals over a period. If you are hesitant to start your investing journey because of the wide range of investment options, consider using this article as the starting point for exploring the top options. You can also check the different retirement, savings, protection, and child plans at Shriram Life Insurance to build a stable financial future. Each plan is diverse and comes with unique features, so explore the relevant plans and invest accordingly.