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What are the Best Investment Options for Beginners or Amateur Investors in India?

Are you a beginner looking for investments to meet your long-term financial goals? Here are the best investment options that can help you achieve your financial goals.

  • 14,949 Views | Updated on: Jun 25, 2024

In recent years, the investment market has been optimistic, opening the investment doors to beginners or amateurs in India.

Key takeaways

  • Consider your risk tolerance and investment goals when choosing an investment option.
  • Be aware of the fees and charges associated with each investment option.
  • Regularly review your investment portfolio to ensure that it is still aligned with your goals.

If you wish to explore the world of financial investing but are apprehensive about what can happen, this article is for you. It will walk you through the most acceptable investment options for beginners looking to venture into new terrain and make money quickly.

Reliable Options of Investment for Beginners in India

With various investment options available, choosing the right one can be a challenging task. Let us understand the major investment options for beginners:

What are the Best Investment Options for Beginners or Amateur Investors in India?

Fixed Deposits

Fixed deposits are a type of investment issued by banks and other financial institutions in which you place a flat sum for a specific length of time and earn interest at a set rate. Unlike mutual funds and equities, fixed deposits provide comprehensive capital protection and a fixed rate of return. Nevertheless, you make no concessions regarding the returns, which stay the same. Therefore, fixed deposits are an excellent investment option for beginners. Fixed deposit interest rates fluctuate with the state of the economy and are set by banks in response to the RBI’s policy review decisions.

  • Bank FDs give you returns that are assured. Your principal is secure.
  • Until your FD reaches maturity, you cannot withdraw from it. You risk losing compound interest and paying penalties if you prematurely terminate your FD. FD may be short-term or long-term. For example, the duration might range from seven days to ten years.
  • In a Bank FD, the initial interest rate agreed upon will remain in effect for the term. Therefore, fixed rates of interest persist.
  • You have the option of taking the interest or investing it.

ULIP Plans

Unit-Linked Investment Plans (ULIP) are one of the safest and most suitable investment plans for beginners. ULIPs have a one-of-a-kind investing structure and a 5-year statutory lock-in term. They are a hybrid product that combines the advantages of investing and life insurance into a single package. The monthly payment from investors in a ULIP plan is split into two parts: the first half is used to pay for life insurance premiums, and the second is used to invest in financial instruments of your choice, such as equity, debt, or balanced funds. It is worth noting that market circumstances influence the performance of ULIP funds.

The benefits of both insurance and stock market investing are combined in this greatest investment option for beginners in India to help you grow your money over time. You can choose the insurance duration that is best for you based on whether you want long-term or short-term investing options. Additionally, ULIP offers tax benefits under Section 80C of the Income Tax Act of 1961.

Mutual Funds

A mutual fund is a financial tool that pools money from several people who desire to invest it in money market assets, including government bonds, corporate bonds, stocks, and commodities, among other things. It is similar to a mutual fund created by several investors, where each investor’s fund contribution is invested in stocks or shares of their choosing based on their financial goals. In essence, mutual funds enable you to invest in funds you may not otherwise be able to due to hefty investment costs. Mutual funds are also managed by certified fund managers who conduct thorough research on the companies or funds to invest in, making them safe investment options for beginners in India.

RBI Bonds

RBI Bonds are one of the most popular investment tools for beginners. The Reserve Bank of India, or RBI, sells bonds to the general public to raise funds for different government initiatives. These bonds have a set duration. Funds are repaid along with the investment earnings via interest at the end of the term. Any of the 12 national banking institutions, as well as four private banks, can sell RBI bonds. RBI will offer you a certification of holding to recognize your debt. Upon maturity, this certification will serve as proof.

These are valid for seven years. These can be non-cumulative, where the interest is paid as a monthly income, or cumulative, where the interest is reinvested.

Direct Equity

Direct equity, also known as stock investing, is the most powerful investment option for beginners in India. When you acquire stock in a firm, you purchase a portion of the company’s equity. You make a direct investment in the company’s advancement and growth. It would help if you had adequate time and market understanding to gain from your investment.

Equity Mutual Funds

Equity mutual funds are a subcategory of mutual funds that invest primarily in equity stocks. Between 70 and 95 percent of the fund value may be invested in equities stocks and associated securities by equity mutual funds. Companies have a high risk-to-reward ratio because of their equity foundation. Here are two different types of equity mutual funds to help you understand better:

Mutual Funds That Are Actively Managed

These kinds of price ranges are actively controlled via way of means of the fund manager. The performance of this fund is significantly influenced by the fund manager’s skills and abilities. They decide which stocks the fund will purchase based on company research and analysis.

Mutual Funds That Are Passively Managed

The fund manager has a minor function in this kind of fund. The fund is based on a specific market portfolio or index—for instance, a fund composed of NIFTY50 shares, etc. The performance of this fund is based on the index’s performance.

National Pension Scheme (NPS)

Investments like the National Pension Scheme are made with your retirement in mind. The Pension Fund Regulatory and Development Authority (PFRDA) provides government support and oversight of NPS. The main distinction between NPS and other provident fund investments is that NPS enables you to expand your corpus aggressively. In addition, as you age, NPS uses an auto-rebalancing strategy to maintain a portfolio with decreasing risk.

The portfolio combination you select and the amount of time you contribute will affect the return on your NPS investment.

Real Estate Investment

Investing in real estate, like land and buildings, is another wise choice. Investing in real estate may generate both regular income and capital gains.

The building you have acquired may be rented out, and this will guarantee you monthly payouts. Alternatively, you may sell your property for higher margins and make a capital gain if its value has grown. A well-known proverb states that “location, location, location” are the key factors in real estate. This is the main element determining whether your real estate venture is successful.

Public Provident Fund

The Public Provident Fund is a government-backed savings scheme introduced in India in 1968. It falls under the purview of the Ministry of Finance and is aimed at promoting a savings culture among Indian citizens. PPF is known for its stability, tax benefits, and attractive interest rates, making it a popular choice for risk-averse investors.

  • PPF accounts can be opened at designated banks and post offices, and they come with a maturity period of 15 years, which can be extended in blocks of 5 years.
  • Contributions to a PPF account are eligible for tax deductions under Section 80C of the Income Tax Act, making it a favored choice for tax planning.
  • The interest rates on PPF are set by the government and are typically higher than regular savings accounts, helping account holders build substantial savings over time.
  • The accrued interest is also tax-free, making the PPF a reliable and attractive investment option for those looking to secure their financial future.

National Savings Certificates (NSC)

The National Savings Certificate, commonly known as NSC, is a financial instrument offered by the Indian government through post offices. It operates in a manner similar to a 5-year Fixed Deposit (FD), meaning that your investments in NSC will reach maturity after a period of 5 years, with an annual interest rate of 7%. However, the complete sum is only payable upon maturity.

If you have a financial goal set for a 5-year horizon, NSC presents itself as a relatively secure investment choice. Nevertheless, it does come with certain limitations, such as a mandatory 5-year lock-in period and returns that may be lower when compared to Debt Funds or Hybrid Funds.

Final Thoughts

As a beginner or amateur investor in India, the key to successful investing is diversification, risk assessment, and a clear understanding of your financial goals. Each investment option has its merits and demerits, so it is essential to align your investments with your risk tolerance, time horizon, and financial objectives. Seeking advice from a financial advisor and continuously educating yourself about the various investment options will help you make informed decisions and set you on the path to financial success. Remember that patience and discipline are crucial when it comes to investing for the long term.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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