Best Investment Options In 2023

In 2023, combating the impact of inflation on daily expenses and savings has become a top priority for Indian netizens.

With a focus on investing in financial instruments that can potentially beat inflation, individuals are seeking ways to protect their wealth and prepare for a potential global recession.

Additionally, there is a growing interest in hedging against the rising costs of essential utilities such as gas, crude oil, and electricity, as well as managing tax implications.

1) Public Provident Fund (PPF)

This investment scheme, backed by the government, offers a risk-free opportunity as the returns are guaranteed by the government.

Key Features:

Availability:

• This scheme is available at most Indian banks and post offices.
• Individuals are allowed to open only one account.
• There is no age restriction for opening an account, and a minor's account is managed by their guardian until they turn 18.

Investment Amount:

• The minimum investment amount is INR 500 per year.
• The maximum investment amount is INR 1.5 lakh per year.
• Deposits can be made from one to 12 times within a financial year.

Return on Investment:

• The current interest rate is 7.10% per year.
• The interest rates for this scheme are subject to change quarterly, typically ranging from 0.25% to 0.75%.

Maturity:

• The maturity period for this scheme is 15 years.
• Partial withdrawals are allowed after five years of opening the account.

Taxation:

• Investments made in this scheme are tax-free.
• The interest earned on the investment is also tax-free.

Risk Level: Low to None

2) National Savings Certificate (NSC)

The NSC (National Savings Certificate) is a government-backed fixed income investment scheme that is widely regarded as a risk-free option.

Key Features:

Availability:

• The NSC can be easily purchased at Indian public banks, select private banks, and all post offices.

Investment Amount:

• A minimum investment amount of INR 1,000 is required.
• Investors have the flexibility to invest any desired amount in multiples of 100 in 12 installments within a financial year or as a lump sum deposit.
• There is no upper limit on the investment amount.

Return on Investment:

• The interest on NSC compounds annually and is based on the rate announced by the Ministry of Finance every quarter.

• Interest is paid at the end of the maturity period.

Maturity:

• The NSC has a lock-in period of five years.

• Premature withdrawal is possible in the event of the certificate holder's demise.

Taxation:

• Investments made in the NSC up to INR 1.5 lakh per year are eligible for exemption from taxable income under Section 80C of the Income Tax Act.
• The interest earned each year is considered as reinvestment and is not taxed. However, the final portion of interest will be taxed according to your regular tax slab.

Risk Level: Low to None

3) Post Office Monthly Income Scheme

The Post Office Monthly Income Scheme is a popular investment option among domestic households, particularly individuals seeking to generate returns from passive income.

Key Features:

Availability:

• The scheme is available for single accounts, joint accounts (up to three adults), guardians or parents of minors and/or individuals of unsound mind, as well as minors above 10 years of age.

Investment:

• A minimum investment of INR 1,000 is required to open an account.
• The maximum deposit limit for the monthly savings scheme is enhanced from Rs.4.5 lakh to Rs.9 lakh for a single account and from Rs.9 lakh to Rs.15 lakh for a joint account.

Maturity:

• The account can be closed after five years from the date of opening. However, premature closure is not allowed within the first year.
• If the account is closed between one year and three years, 2% is deducted from the principal amount. For closures between three and five years, 1% deduction is applicable.
• In the event of the depositor's demise before the maturity period, nominees can file a claim.

Return on Investment:

• The scheme offers an annual interest rate of 7.1%, payable monthly.
• Interest can be auto-credited to the depositor's savings account or received through electronic clearance service.

Taxation:

• The interest earned on the deposit is taxable.

Risk Level: Negligible to Low

4) Government Bonds

Government Bonds have now been made available for direct purchase by individual investors, allowing them to participate in the sovereign bond market without relying solely on gilt mutual funds.

Key Features:

Availability:

• The government announces the bond offerings ahead of the auction date. Bonds are issued by both state governments (State Development Loans) and the Central government (G-Secs or government bonds).
• To purchase government bonds, you must have a bank account and can hold them in a demat account.

Investment Amount:

• The bond price is announced by the government at the time of the bond offering.
• You can invest in G-Secs through the e-Kuber App, the Reserve Bank of India's preferred application. Alternatively, you can participate through designated commercial banks or primary dealers by opening a securities account.
• Stock exchanges such as the Bombay Stock Exchange (via NCB-GSec) and the National Stock Exchange (via NSE goBID mobile application) also offer avenues for bond purchases.
• Government securities mutual funds are another option for investing in government bonds.

Return on Investment:

• Government bonds are typically fixed-rate bonds, meaning the interest rate remains constant throughout the bond's tenure until maturity.
• Depending on the coupon rate determined at the time of purchase, you receive half-yearly interest payments for the specified holding period.
• Any capital gains or losses occur when the bond is sold or reaches maturity.
• Income from reinvestment of interest payments is also earned, known as interest-on-interest.

Maturity:

• The maturity period of government bonds can range from one year or longer, depending on the specific offering.

Taxation:

• Tax on the interest income generated from these bonds is charged according to an individual's income bracket.
• Any increase in the bond's value is considered capital gains and taxed accordingly.

Risk Level: Low to None.

5) National Pension Scheme (NPS)

The National Pension Scheme (NPS) offers individuals the opportunity to build a robust retirement fund by investing their savings into a government-monitored pension fund.

The NPS invests in diversified stock market portfolios, including government bonds, corporate debentures, and shares.

The returns on these investments are utilized to purchase a life annuity, while a portion of the accumulated pension wealth is available for withdrawal at the end of the scheme cycle.

There are two types of NPS accounts: Tier I NPS Account and Tier II NPS Account.

Features of Tier I NPS Account:

Availability:

• Indian citizens between the ages of 18 and 65 can invest.
• An account can be opened by visiting an authorized bank or any of its branches, also known as a point of presence (POP), appointed by the Pension Fund Regulatory and Development Authority. Alternatively, it can be done through the eNPS web portal.
• Upon request for opening an account, you receive a 12-digit number, and a permanent retirement account is created.

Investment Amount:

• This account can be opened with a minimum deposit of INR 500.
• To keep the account active, a minimum deposit of at least INR 1,000 per financial year is required.
• There is no upper limit on the amount you can invest annually.
• Withdrawal of the invested amount is not allowed until the age of 60.

Return on Investment:

• Returns are calculated based on the net asset value declared by the pension funds of various banks.
• The returns are not predetermined and depend on the performance of your investments over the years.

Maturity:

• Upon reaching the age of 60, you can withdraw a maximum of 60% of your total balance.
• The remaining 40% must be used to purchase a pension plan of your choice.

Taxation:

• Investments up to INR 2 lakh per annum are tax-exempt under Section 80C and Section 80CCD.
• Returns earned on NPS Tier I accounts are also tax-exempt.

Features of Tier II NPS Account:

Availability:

• This is a voluntary account and can only be opened if an individual already has an NPS Tier I account.
• It can be opened offline at any authorized bank or its POP appointed by the PFRDA, or online through the eNPS portal.

Investment Amount:

• A minimum investment of INR 1,000 is required at the time of opening the account.
• There is no mandatory annual contribution, unlike the NPS Tier I account.
• There is no maximum limit on the amount you can invest.
• Each year, you can decide how much of your money you want to invest in the available asset classes: government bonds, corporate bonds, equities, and alternative assets.
• There is no lock-in period for investments.

Return on Investment:

• The return on investment is not predetermined and depends on the net asset value declared by the pension funds in each investment cycle.

Maturity:

• After reaching the age of 60, you can withdraw a maximum of 60% of the total corpus.
• The remaining 40% must be used to purchase a pension plan of your choice.

Taxation:

• There are no tax benefits for Tier II NPS accounts, and the income is taxed according to your tax slab.
• However, government employees receive tax benefits if they keep their investments locked for three years.

Risk Level: Low.

6) Sovereign Gold Bonds (SGBs)

SGBs, or Sovereign Gold Bonds, are government securities issued by the Reserve Bank of India (RBI) and are denominated in grams of gold.

These bonds are issued in multiples of grams of gold, with a minimum investment requirement of 1 gram.

Availability:

• SGBs are made available for auction on specific dates announced by the central government. The RBI issues these bonds multiple times a year.
• To purchase an SGB, you must have a PAN Card.
• These bonds can be bought from various sources, including banks, post offices, and online/offline stock brokerage companies.

Investment Amount:

• Each unit of the bond represents the value of one gram of pure gold, determined based on the average closing price of gold over the previous three business days.
• Individuals can purchase a maximum of 4 kilograms of SGBs, while trusts can invest up to 20 kilograms.
• When purchasing SGBs online, you currently receive a discount of INR 50 on each gram.

Return on Investment:

• SGBs offer a fixed interest rate of 2.5%, paid semi-annually.

Maturity:

• The maturity period for SGBs is eight years.
• Early redemption is possible after five years.

Taxation:

• Interest payments received from SGBs are taxed based on your applicable tax slab.
• However, any gains made at maturity are exempt from tax.

Risk Level: SGBs are considered to have a low to medium risk level.

7) Equity Mutual Funds

Equity mutual funds serve as investment vehicles that pool money from multiple investors to invest in stocks with the goal of generating returns.

Availability:

• Investing in equity mutual funds is easily accessible through SEBI-authorized individuals, agencies, and online/offline stock brokerage companies.

Investment Amount:

• Most equity mutual funds have a minimum investment requirement of INR 1,000, with no maximum limit.
• To invest in equity mutual funds, you need to have a demat account and a trading account.
• There are various types of equity mutual funds available, offering different investment strategies and objectives.
• Growth funds are a type of equity mutual fund that can be invested in without the need for a demat account.

Maturity:

• Investors can redeem their investments in open-ended equity mutual fund schemes at any time.
• Equity-linked savings schemes within the equity mutual fund category have a lock-in period of three years from the date of investment.

Return on Investment:

• Equity mutual funds have historically delivered higher returns compared to other types of mutual fund investments.
• Returns vary based on market fluctuations and the overall economic scenario.
• Some equity mutual funds have provided 5-year annualized returns of up to 35% and even reached as high as 117% in a year of historic highs in 2021.

Taxation:

• Short-term capital gains from equity mutual funds are taxed at 15% plus a 4% cess.
• Long-term capital gains up to INR 1 lakh in a financial year are tax-free.
• Long-term capital gains exceeding INR 1 lakh are taxed at 10% plus a 4% cess.

Risk Level: Equity mutual funds are considered to have a medium to high risk level due to their exposure to the stock market and market fluctuations.

8) Unit-linked Insurance Plans (ULIPs)

ULIPs (Unit Linked Insurance Plans) are insurance-cum-investment products that offer policyholders the benefits of both insurance coverage and investment opportunities.

The functioning of ULIPs can be summarized as follows: policyholders pay a premium, a portion of which is allocated towards insurance coverage while the remaining amount is invested in equity and debt funds.

Availability:

• ULIPs can be purchased from any bank or insurance company operating in India.
• Proof of income is typically required by financial institutions since ULIPs are long-term investment products.

Investment Amount:

• The minimum investment amount for ULIPs varies among financial entities, generally starting from INR 1,500 as monthly premium payment.
• ULIPs qualify for tax benefits under Section 80C, allowing investors to claim tax exemption on investments up to INR 1.5 lakh per year.
• The maximum investment in a ULIP policy depends on the individual's capacity to pay annually throughout the policy tenure.
• Additional charges, such as premium allocation, fund management, fund switching, partial withdrawal, premium redirection, and discontinuance charges, are applicable apart from the annual premium.

Maturity:

• ULIPs have a lock-in period of five years, after which the policyholder can withdraw funds without penalty or choose to continue the policy based on its terms and conditions.
• Premium payments can be stopped after three years, but withdrawal of invested funds is only possible after the completion of the five-year lock-in period.
• ULIPs are considered long-term investment plans, with an average investment period of up to 10 years.
• Partial withdrawals made before the maturity date may result in a reduction in prospective returns.

Return on Investment:

• The expected annual rate of return can be calculated using the ULIP Net Asset Value (NAV) formula, which factors in the current assets, investments, liabilities, provisions, and outstanding units on a specific date.
• The rate of return at maturity or the end of the policy period is determined through compounding. For accurate calculations, it is advisable to consult your financial services provider.

Taxation:

• ULIPs fall under the EEE (Exempt-Exempt-Exempt) category of Section 10D, meaning investments, proceeds, and fund withdrawals after the five-year lock-in period are exempt from tax.

Risk Level: ULIPs carry a medium to high risk level due to their exposure to market fluctuations and investment in equity and debt funds.

9) Gold Exchange-Traded Funds (ETFs)

Gold ETFs (Exchange-Traded Funds) provide investors with a convenient way to invest in gold without the need to hold physical gold.

These ETFs operate by allowing investors to hold gold units in a dematerialized form, similar to mutual fund units, through a demat account.

Availability:

• Gold ETF units can be purchased through a demat account, just like investing in shares from SEBI-registered stock brokerage companies and agencies.
• Investors without a demat account can consider investing in gold funds offered by select banks or various gold ETF funds.

Investment Amount:

• It is recommended to start with a minimum investment of one unit, equivalent to a gram of pure gold. The physical gold backing the ETF units is stored with depositories, and the value of the units is derived from this underlying gold.
• Some gold funds in the market allow investments starting as low as INR 500.
• There is no restriction on the number of gold ETF units that can be purchased.

Maturity:

• Gold ETFs do not have a specific maturity period, providing flexibility for investors to exit their positions whenever desired. The value of the ETF units will fluctuate based on the price movements of gold.

Return on Investment:

• Gold ETFs, like equity mutual funds, can be traded on stock exchanges. Therefore, the returns depend on the performance of the gold ETFs in the market.

Taxation:

• If gold ETF units are sold within 36 months of acquisition, they are subject to taxation based on the investor's income tax slab.
• After 36 months, long-term capital gains tax of 20% plus 4% cess is applicable on the profits from selling gold ETF units.

Risk Level: Medium to High

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