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To know about the best investment options in India and to identify the risky and risk-free asset classes read on. The options open to NRIs in India is also discussed in this article.

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Investment Options in India

India Growth Story
India has become one of the fastest growing economies. Investment growth is eventually linked to the growth of the economy. So most of the investors look for emerging markets where the growth rate is higher than the developed economies. As India is also a part of emerging market, most of the investors come with a question in mind “where to invest in India”.
Investment Avenues
Investment in India can be broadly classified into two categories- Risky asset class and Risk – free asset class.
Risky Asset Class
Direct Equities –it is a type of securities where the investor buys the ownership of company. Equities are tradable (bought & sold) in the Stock Exchanges. Equities can be a good investment option for a long term horizons as it beats all the asset class in terms of returns over longer time frame. This can be considered as one of the riskiest asset class as well. Equities are highly risky. The risk of loss of capital is very high. NRI can also explore this avenue for Investment by opening up a bank account and trading account in India. They can choose the option of repatriation of non- repatriation at the time of opening an account.
Mutual Fund – A group of people pools the money and gives it to get it managed professionally. The investment avenue offers cost efficiency, professional management, Risk – diversion, Good regularity body. Mutual investment allows investor to start with minimum of Rs. 500. Like Direct Equities, NRI can also invest into mutual fund, it requires a bank account in India & KYC (Know Your Client) to invest in Indian mutual funds, mutual fund investment also offers option of repatriation of non- repatriation.
Life Insurance – life insurance is a contract between a buyer and insurance company. Insurance company pays a predominant amount to the nominee in case of death of a buyer. The primary purpose of insurance is to protect the family (financially) in case of an event of death of the earning member of the family. Life insurance was a traditional product and it was giving fix returns of 6%- 7% until the introduction of Unit Linked Insurance Plan (ULIP). ULIP gives the benefit of risk cover as well as the returns of equity market as it invest the premium into equity linked instruments. Now, Insurance is also open for NRI investment. To buy insurance in India, NRI has to go through few formalities. NRI needs to submit Proposal from (available in prescribed format), Medical Report, and Proof of age and Income etc.
Commodities – commodities has emerged as one the asset class in recent time. Government has allowed investment into listed commodities. Commodity trading is in its nascent stage in India. Currently, commodity trading is available in bullions, base metals and Agri commodities. Investor needs to open and account with the broker to trade in a commodity market. Commodity market is very risky. Investor with sound knowledge should only invest in commodities. As of now, NRIs are not allowed to trade in commodity market in India.
Real Estate – Real estate is an ever green investment option in India. Most of the investor prefers investment into real-estate; it can be a residential or commercial property. The thumb rule of investment in real estate says investor should look at the property available at 15-20 Km away from the city with the time frame of 5- 7 Yrs. Real estate investment offers very low level of liquidity. It also generate higher rate of returns. NRI can also invest into Indian real estate. They can buy and own property in India, however, few Real estate Investment Trust are not open for NRI investment.
Risk Free Asset Class
Fixed Deposit - A fixed deposit allows investors to deposit money into bank/corporate for a specific period of time, which in return earns an interest. Rate of returns in fixed deposits are higher than bank saving account. An investment into 5 year fix deposit is eligible for tax benefit under section 80 C. maximum of Rs. 1, 00,000. NRI can also avail this facility and invest into Fix deposits offered by national as well as private banks
NSC - National Savings Certificate (NSC) offers a fixed interest. NSCs are issued by the Department of Post, Government of India. NSCs are a practically risk free avenue of investment as they are backed by the Government of India. NSC is available at authorized post offices. NSCs have a maturity of 6 years. It offers a rate of return of 8% per annum. NSC is gives tax benefit under section 80 C. Minimum investment amount is Rs. 500. The option is not available for NRI’s Investment.
Post office – MIS – Post office monthly income Scheme is specially made for the purpose of providing regular pension to the investors. It offers 8% per annum, paid on monthly basis. Maximum limit for investment is Rs. 4.5 lakh and maturity period is 6 years. It can be prematurely enchased after 1 year but before 3 years at the discount of 2% and after 3 years at the discount of 1%. The option is not available for NRI’s Investment.
PPF - The PPF is a government backed, long-term small savings scheme of the Central Government. It was started with the objective of providing income security to the workers in the unorganized sector and self employed individuals in their old age. PPF offers interest rate of 8% per annum. PPF offers tax benefit under section 80 C up to Rs. 70,000. PPF has lock in of 15 Yrs. However, it allows withdrawing 50% of the balance at the end of the fourth year, proceeding the year in which the amount is withdrawn or the end of the preceding year whichever is lower. The option is not available for NRI’s Investment.
Bonds – Bonds is a form of lending money to government or company. In exchange, government or company pays fix amount of interest on principal. Corporate bonds offer higher returns compare to government bonds, because of the risk factor. Before investing into bonds, Investor should always look for the rating and the interest rate offered by the bond. NRI can also invest into Bonds. Generally issuer of the bond mention the eligibility criteria for investors, NRI can refer the offer document and invest into bond if they are allowed.
Key takeaways before you take investment decision
Risk Profile – chose the investment option based on your risk profile. E.g. A low risk investor should not invest into equities. He should look for the safe investment option. Risky asset class causes a loss of principal.
Liquidity – Liquidity is also an important criterion for selection of Investment Avenue. E.g. an investor should not invest into PPF, if the need of money is arising in 3- 4 years time frame. Because PPF has minimum lock in of 5 Years.
Time Frame – Investment in any of the asset class should be done with specific time horizons. E.g. for short term investment debt mutual fund or Fix deposit could be a good option, where as for long term horizon, real estate and regular investment into equities could be a good option. 

Taxation – Taxation kills the real returns of investment, investor should always look at the tax treatment of any investment before investing into it. E.g. an investment into fix deposit at 9% by an investor who fall under 30% tax bracket will yield 6.22% which is equivalent to current inflation rate. Eventually investor is not earning any returns post inflation. Taxation for NRI is a little difficult to understand. NRI should consult an expert before investing, which can eventually help to reap handsome post tax returns.

  • Snigdhadev Paul:
    Very good insight... need regular updates..
    06-Dec-2012 12:45 PM
  • arvindbhandare:
    i want to invest rs. 200000 /-. what should i do?
    16-Nov-2012 04:31 PM
  • Joydeep Mitra:
    How do you rate Peerless Income Plus (Growth) Fund in terms of return and security?
    30-Oct-2012 12:40 PM
  • syed arshad:
    i want to inverse only 1000 rupees only so can i get more of this inversement amount
    11-Sep-2012 09:33 PM
  • Vipul Dhamecha:
    Please advice me how is the kotak assured plan they are committed Assured Annual Income 9.6 % upto 70000 per year upto 20 years.
    Is it reliable please suggest.
    24-Aug-2012 12:41 PM