Best Investment Options In 2023

In a world faced with challenges like rising inflation, increasing interest rates and the ongoing conflict in Ukraine, investors today are confronted with a paradox of uncertainty and volatility. It can feel like navigating territory when deciding where to invest your funds. Amidst this turbulence, the year 2023 offers a range of investment opportunities that go beyond stocks and bonds. To take advantage of these prospects, it’s crucial to tailor your investment strategy to your financial situation, risk tolerance and goals while keeping a close eye on the current economic climate and market trends. Come along as we venture on a journey to explore avenues that hold growth potential in an era of rapid technological progress and ever-evolving market landscapes that are transforming what is considered achievable in the land of investments.

Types of Investment Options

Since most investors invest their money based on risk level, let us understand the different investment plans before we dive into the best investment options in 2023:

1. Low-Risk Investment

Low-risk investments provide a fixed income regardless of changes in a business or the economy. It is a safe option for people who are less willing to take risks. Low-risk investments offer security and stability, but the size of the return is mostly smaller too. It is a way to preserve capital and provide a regular income. In low-risk investing, there is less at stake, either in terms of the significance of the investment to the portfolio or the amount of investment. There is less to gain too, either in terms of the potential benefit of a longer term or in terms of the potential return. Low-risk investments include investments in cash or government bonds, savings accounts, money market bonds, annuities, protected funds, and others.

2. Medium-risk Investment

Investments that are more long-term and have moderate returns, usually of around 5-12%, are called medium-risk investments. Medium-risk investors accept some risk to the principal amount and adopt a balanced approach with intermediate-term time horizons of 5–10 years. Medium-risk investments involve diversifying investments while still trying to maximize returns. Medium-risk investments are suitable for investors with a medium-risk appetite and those who are looking for relatively higher returns with a regular flow of income. The market-linked volatility of such investments can hamper the principal amount. Medium-risk investments include shares, property, bonds, debt funds, mutual funds, and others that are good for long-term investment.

3. High-risk Investment

The risk and return are directly proportional to high-risk investments. High-risk investments are generally made by those with good knowledge about investments and the market. High-risk investors aim to get the biggest returns possible, and more importantly, they can afford to take more risk. If high-risk investments are successful, they can get returns of up to 10–30%. There is no limit to the gains from such investments. There is no definite way to measure risk, and it often comes down to an individual investor’s judgment. One shouldn’t make high-risk investments without conducting thorough research and having proper knowledge of the market. High-risk investments include equity mutual funds, stocks of companies, derivatives, and others.

Best Investment Options With Low Risk and High Return:

Now, let us look at some of the best investment options with low risk. These are safe investments with high returns in India:

1. Bank Fixed Deposit (FD)

Bank Fixed deposits (FD) are considered a safe investment option with high returns in India because there’s hardly any instance of a bank defaulting on FDs. Bank FDs often offer a much higher interest rate than regular savings accounts. Investments in 5-year tax-saving Fixed Deposits are covered under Section 80C of the Income Tax Act, 1961; this allows investors to deduct up to Rs. 1,50,000 a year by investing in this. FDs offer higher rates of interest for senior citizens compared to others. The interest rate varies across the investment amount, tenure, residential status (Indian, NRI, etc.), and bank. FDs have a lock-in period. If you withdraw within the lock-in period, the bank levies penalties in the form of deducting the interest accumulated on the investment. Apart from banks, other financial institutes also offer FDs.

2. Public Provident Fund (PPF)

PPF is one of the most secure, long-term, and low-risk investment options. It is a government-backed investment scheme. PPF accounts can be opened either at a bank or a post office. It is a tax-free investment that has a lock-in period of 15 years. The time frame can be further extended by 5 years. PPFs also offer much higher rates of interest than regular savings accounts at banks. In a PPF, you can also earn compound interest on the interest amount. As PPFs are government-backed, the principal and the interest amount in the PPF account are safe and guaranteed. The only drawback to PPF accounts is that you can only withdraw the invested money after 6 years. Calculating the returns and interest rates on a PPF account can be a bit tricky. To make this complicated calculation easy, a PPF calculator can be used. The PPF calculator helps you keep track of your capital growth. PPF savings account holders know that interest rates change monthly. Although it is easy to keep a check on changing interest rates, a PPF calculator makes it much easier, as the investor doesn’t have to manually enter the interest rates here.

3. National Pension Scheme (NPS)

The National Pension Scheme (NPS) is a retirement plan supported by the government and overseen by the Pension Fund Regulatory and Development Authority (PFRDA). It provides a range of investment options, including funds, corporate bonds and fixed deposits, allowing individuals to choose the schemes that best suit their requirements. NPS assists in building a retirement fund and enables access to a pension during one’s retirement years. It is available to citizens aged 18 to 65. Remains locked until the age of 60 to ensure it is utilized for post retirement needs. Partial withdrawals are allowed for purposes like education expenses, marriage or critical illness. Utilizing an NPS calculator is vital for estimating the fund value and pension amount and determining the necessary contributions. This tool simplifies what can often be a complicated calculation process.

Best Investment Options With Medium-Risk and High Return:

Now, let us look at some of the best investment options with medium-risk. These are safe investments with high returns in India:

1. Gold ETF (Exchange Traded Fund)

Gold ETFs are suitable for investors who want to diversify their portfolios and invest in the gold market. It is a medium-risk investment that suits conservative investors. The Gold ETF is a commodity-based Mutual Fund that invests in assets like gold. Gold ETFs perform like individual stocks and can be traded similarly on the stock exchange. Investments in gold ETFs provide high liquidity as they can be easily traded on the stock exchange. Gold ETFs aim to track the prices of domestic physical gold and invest in gold bullions (physical gold and silver with high purity, often kept in the form of bars, coins, or ingots). It is held in electronic form, and investors can buy as little as one unit. Because of the unique structure of gold ETFs, they have much lower expenses in comparison to physical gold. In gold ETFs, investors invest in stocks instead of the actual metal. So when they trade it, they are credited with the unit’s equivalent in cash rather than actual gold. The taxes levied on gold ETFs and the purchase or sale of physical gold are similar. Investors are liable to pay capital gains tax if they trade these funds and profit. Taxes are applicable for both short- and long-term investments in these traded funds.

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2. Real-Estate

The real estate sector in India is experiencing growth in areas such as housing, manufacturing, retail and hospitality. It provides an opportunity for returns. It is important to note that your primary residence should be viewed as a use rather than an investment. Investing in real estate in India can yield profits through income and appreciation of property value. While it can be lucrative, there are risks involved, such as the quality of the location, potential vacancies, liquidity challenges, tenant issues, structural concerns and market unpredictability. Obtaining approval can sometimes pose challenges.

Despite these risks, real estate has been proven to be an investment option with benefits like diversification of assets, tax advantages and the potential for wealth creation. To mitigate the risks associated with investing in real estate, thorough market analysis is recommended, along with exploring options like investing in real estate stocks, REIT (Real Estate Investment Trust) partnerships, or even crowdfunding platforms that allow property investment without direct ownership.

3. Initial Public Offerings (IPO)

An initial public offering is a process in which a private company goes public by selling its stocks to the general public. It could either be a new company or an old company that wants to get listed on an exchange. IPOs are mostly offerings where companies invite the public to buy their shares before they get listed on the stock exchange. Initially, IPO rates were low. Once the company is listed on the stock exchange, the price of the stock changes depending on market conditions. If you find the right company to invest in, it could be considered a long-term, medium-risk investment option. IPOs involve moderate to high risk. Therefore, it is essential to take a careful look at the company before investing in it. Investors must look at the company’s finances (for at least three years), the stability and quality of the management, the promoters, and their credibility before investing in the company. Investors should also analyze other listed companies in the field and compare their growth and their PE ratio (market price to earnings per share).

Best Investment Options With High Risk and High Returns:

Now, let us look at some of the best investment options with high risks. These are investments with high returns in India:

1. Unit-Linked Insurance Plan (ULIP)

A Unit-Linked Insurance Plan (ULIP) is a type of investment that combines insurance and wealth creation. It offers life coverage alongside an opportunity to invest in funds, such as equity, debt or a combination of both, depending on your long-term goals and how much risk you’re willing to take. One of the reasons ULIPs are popular is because they allow you to switch between equity and debt investments according to your preferences. You can choose to pay your premiums on an annual basis. It’s important to remember that ULIP investments are subject to market-related risks that the policyholder bears. Before making a decision, it’s crucial to assess your needs, risk tolerance and financial stability. If you have a high risk tolerance and prefer growth-oriented plans, then equity-focused ULIPs may be suitable for you. On the other hand, if you have a risk appetite and prioritize stability, debt-focused ULIPs might align better with your preferences. The lock-in period for ULIPs increased from 3 years to 5 years in 2010, indicating their long-term nature (10 to 15 years). Premiums paid towards ULIPs are eligible for tax deductions under Section 80C of the Income Tax Act in India, while returns upon maturity are tax exempt under Section 10(10D).

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2. Direct Equity

Direct equities are suitable for investors who can balance risk and return. When an investor invests in direct equity, they invest in the equity shares of a company, which legally gives them ownership of the company. The total amount that a company wishes to raise is divided into small parts called shares that have a value of rupees. By subscribing to these equity shares, the investor gets the right to participate in a company’s meetings and voice their opinions on decisions, but the real reason they invest is to earn a dividend. Stock markets offer the highest returns, and high-return investments come with a high degree of risk. Equity-linked investments are suitable for investors who have been investing for a long time and know the market. To invest in direct equities, one needs to have a Demat account and place trades only through authorized stockbrokers. Direct equity investments have the potential to bring investors high returns over a much shorter period, but these returns don’t come without any risk. Direct Equity investments are said to carry pure risk. It involves the purchase of shares from a chosen company. The company’s future performance has a direct influence on the price of its shares. Therefore, any fluctuations in the share prices will decrease or increase your investment value. Direct equity investments require investors to constantly monitor their investments because of the ever-changing nature of individual stocks.

3. Equity Mutual Funds

Mutual funds are one of the most common investment options these days. In a mutual fund, investors with a common investment objective pool their money (investment) in a fund. The pooled money is used by the fund manager to invest in securities and a variety of market instruments. The investors own a unit in the mutual fund. The return generated from the investment is distributed among the investors after subtracting applicable expenses and levies. The fee charged by mutual funds is regulated and has to be within predetermined limits imposed by SEBI. Mutual fund schemes that invest predominantly in equity stocks are known as equity mutual funds. As per the SEBI regulations, equity mutual fund schemes must invest at least 65% of their assets in equity-related instruments and equities. The type of equity fund may vary between small-cap, mid-cap, or large-cap funds, or a mixture of market capitalizations. Equity mutual funds are more susceptible to market volatility as the majority of the investment is in equity. Equity mutual funds are for investors who are willing to take a risk for long-term growth horizons. Since equity funds invest primarily in equity, they carry market risks. However, this also gives them the chance to generate good returns for investors. The management of equity mutual funds can be active or passive. Therefore, it is also suitable for investors who prefer to rely on fund managers for their investments and escape the trouble of doing it themselves.

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Final Thoughts:

In summary, when looking at the past decade, equity mutual funds have generally seen a return of around 12%. Debt mutual funds, on the other hand, have averaged about 8% per year. Gold has consistently shown an increase of 10% annually, while REITs have delivered an average return of 15% over the last five years, specifically in India. It’s important to note that investing always carries some level of risk, and previous performance cannot guarantee results. To make investment decisions, it’s crucial to align your investments with your goals and risk tolerance. Diversifying your portfolio is also recommended, along with taking a long-term perspective. Periodically rebalancing your holdings if you’re new to investing and seeking guidance from an advisor would be a good move for personalized advice.