Investment avenues in India

In this second blog, let’s try to explore the various options available for a potential investor in India. Indians are compulsive savers. The gross domestic savings of Indians stood at 31.8% of GDP in the previous financial year. Indian financial scene presents a plethora of avenues to the investors. Though certainly not the best or deepest of markets in the world, it has reasonable options for an ordinary man to invest his/her savings.

Banks are considered as the safest of all options wherein a person deposits money and earns interest on it. The two main areas of investment in banks are the savings bank account and fixed deposit schemes. However, with the banks offering little above 9 percent in their fixed deposits for one year, the yields have come down substantially in recent times. The value of the earnings further eroded by inflation.

Life insurance and Public Provident Funds act as options to save for the post retirement period for most people and have been considered good option largely due to the fact that returns were higher than most other options and also helped people gain from tax benefits under various sections. Another route to invest has been the fixed deposit schemes floated by companies. The safer a company is rated, the lesser the return offered by the company. Companies with good credibility have used this route to mobilize the funds for their operations.  

Real Estate is one of the most important assets in portfolio of investors. In addition to a residential house, the more affluent investors are likely to be interested in agricultural land, commercial rentable properties and farm houses. Our obsession to gold and other precious metals is unprecedented.

Stock markets provide an option to invest in a high risk, high return game. It’s particularly useful to investors with moderate to high risk appetite. While the average return of top 30 companies listed in Sensex has been close to 19 % in the past one year, much has been attributed to the prospectus of a stable government in the centre. However, as enticing as it might appear, people generally are clueless as to how the stock market functions and in the process can endanger their sacred money.

An average investor is largely risk averse and seeks to earn profit by taking minimum risk. The perceived risk also increases if the customer is not knowledgeable about the investment option. For those who are risk-averse, mutual funds seem to be the flavor of the current times.  Mutual Funds are essentially investment vehicles where people with similar investment objective come together to pool their money and then invest accordingly.

With changing times and investors becoming more knowledgeable , the investment avenues like mutual funds, stock market and others would eventually be seen adding more customers but the risk associated with the prospectus of earning higher return can not be ruled out.