Everyone wants to be the 'best'. Best in academics, best in the office, best in life and so on. This compulsion to be 'the best' in everything is because we are aware that no one celebrates mediocrity. Hence it's only natural that while investing our hard-earned money, we insist on investing in only the best investment options available to us. We simply refuse to settle.
And why should you settle? After all, it is your hard-earned money and the quality of your chosen investment option that will determine whether you achieve financial freedom or not. One wrong step and your entire wealth creation journey could derail.
But discovering the best investment option is like finding a needle in a pool of needles! Every investment option might seem lucrative on the surface but can prove to be your financial undoing. From fixed deposits to cryptocurrencies and antiquities, the universe of investment options is humongous. To help you decode and decide which is the best investment option for you, here's a rundown on the different types of investment options available in India.
Highest return generating investment options in India
Direct Equity (Stocks): Direct equity is considered as one of the best and most lucrative investment options for long term wealth creation. While investing in stocks might be considered as risky, the returns generated by stocks are superior to any other investment option. Historically, investing directly in equities of superior quality companies has generated an average return of 15% - 20% p.a.
For example, in 2002 Asian Paints was trading at Rs 24/share in 2002 and in February 2020, it was valued at Rs 1,877/share, generating a CAGR of 27.40% in the last 18 years.
Similarly, Larsen & Toubro Infotech Ltd was trading at Rs 700/share in 2016 and is currently trading at Rs 2,032/share, generating a CAGR of 42.65% in just 3 years!.
While generating superior returns from stocks is every long term investor's dream, it is not as simple as it sounds. A lot of fundamental and technical analysis goes into discovering such quality long term stocks. The fundamental principle of long term wealth creation is to identify quality stocks and stay invested in them for the long term.
Rakesh Jhunjhunwala, (the prominent bull investor) bought shares of Titan in 2002 for a mere Rs 2/share and recently the stock was trading at Rs 1263/share. He made a CAGR of 43.07% on his investment!
Remember, the fundamental principle of wealth creation is relatively simple and uncomplicated - 'Buy the right stock and then give it ample time to grow'. As Mr Warren Buffett aptly remarked,' our favourite holding period is forever'.
Equity Mutual Funds: Equity mutual funds predominantly invest in equity stocks across market capitalisation and offer an indirect route for direct equity investments. Equity mutual funds are more suited for investors who wish to take 'diversified' risk (via equity mutual fund route) rather than investing in direct stocks.
Equity mutual funds can be actively managed (active fund manager participation & higher alpha) or passively managed (passive fund management and returns are in line with benchmark)
Equity mutual funds have various subcategories to cater to all kinds of risk profiles such as large-cap funds (low-risk profile), midcap funds (high-risk profile), multi-cap funds (average risk profile), small-cap funds (high-risk profile), and balanced funds (medium to high-risk profile) etc. Equity mutual funds have generated an average return of 12% - 13% p.a. in the long term and are considered to be the best investment option for salaried individuals and retail households.
Public Provident Fund (PPF): PPF is one of the best and most trusted government-backed long term investment options. PPF can be started with a minimum investment of Rs 500 annually with designated banks or post offices or online.
PPF investment has a lock-in period of 15 years, but partial withdrawals are allowed from 6th year onwards. Post the completion of 15 years, PPF can be extended countless times, in blocks of 5 years.
An investor can claim tax exemption for PPF up to Rs 1.50 lakhs under section 80C, and the maturity proceeds are also tax-free. PPF interest rates are revised every quarter. The current PPF interest rate for the April 2020 quarter is 7.1%. PPFs have historically generated returns in the 8-9% p.a range.
Real Estate: Real estate is the most preferred tangible long term wealth creation asset for Indians. Returns in real estate are both in the form of monthly income (rent) and capital appreciation. While Real estate is still a preferred investment option, stagnant property prices and low demand has hurt investor morale. And while real estate is an excellent source of passive income, real estate investments are highly illiquid and involve massive regulatory outflows (stamp duty, broker commissions etc).
Government Bonds & Papers: Government bonds and papers such as Kisan Vikas Patra (KVP), REC & NHAI bonds are the best investment options for risk-averse investors. Investors with a medium-term time horizon, looking for guaranteed returns which are superior to FD returns can invest in government papers. Investment in bonds is prone to interest rate risks, and ideally, these bonds should be held till maturity.
Bank Fixed Deposits: Bank fixed deposits are considered to be the safest, albeit low return generating investment avenue in India. It is labeled 'safe' as under the deposit insurance and credit guarantee corporation (DICGC) rules, each depositor in a bank is insured up to a maximum of Rs 1 lakh for both principal and interest amount. Bank FDs can be cumulative (interest is paid on maturity) or non-cumulative (interest is paid as per chosen frequency).
The rate of return in an FD is in the 5-6% p.a. range and the interest income is fully taxable as per an individual investors tax slab. Majority of bank fixed deposit is net of TDS (tax deducted at source).
Even though bank fixed deposits offer comparatively lower returns, they are popular investment option for an average risk-averse household as they are:
- 1) Highly convenient (can be opened at any bank offline or online)
- 2) Highly liquid (liquidated in a matter of minutes) and
- 3) Safe (up to Rs 1 lakh).
Gold: This shiny metal is the shining star of the investors' universe. Indians have a special emotional attachment with gold as it is considered to be an alternate emergency reserve with high liquidity. In India, investment in gold is primarily for consumption and estate planning purposes only.
While owning physical gold has its own set of challenges (storage costs, making charges, theft possibility, etc.).
A better alternative to owning physical gold is to invest in gold ETFs, which can be actively traded on the stock exchange and is much more cost-efficient.
Gold has proved to be a time tested hedging mechanism as gold and equities have an inverse relationship. Investing in gold sovereign bonds is also a good idea to increase exposure to the gold asset class. Apart from mimicking the gold price appreciation, the sovereign bonds also pay a guaranteed 2.5% p.a. interest.
What should you do?
Do you ever wonder how the super-rich like Warren Buffett, Jack Ma, Mukesh Ambani and others create wealth? Do you believe that they invest in bank FDs or small savings schemes (PPF, SCSS, POMIS) to create wealth? The answer is No.
Every successful investor and long term wealth creator, invests in businesses. They invest in direct equities of attractive companies and reap the benefits of long term capital appreciation.
But these investment decisions aren't simple. You need to have access and the ability to process and analyse crores of data points (on a daily basis) to determine the quality of stocks in your portfolio.
But is it possible for an ordinary investor to access, process and analyse crores of data points to discover the best stock for long term wealth creation? Are you equipped with the right tools and knowledge to discover the next 'Asian Paints' or 'TCS' or 'Bajaj Finance'?
If your answer is No, then don't worry. You form the majority of the investor community who forego their chances of creating infinite wealth by sticking with traditional investment options. But luckily, StockBasket is well equipped and prepared to take you on the journey of infinite wealth creation.
StockBasket is an expert curated readymade basket of stocks based on 25 intelligent parameters, designed to suit your long term wealth creation needs. Our proprietary engine evaluates over two crore data points daily to determine the quality of stocks in each basket.
A StockBasket contains a pool of 5 - 15 stocks. In direct equity investments, a single stock is bought at a single point of time and there is no weighing system or mechanism involved. But StockBasket automatically identifies the ideal proportion in which the investor should invest in these individual stocks so that the risk is reasonably diversified.
StockBasket has a proven track record of generating superior returns for its investors compared to all other investment options.
For example, our specially curated Retirement basket includes Bajaj Finance Ltd, which was trading at Rs 5.75/share in 2002 and recently the stock was valued at Rs 4,880/share, generating a CAGR of 45.44%.
Also a part of the Retirement basket is Dr Lal Pathlabs Ltd, which was trading at Rs 896/share in 2015 and recently the stock was valued at Rs 1,769/share, generating a CAGR of 14.57% in just five years!
The list of our accomplishments is never-ending. We pride ourselves in the ability to research and identify supreme quality stocks with razor-sharp precision and analysis, which creates real wealth for our clients.