Investments and their Returns - A Comprehensive Compilation 2021

Before we start speaking about investments and which one of the options is probably the best one for you, it is important to understand why this is a crucial time for investing in anything, even as India is in its second year of dealing with the COVID pandemic. The past two years have been hard on the global economy and growth, and going by what medical and healthcare professionals have to say, the virus is still far from being eradicated. It suffices to say that whatever the business world has to work with, it has to keep in mind the fallout of the pandemic and its effect on the choices people and businesses make. That in turn, will affect which investment options will be the ones most profitable for investors.

Apart from looking at just investments, it also makes sense to note that India will be staying at the forefront of growth when compared to other countries. The World Economic Outlook report by the IMF has been consistently showing that India’s GDP is the highest among its peers, even in 2022.

With the impetus provided to the “Make In India” initiative and policy changes that are benefitting a boom in real estate and infrastructure growth, there will be few sectors left that can’t reap the harvest of good, prudent investments.

A simple question about investment would generate a very typical answer from most of us. The investment should generate huge returns and have no risk of losing the principal money. Sadly, that ideal world is still out of reach. A high-return, low-risk option in investments is what most investment managers strive to achieve. It is their shokunin, their journey towards perfection.

That being said, high returns are always associated with higher risks, though calculated risks are always better than unexpected ones. Any investment you make will have your appetite for risk matched with the risk profile of the investment. Some investments can carry high risk but can generate higher inflation-adjusted returns in the long run than other asset classes. Let us look at some of the viable investment options and their average returns across time.

Mutual Funds

There was a time when mutual funds sounded alien to people, but this is a less risky approach to investing in stocks. By pooling together investments from many people and investing the same in a pool of stocks and shares, the overall risk gets shared across assets and the returns also get shared as per the ratio of investment done. They can fall into equity, debt, or hybrid types and generate returns ranging from 8-15% annually.

Direct Equity

Stocks aren’t everyone’s cup of tea. The risk is greater, there are no guaranteed returns and the asset is pretty volatile. Mutual funds based on equity reduce the amount of risk involved by diversifying investments across multiple assets. Direct equity is a great example of a high-risk, high-return investment. Based on the risk one is comfortable with, investing in stocks directly can generate around 17-18% return on an average with a diversified portfolio.

Saving Schemes

Most salaried personnel would be knowing about National Pension System (NPS), Public Provident Fund (PPF), National Savings Certificates (NSC), and the like. Out of these three, only NPS can be configured by the investor as per how much of their investment can go into equity, corporate bonds, fixed deposits, liquid funds, government funds, and others. PPF has its interest rates reviewed every quarter by the government. NSC works more or less like a typical fixed deposit, with the interest rate applicable at the time of the initiation.

Other contemporary safer investment options include fixed deposits, the Senior Citizens’ Savings Scheme (SCSS), and Pradhan Mantri Vaya Vandana Yojana (PMVVY). PMVVY and SCSS can be availed by persons over the age of 60. They are good ways to earn stable albeit very low returns over an extended period.

Non-financial assets

While all of the above fall under the ambit of financial assets, gold, and real estate are two glorious investment options that fall under non-financial assets. Typically, gold jewellery comes with its own burdens of making charges which reduces the effectiveness of the asset in terms of investment. However, investments in paper gold via gold ETFs, gold mutual funds, and sovereign gold bonds are a great option. Gold is still heavily market-linked and can suffer volatility if the market trend changes abruptly.

From a long-term investment perspective, real estate is an ideal option that provides returns ranging from 9 to 13% annually and the returns are very stable. Stability increases when one considers commercial real estate as opposed to residential real estate. You can invest in real estate the traditional way by purchasing physical property or via REITs, ETFs, and fractional ownership. To know more about why commercial real estate is a literal gold mine for investment, please read this article, and if you want to know more about fractional ownership and why it is a great way to start investing in commercial real estate, you can refer to this article, Fractional Ownership in CRE.