What is the best investment option in India for 2020?


What is the best investment option in India for 2020 ?


All of us dream of being rich, generating and saving enough money to not only sustain ourselves but to fulfill our desires and wishes. Many of us start thinking about it early in life, but most of us are too late in doing so. I think it is never too late to make an investment decision and to pursue it. At whatever stage of life we are, once we decide to invest, the next most difficult question facing us is, where to invest !. This question is often a major hindrance to investment decisions as there are thousands of investment options in the market and millions of views about how to invest and where to invest. 

What is the best investment option in India for 2020
What is the best investment option in India for 2020


I was fortunate enough to have the idea of investment pretty early, because of my father and mother who would always think of investing. They would often discuss parking their savings in a plot or putting it into a fixed deposit, buying gold etc. While I was in college, I was already planning to buy a flat once I get my first salary. I think the secret to such early thought in investment was the exposure I got from my parents. I am lucky to have parents who talked about investing, although there were very few options available back then and very little information was available to them. Even with the limited resources he had, he was able to transform a generation with the little savings he did through his life and still he continues to do so. My father in most part was influential in instilling the investment idea into my mind. 
While I consider myself lucky in that respect, most people are not. Investment is not spoken about in schools and most of our friends and family have little idea about it. The lack of exposure and information is a major hindrance to our investment decisions in most part. In this post, I shall try to solve this riddle and guide you through a path that can lead you to sound start in investing. 

What are your sources of income

Your decision to invest obviously depends on what is your source of income and how much can you save monthly from your income. Whatever is your income and whatever be your lifestyle, the income never seems enough and you always feel like procrastinating the investment decision. One needs to have a strict financial discipline to save money. Because unless you save, how would you invest!

What is your risk profile 

Another important factor that decides your investment decisions is your risk profile. In general, if you are young, you can take risks and if you are old, you need to have more surety about your investments. So depending upon your risk appetite, you may choose high-risk investments like stock market, or low risk ones like a fixed deposit, gold or mid risk ones like mutual funds and real estate. It also depends upon what are your goals and what kind of returns to want from your investments. Low-risk investments give lower returns while high-risk investments like stocks give high returns.

It may be noted here that a seemingly high-risk investment in the short term becomes quite safe when you consider long term investing. That is another reason you should start early, you can be invested for the long term and that way the risk lowers significantly.

What are your liabilities 


If you need money for liabilities such as purchasing a home, repaying a loan, marriage of a child or a sibling, then your investment choices are going to be very different from someone who has no immediate liabilities and has spare money to park in a long term instrument. So when you consider investing, you have to take care of possible immediate needs like hospitalisation, illness, or an unforeseen problem. The money that you might need in an emergency situation must be parked in an instrument which is liquid, that is to say, you should be able to cash it in short notice. Gold, stocks and open-ended mutual funds are such liquid instruments. Real estate is difficult to encash in times of need.

What are your financial goals and what is the time horizon

Do you aim to buy a bungalow in a plush locality of a metro city or want to go for a world tour or desire to buy a Mercedes Benz? You will need to calculate the amount needed for your future goals, make a plan for saving and investing and accordingly decide upon the instrument of investment. According to the risk you are willing to take, mutual funds, stocks, real estate or recurring deposits are some of the options. While stocks could potentially give the highest returns in the long term, real estate is a relatively risk-free instrument, while having its own problems of management.  

What options are available

Like I have discussed in each of the above sections, gold, fixed deposits, bonds, stocks, debentures, real estate, mutual funds (closed-ended as well as open-ended) are some of the various options available to most of us. 

1. Gold (and Silver) is considered as a classic investment and is frequently recommended by the older generation as the best investment ever because of the surety and value it provides. Its value will never go down while all other instruments may collapse. Gold is also the most liquid investment option. On the downside, the returns are meagre with gold and hence it is not considered a preferred investment option, especially in the era of economic boom. When the economy is in doldrums, most people seek refuge in the safety of Gold. 

2. Stocks are a good option for investment in the long term and can potentially be game-changers, giving the highest possible returns. But one needs to have sound knowledge of the quality of stocks (and the corresponding companies) along with a knowledge of the stock market before investing in them. A wrong choice of stocks or wrong allocation of funds can potentially be a fatal mistake in the stock market and may lead to major financial loss. On the other hand, stocks when wisely chosen and held for the long term have the potential of making you a millionaire. 

3. Mutual funds are a great way of investing in stocks. Here one can benefit from the phenomenal returns of stocks and the expertise of fund managers in managing the ups and downs of the stock market. The return is not as good as stocks themselves but possibly better than most other types of investments. Mutual funds carry similar risk as the stock market in general; they go down when the market is down and they go up when the market goes up. In long term, mutual funds can offer decent returns, depending upon the choice of mutual funds. 

4. A plot of land or an apartment can be a very good investment but requires upfront a large sum of money and is a major investment decision in life. Residential or commercial property can give rental income as well as appreciate in value with time. They are an excellent class of investment as they are tangible things which can be sold to another person. Land is a limited commodity in the world and is only going to grow in value. However, the downside with real estate is that it requires maintenance and is subject to frauds and litigations. If you cannot personally take care of your property, investing may be counterproductive. In addition, the maintenance costs of a commercial or residential building could be heavy if not occupied and not giving rental income. While a property in a prime location sells like hot cake, it may become difficult to dispose-off a property located in not so prime location. So while real estate can give phenomenal returns by appreciation, it is difficult to acquire, maintain and dispose!

5. Fixed deposits post-office schemes and recurring deposits are age-old and popular methods of risk-free investing. It was the most popular method in our parents' time but now with the availability of better investment options, everyone looks for investment which offers better returns as the downside of fixed deposits and recurring deposits is the meagre return profile. A fixed deposit could be a great option for an elderly to invest his retirement corpus or for a person who needs to park his money for a year or two and cannot afford to lose it. 

How to choose from various options 


One should choose from the various available options by considering one's risk appetite, age and stage of life, financial goals, liabilities and return expectation. As a general guide, one should not expect to be rich overnight and should have patience while being invested. Expecting an unusually high return would lead to poor investment decisions. For young investors, it is advisable to have a long term view and stay invested. Wealth is created in the long term. It is advisable to write your financial goals, make a plan by educating yourself and discussing with family. Lot many financial advisors are available nowadays and could help in making a rational decision. Getting to know about various investment strategies and educating oneself is the best option by far. 
During early stages of life, relatively large exposure to stocks and mutual funds is advisable while as you grow old, the portfolio should consist of a mix of safer instruments with a smaller share of stocks and debentures. 


Conclusion


So what is the best investment option in India for 2020? Well, for me it could be very different from you! I may prefer stocks as I expect the stock market to go up in near future and I don't mind a minor notional loss in the near term. You may prefer Real-estate because you live in an upcoming locality of a city where you see increasing prices of land due to government investing in industrial development in your region. Your proximity to such a region and availability of funds at hand may motivate you to invest in a commercial or residential property with the expectation of rapid escalation of prices. So it all depends upon the individual who is investing. You need to make yourself aware and decide about your choices!
If you ask my personal opinion, I am very optimistic about the India growth story and I feel that both the stock market and real estate will offer tremendous returns in long term and this is the right time to get in. If you have an appetite for risk and don't mind waiting, great returns await you. 

Choose wisely. Happy investing!

Acknowledgement :

Image by Nattanan Kanchanaprat from Pixabay

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