The Best Safe Investments Of 2022

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Public Provident Fund (PPF)

This government-backed fixed income scheme can be considered a risk-free investment as its returns are guaranteed by the government.

Its features include:

  • Availability
    Available at almost all Indian banks and post offices.
    You can only open one account.
    No restriction on the age limit to open an account. A minor’s account is handled by their guardian till the age of 18.
  • Investment Amount
    Minimum investment amount is INR 500 per annum.
    Maximum amount is INR 1.5 lakh per annum.
    You can deposit anywhere between one to 12 times in one financial year.
  • Return on Investment
    The current interest rate is 7.10% per annum.
    PPF interest rates are floating in nature, which implies they could change every quarter. The interest rate change is anywhere between 0.25% to 0.75% in general.
  • Maturity
    A PPF fund matures in a span of 15 years.
    Partial withdrawals are allowed after five years of the account opening.
  • Taxation
    Investment in PPF is tax-free.
    Interest earned on your investment is also tax-free.

Risk Level: Low to nil

National Savings Certificate (NSC)

Looked at as a risk-free investment, the NSC is a government-backed fixed income investment scheme.

  • Availability
    The certificate can be readily bought at Indian public banks, some private banks and all post offices.
  • Investment Amount
    A minimum investment amount of INR 1,000 is mandatory.
    You can invest any amount in the multiple of 100 in 12 installments in one financial year or the desired deposit at once.
    No upper limit on investment.
  • Return on Investment
    Interest compounds annually at the rate announced by the Ministry of Finance every quarter.
    Interest is paid at the end of the maturity period.
  • Maturity
    NSC has a lock-in period of five years.
    Premature withdrawal is possible in cases such as the passing away of the certificate holder.
  • Taxation:
    Investment up to INR 1.5 lakh per annum is exempt from your taxable income under Section 80C of the Income Tax Act.
    Interest every year is considered as reinvestment and not taxed, but the final chunk of interest will be taxed as per your regular tax slab.

Risk Level: Low to nil

Post Office Monthly Income Scheme

The scheme provides account holders to receive benefits on the interest earned on the lump-sum deposit that are payable every month. The government-backed scheme offers 6.60% interest rates on both individual and joint accounts.

  • Availability
    The Indian postal service offers single account, joint account (up to three adults), a guardian or parent of a minor and/or of a person of unsound mind; and even under the name of a minor above 10 years of age.
  • Investment
    A minimum investment of INR 1,000 is required to open an account and a maximum balance of up to INR 4.50 lakh and 9 lakh are permitted for single and joint accounts, respectively.
  • Maturity
    Account can be closed after five years from the date of opening. However, premature closure before one year is not allowed. Similarly, 2% is deducted from the principal amount if the account is closed between one year and three years, and 1% for three and five years.
    Nominees can file a claim if the depositor dies before the maturity period.
  • Return on Investment
    The scheme offers an interest rate of 6.60% per annum payable monthly.
    The interest amount can be auto credited into the depositor’s savings account, or through electronic clearance service.
  • Taxation
    Interest earned on the deposit is taxable.

Risk Level: Nil to Low

Government Bonds

The Indian government has opened direct purchase of bonds for individual investors, who could earlier trade in government bonds only via gilt mutual funds, to encourage domestic participation in the sovereign bond market.

  • Availability
    The government announces its bond offering ahead of the date of auction. Both the state governments and the Central government issue these bonds.
    The bonds issued by the State are known as State Development Loans, and the ones issued by the Center are known as G-Secs or just government bonds.
    You must have a bank account at a bank to purchase government bonds. You can hold government bonds in a demat account.
  • Investment Amount
    The price of the bond is also announced at the time of the bond announcement by the government.
    The easiest way to invest in G-Secs is to use the e-Kuber App, the application of choice for the central banking authority, the Reserve Bank of India’s.
    The other way is to participate through a commercial bank listed by the government for that purpose or a primary dealer. For that, you will have to open a securities account.
    You can buy it through stock exchanges as well. For instance, NCB-GSec is the Bombay Stock Exchange’s online platform for this purpose while the National Stock Exchange has the NSE goBID mobile application.
    Broking platforms can also be used for buying it.
    You can also invest in government securities mutual funds. These funds invest in government bonds.
  • Return on Investment
    Most government bonds are fixed rate bonds, which means the interest rate is fixed for the entire tenure of the bond till maturity.
    Depending on the coupon rate determined at the time of purchase of the bond, you get a half-yearly interest for the stipulated bond holding period.
    Any capital gain (or capital loss) when the bond is sold or matures.
    Income from reinvestment of the interest payments that is interest-on-interest.
  • Maturity
    The maturity period of a government bond can be a year or more depending on the offering.
  • Taxation
    Tax will be charged as per a person’s income bracket from the income generated by the interest that one receives from these bonds.
    Any price increase in the value of the bond will also be regarded as capital gains and taxed accordingly.

Risk Level: Low to nil

National Pension Scheme (NPS)

The National Pension Scheme is for those who intend to build a robust retirement fund by investing their savings into a government-monitored pension fund that invests in diversified stock market portfolios including government bonds, corporate debentures and shares. The returns or the accumulated pension wealth made on such investments are used to purchase a life annuity and a portion is available for withdrawal at the end of the scheme cycle.

Two kinds of NPS accounts exist: Tier I NPS Account and Tier II NPS Account.

Features of Tier I NPS Account

  • Availability
    Indian citizens between the age of 18 and 65 can invest.
    An account can be opened by visiting an authorized bank or any of its branches called point of presence (POP) appointed by the Pension Fund Regulatory and Development Authority. Alternatively, by visiting the eNPS web portal.
    After a request for opening an account, you receive a 12-digit number and a permanent retirement account is created.
  • Investment Amount
    You can open this account by depositing INR 500.
    To keep the account active, you have to deposit at least INR 1,000 in a financial year.
    No upper limit on how much you can invest per year.
    You cannot withdraw your invested amount until age 60.
  • Return on Investment
    Returns are calculated on the basis of the net asset value declared by the pension funds of various banks.
    They are not predetermined and depend on how your investment has fared through the years.
  • Maturity
    After reaching the age of 60, you can withdraw a maximum of 60% of your total balance.
    The remaining 40% has to be compulsorily used to buy a pension plan of your choice.
  • Taxation
    Investment of INR 2 lakh per annum is exempted from tax under Section 80 C and Section 80CCD.
    Returns earned on NPS tier I accounts are exempted from tax.

Tier II NPS Account

  • Availability
    This is a voluntary account and can be opened only if an individual already has an NPS Tier I account.
    You can open an account offline at any authorized bank or its POP appointed by the PFRDA. An online account can be opened by visiting the eNPS portal.
  • Investment Amount
    A minimum investment amount of INR 1,000 at the time of opening the account.
    No annual contribution mandatory like in the case of an NPS Tier I account.
    No maximum limit on how much you want to invest.
    Each year, you decide how much of your money you want to invest in the four asset classes available: government bonds, corporate bonds, equities and alternative assets.
    Investment has no lock-in period.
  • Return on Investment
    Return on your investment is not predetermined. It depends on the net asset value declared by pension funds in each investment cycle.
  • Maturity
    After reaching 60, you can withdraw a maximum of 60% of the total corpus.
    The remaining 40% is used to buy a pension plan of your choice.
  • Taxation
    There are no tax benefits and income from it is taxed as per your tax slab.
    Only government employees get tax benefits if they keep their investment locked for three years.

Risk Level: Low

Sovereign Gold Bonds (SGBs)

SGBs are government securities issued by the Reserve Bank of India (RBI) and denominated in gram(s) of gold. They are issued in multiples of gram(s) of gold with a minimum investment of 1 gram.

  • Availability
    SBGs are open for auction on dates announced by the central government. These bonds are issued by the RBI multiple times a year.
    You must have a PAN Card to buy an SGB.
    You can buy SGBs from banks, post offices, stock brokerage companies both online and offline.
  • Investment Amount
    Each bond unit you purchase has the value of one gram of pure gold based on gold’s average closing price of the previous three business days. You can purchase a maximum of 4 kgs of SGBs for individuals and 20 kgs for trusts. You currently receive a discount of INR 50 on each gram purchased online.
  • Return on Investment
    2.5% paid twice a year.
  • Maturity
    Eight years. Early redemption after five years.
  • Taxation
    Interest payments are taxed based on your tax slab.
    Any gains made at maturity are free from tax.

Risk Level: Low to medium

Equity Mutual Funds

An equity mutual fund is an investment vehicle that pools investors’ money and invests it in stocks to generate returns.

  • Availability
    You can readily invest via SEBI-authorized individuals, agencies and stock brokerage companies online or offline.
  • Investment Amount
    Most mutual funds expect a minimum investment of INR 1,000; there is no cap on the maximum amount that can be invested.
    To invest in equity mutual funds, you need to have a demat account and a trading account.
    There are mainly eight types of equity mutual funds for investors to choose from.
    One can also invest in equity mutual funds known as growth funds. This can be done without opening a demat account.
  • Maturity
    Investors are free to redeem their investments in open-ended equity mutual fund schemes.
    In case of equity-linked savings schemes under the equity mutual fund umbrella, a lock-in period of three years from the date of investment exists.
  • Return on Investment
    Equity mutual funds are known to deliver the highest returns among other kinds of mutual fund investments. For instance, some equity mutual funds have given a 5-year annualized return of up to 35% and as high as 117% in a year of historic highs in 2021.
    The return depends on the market fluctuations and the overall economic scenario.
  • Taxation:
    In case of a short-term capital gain, tax is applied at 15% plus 4% cess.
    For long-term capital gains, if the profits are less than INR 1 lakh in a financial year, the investment return is completely tax-free.
    If the long-term capital gains are more than INR 1 lakh, tax is levied at 10% plus 4% cess.

Risk Level: Medium to high

Unit-linked Insurance Plans (ULIPs)

ULIPs are plans that provide consumers the dual benefit of insurance and investment. The way ULIPs work is simple: the policyholder can purchase an insurance plan for which the premium paid is used to provide a cover and the remainder is invested between equity and debt funds.

  • Availability
    You can purchase ULIPs from any bank or insurance company operating in India.
    Financial institutions expect you to provide your proof of income given ULIP is a long-term investment product.
  • Investment Amount:
    The minimum investment in ULIP varies from one financial entity to another. Generally, a minimum of INR 1,500 is required as premium payment per month.
    Since ULIPs fall under the Section 80 C tax exemption category, an investment of up to INR 1.5 lakh per year can be done to get a tax benefit.
    The maximum investment in a ULIP policy depends upon one’s capacity to pay annually for the tenure of the policy.
    Charges for actions such as premium allocation, fund management, fund switching, partial withdrawal, premium redirection and discontinuance among others are all over and above the premium one pays annually for the ULIP.
  • Maturity
    ULIPs have a lock-in period of five years, after which the policyholder can withdraw their funds without any penalty and are also eligible to continue the policy depending on its terms and conditions.
    Payment of premiums can be halted after three years but the withdrawal of funds invested is possible only after the maturity period of five years. ULIPs are considered long-term investment plans with up to 10 years considered an average investment period.
    You can lose out on a percentage of your prospective returns upon partial withdrawals before the maturity date.
  • Return on Investment
    The expected annual rate of return can be calculated by calculating the ULIP NAV by using the simple formula:NAV = (Value of current assets + value of investments) – (value of current liabilities and provisions)/Total number of outstanding units on a specific date.

    To calculate the rate of return upon maturity or at the end of the policy period, the method of compounding is deployed and it is advisable to contact your financial services provider to know the rate of return of your ULIP for accuracy.

  • Taxation:
    ULIPs fall under the EEE category of Section 10 D; this implies ULIPs are exempt-exempt-exempt for the tax levied on the investment, the proceeds and on withdrawal of funds after the lock-in period of five years of a ULIP is complete.

Risk Level: Medium to High

Gold Exchange-Traded Funds (ETFs)

Gold ETFs are equivalent to buying gold in the physical form without the hassle of holding physical gold. They require investors to open a demat account and hold gold units in a dematerialized form similar to how investors hold mutual fund units.

  • Availability
    You can buy units of gold by opening a demat account, exactly in the same manner that one invests in shares from the stock brokerage companies and agencies registered with SEBI.
    If you do not have a demat account, you can invest in gold funds offered by some of the banks or from various gold ETF funds.
  • Investment Amount:
    A minimum of one unit, which is equivalent to a gram of pure gold, is recommended. This physical gold is stored with depositories and it acts as underlying via which the units of the ETFs derive value.
    There are gold funds in the market where you can start at as low as INR 500.
    There is no limit to the number of gold ETF units that one can purchase.
  • Maturity
    As the price of gold increases, the value of your unit will also increase, and vice versa. You can exit a gold ETF when you want—there is no lock-in period.
  • Return on Investment
    Just like an equity mutual fund, ETFs can also be traded on stock exchanges. Hence, their return depends on the gold ETFs’ performance in the market.
  • Taxation:
    If you sell your gold ETF before 36 months of acquiring it, then you will be taxed as per your slab. After 36 months, long-term capital gains tax of 20% plus 4% cess is applicable.

Risk Level: Medium to high

REITs

REITs enable an investor to invest in a portfolio of income-generating real estate assets by purchasing units of the REIT similar to units of a mutual fund. Any income generated by the underlying real estate assets is then distributed by the REIT to its unitholders.

  • Availability
    REITs are listed and traded on the stock market, just like equity shares. Therefore, a demat account is mandatory for investing in REITs in India. At present, there are 3 REITs that allow investors to invest in India. These include:
    • Embassy Business Park REIT
    • Mindspace Business Parks REIT
    • Brookfield India REIT
  • Investment Amount
    The minimum investment criteria of INR 10,000 to INR 15,000 is applicable for investment through initial public offerings (IPOs) and follow-on offers (FPOs) of REITs that are listed on the stock exchanges.
  • Maturity
    REITs do not have a maturity date
  • Return on Investment
    REITs are mandated to deliver 90 per cent of their portfolio’s net rental revenue as dividends, or interest to their shareholders. Hence, as a REIT investor, you can earn via dividends and the increase in the value of your stock.
    Typically, commercial real estate provides returns between 8% and 10% per annum. However, grade A office spaces and commercial spaces in prime locations have the potential to provide better returns. The projected return on investment in REITs is anywhere between 8% and 14% in the short to medium-term (after adjusting for fund management fee, which is deductible before paying out to the unitholders), with minimum risks.
    But one may need to stay invested for longer periods—three to five years—as in any asset class, one needs to keep a long-term horizon, and be patient in riding out the real estate cycles that tend to last long.
  • Taxation
    Income received by the REITs in the nature of dividend, rent, and interest and distributed to its unit holders is in the same nature i.e., deemed as dividend, rental and interest income, respectively, in the hands of the unit holder. Here’s a breakdown of the tax applied on each of the categories of investment and return:

Risk Level: Medium to High

Bottom Line

Investing your money in financial products that could help you generate a return has its own risks. Before making an investment, it is prudent to learn about the prospective risks related to the product that you are investing in thoroughly.