Where to Invest Money

Table of Contents

1. Best Investment Options in India

2. Short-Term Investments VS Long-Term Investments

3. Factors to Consider When Choosing the Right Investment Plan

4. Tax Implications of Different Investments

5. Conclusion

6. FAQs about where to invest money?

Best Investment Options in India

If you are wondering about where to invest money in India, here is a detailed list that could give you ideas: 

1. Public Provident Fund (PPF)

The Public Provident Fund (PPF) is widely regarded as one of the safest long-term investment options in India. Backed by the government, it comes with a fixed 15-year maturity and offers guaranteed, sovereign-backed returns. 

It also provides significant tax benefits, making it highly suitable for conservative investors and retirement planners. Although the money is locked in, PPF offers limited liquidity through partial withdrawals after seven years.

• Government-backed savings scheme: Fixed maturity of 15 years with sovereign-backed, guaranteed returns.

• Tax benefits:PPF offers tax deductions up to ₹1.5 lakh under Section 80C of the Income Tax Act, 1961. Also, PPF enjoys complete Tax Exemption under Section 10(11) of the Income Tax Act, 1961, which specifically provides that any payment from a PPF, including annual interest, partial withdrawals, or final maturity proceeds, is fully exempt from income tax, giving it the EEE(Exempt-Exempt-Exempt) status.

• Ideal for conservative investors: Suitable for those seeking stable returns and retirement planning.

• Partial withdrawals allowed: Accessible after seven years to meet emergencies.

• Interest rates are reviewed quarterly: Rates are set and updated periodically by the government.

2. Mutual Funds (MFs)

If you are searching for where to invest money to get good returns, you can consider mutual funds (MF) as a key option. MFs refer to pooled investments in various equity, debt, and hybrid assets managed by professional fund managers. Since returns are market-linked, risks vary based on the fund type. While equity fund investments are riskier than debt funds, hybrid funds are considered a balanced investment option. 

It is essential to note that tax treatments vary among these funds. For example, equity fund units sold within 12 months are subject to Short-Term Capital Gains (STCG) tax under Section 111A of the Income Tax Act, 1961. Such gains were earlier taxed at a rate of 15% up to 23rd July 2024; however, pursuant to the amendment the rate has been increased to 20% for transfers made on or after 23rd July 2024. ELSS (Equity-Linked Savings Schemes), on the other hand, offer tax deductions up to ₹1.5 Lakh annually under Section 80C of the Income Tax Act, 1961 .

How to Invest in Mutual Funds?

You can start investing with a minimum of ₹500 from your salary every month in Systematic Investment Plans (SIPs). Regular investment will lead to wealth creation through compounding. The best part is that these are liquid funds, allowing you to easily redeem the units.

3. Unit Linked Investment Plans (ULIPs)

ULIPs are hybrid financial products combining life insurance with market-linked investment options. A portion of your premium provides life cover, while the remaining amount is invested in equity, debt, or balanced funds. Policyholders bear market risk but can switch between fund types to balance risk and return. ULIP premiums qualify for tax deductions to overall ceiling limit of ₹1.5 lakh under Section 80C^# of the Income Tax Act, 1961, maturity proceeds may beexempt under Section 10(10D)^# of the Income Tax Act, 1961 subject to conditions prescribed and death benefits are completely exempt. ULIPs are best suited for long-term investors seeking both financial protection and wealth creation.

Important Note: In Unit Linked policies, the investment risk in investment portfolio is borne by the policyholder. The linked insurance products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender or withdraw the monies invested in linked insurance products completely or partially till the end of the fifth year.

How to Invest in ULIPs?

With a minimum investment of ₹1500 per month, you can start a ULIP investment; there is no upper limit. An insurance company invests the premium amount on your behalf.   

4. Gold Investment

Gold investment is popular in both traditional and modern senses. Whether it is gold jewellery, coins, sovereign gold bonds, or ETFs, investing in gold serves as a hedge against inflation, making it a safe haven amid uncertainties. The returns from gold investments depend on its market price, and it is not fixed. 

Since physical gold carries a risk of storage, people are increasingly leaning towards gold bonds and ETFs. These are safer and interest-bearing options. With an interest rate of 2.50% per annum, sovereign gold bonds offer price appreciation, making them more rewarding compared to physical gold. 

How to Invest in Gold?

The Reserve Bank of India issues sovereign gold bonds, which are digital gold. These are measured in grams of gold, and you can start by buying a minimum of 1 gram. With a tenure of 8 years, your investment will grow with 2.50% interest per annum. 

5. Fixed Deposits (FDs)

If you are wondering where to invest money for the short term, FDs are your answer. Similar to savings accounts, fixed deposits are one of the safest and popular investment choices in India. The tenure of an FD ranges from 7 days to 10 years, offering stable returns with a predetermined interest rate. Section 80TTB of Income Tax Act, 1961 allow to claime deduction of interest on deposits upto to Rs 50,000 for senior citizens if opted for old tax regime. Conservative investors opt for this option due to its guaranteed returns, liquidity, and convenient withdrawal options.

How to Invest in Fixed Deposits?

You can open an FD at banks, NBFCs and post offices with a minimum investment of ₹1,000. The interest rate of an FD varies from one financial institution to another, ranging from 2.50% to 8.50%. For senior citizens, the interest rates are higher. 

6. Post Office Savings Scheme

Post office savings schemes are government-backed savings schemes that offer guaranteed returns. Since these schemes are widely available across rural and semi-urban regions nationwide, they are popular. There are multiple options to choose from, including the Post Office Monthly Income Scheme (POMIS), the Senior Citizen Savings Scheme (SCSS), and time deposits. The maximum amount you can invest in this scheme is ₹15 Lakh.Interest on post office saving Scheme also eiligible to deduction under Section 80TTA/80TTB of the Income Tax Act, 1961 upto Rs 10,000 for Non-senior citizen and Rs 50,000 for senior citizen.

How to Invest in the Post Office Savings Scheme?

You can invest in these safe, low-risk avenues with a minimum of₹500. For Post Office time deposits, the minimum investment amount is ₹1,000. Depending on your financial goal, you can choose the tenure and initial investment amount. 

7. National Pension Scheme (NPS)

The Pension Fund Regulatory & Development Authority (PFRDA) has regulated NPS since 2004. It is a retirement-focused financial scheme that allows investors to invest in a mix of funds, including corporate debt, equity and government bonds. Besides providing market-linked returns, the NPS offers tax benefits under Sections 80CCD(1) of the Income Tax Act, 1961, up to ₹1.5 lakhs, an additional benefit of ₹50,000 under Section 80CCD(1B) of the Income Tax Act, 1961, and a further deduction for the employer’s contribution under Section 80CCD(2) of the Income Tax Act, 1961, limited to 10% of salary for non-government employees and 14% of salary for government employees. It also enables investors to purchase an annuity plan, allowing them to earn lifelong pensions.  

How to Invest in National Pension Scheme (NPS)?

If you are a salaried individual, self-employed, or a private sector employee, you can start investing in NPS with as little as ₹1000 annually. The lock-in period for NPS is 3 years. Meaning, after consistently contributing for 3 years, you can withdraw 25% of your contribution. Usually, you can exit your NPS at the age of 60. 

8. Sukanya Samriddhi Scheme

To secure the financial stability of girl children, the government of India launched the Sukanya Samriddhi Scheme in 2015. The scheme is currently one of the best long-term investment options, offering high interest (8.2%) and tax benefits under Section 80C of the Income Tax Act, 1961 up to overall ceiling limit of 1.5 lakh. 

How to Invest in the Sukanya Samriddhi Scheme?

You can start investing in this scheme with a minimum deposit of ₹250 before your daughter turns 10 and continue investing until she turns 21 years old. It offers sufficient flexibility when it comes to making deposits, allowing you to balance it with your other financial commitments. The scheme will help you to secure their education and marriage expenses.   

9. Recurring Deposits

Recurring deposits are a type of taxable investment product where an investor contributes at regular intervals and earns interest. Similar to fixed deposits, the interest on recurring deposits ranges from 3% to 8.50%. The flexible tenure of RDs ranges from 6 months to 10 years. Since RDs are taxable, the returns might be lower compared to other tax-saving instruments such as ELSS or PPF. Section 80TTB of Income Tax Act, 1961 allows to claim deduction of interest on deposits upto to Rs 50,000 for senior citizens if opted for old tax regime.

How to Invest in Recurring Deposits?

If you have short- or medium-term financial goals, such as building an emergency fund, funding education, or planning travel, consider investing in recurring deposits through disciplined savings. You can open it at a bank or a post office with a minimum deposit of ₹100. The minimum deposit amount varies from one institution to another. 

10.  Initial Public Offerings (IPOs)

When a private company decides to sell its shares to the public for the first time, it is referred to as an Initial Public Offering (IPO). IPOs enable retail investors to get access to high-growth companies. The returns from IPOs depend on the company's fundamentals and market performance. The high-risk component of IPOs also has the potential for higher returns. 

How to Invest in Initial Public Offerings (IPOs)?

If you are an experienced investor with a solid understanding of financials and market conditions, investing in IPOs may be beneficial for you. You can start with a minimum investment of ₹10,000. Since IPOs are one-time investments, it is recommended to hold them as long as possible to yield significant capital appreciation. 

Here is a table that will help you to get a better idea about how and where to invest money, their risk levels, and tenure:

Investment Option	Type	Risk Level	Ideal For	Duration
Public Provident Fund (PPF)	Long-term tax-saving investment option	Low	Retirement planning	Long-term
Mutual Funds	Market-linked investment option	Medium to High	Individuals with higher risk tolerance seeking diversified, long-term growth	Short-term & Long-term (based on fund type)
Unit Linked Insurance Plans (ULIPs)	A hybrid investment combining life insurance and investments	Medium	Those seeking life cover plus long-term wealth building	Long-term
Gold Investment	Commodity investment	Medium	Hedge against inflation, capital protection, and diversification	One-time & Long-term
Fixed Deposits	Fixed-return investment	Low	Conservative investors with a low-risk appetite	Short-term & Long-term
Post Office Savings Scheme	Fixed income with a government guarantee	Low	Conservative investors seeking safe, guaranteed returns	Short-term & Long-term
National Pension System (NPS)	Market-linked, retirement-focused scheme	Low	Retirement planning	Long-term
Sukanya Samriddhi Yojana	Government-backed fixed-income plan	Low	Parents investing in their daughter's education and marriage	Long-term
Recurring Deposit (RD)	Fixed income investment	Low	Monthly savings with guaranteed returns	Short-term & Medium-term
Initial Public Offerings (IPOs)	Market-linked investment	High	Investors are willing to take high risks for potential returns	One-time (with long-term holding potential)

Short-Term Investments VS Long-Term Investments

Time horizon is a key factor in deciding where to invest money. Short-term investments are suitable for periods of three years or less, while long-term investments focus on wealth creation over five years or more. Each type will be explained separately, along with examples, to help you choose the best option.

1. Short-Term Investments

Short term investments are designed for periods under 3 years and are ideal for parking surplus money, building an emergency fund, or saving for near-term goals such as travel or tuition. Popular options in India include short-term Fixed Deposits, Recurring Deposits, Liquid Mutual Funds, and Post Office Time Deposits. 

These avenues provide liquidity, safety, and predictable returns. However, their earning potential is lower compared to long-term investments. Understanding where to invest money for the short term helps you manage immediate financial needs effectively.

2. Long Term Investments

Long term investments are held for five years or more and are suitable for retirement planning, children’s education, and wealth creation. In India, options include PPF, NPS, ULIPs, Equity Mutual Funds, Sukanya Samriddhi Yojana, and Sovereign Gold Bonds. They offer benefits like compounding, tax savings, and higher return potential compared to short-term options. 

The primary limitation is lower liquidity, and some investments are subject to short-term market volatility. Knowing where to invest your money for long-term goals ensures financial growth and stability while optimising returns.

Factors to Consider When Choosing the Right Investment Plan

Combining savings plans along with relevant investment is the ideal way to generate wealth over time and secure future financial goals. This is because investments are far more than just returns. They are about disciplined savings, time commitments and risk appetites. 

Before starting an investment, consider the following:  

1. Set Your Financial Goal

Setting the right goal shapes your investment choice. If you plan to purchase a car within the next 2 years, you can consider investing in short-term investment avenues, such as FDs. However, if you plan to send your children abroad for higher studies, choosing long-term investments such as equities or mutual funds is the best approach. Having goal clarity assists in measuring your returns and liquidity requirements. 

2. Know Your Risk Level

The ability and willingness to take risks are the most important. When you choose stability over risk-taking, you can expect guaranteed and fixed income from debt-based assets. For those who want to venture into the unknown, taking higher risks can also lead to higher returns. For them, investing in stocks and equity funds is more fruitful. 

However, balancing both through diversifying your portfolio could provide steady as well as higher returns.   

3. Think About the Time Frame

Based on your financial goal, you can determine the investment time frame. Determining the horizon until which you can continue investing provides an idea of what kind of avenues you need to choose. 

If you have more time, choosing long-term market-linked assets, such as ULIP and equities with higher risk, is better, as this allows your investments to weather market volatility. For a shorter span, choosing stable investment options such as FDs and debt funds is beneficial. 

4. Lock-in Period

The lock-in period refers to the time during which funds cannot be withdrawn without incurring penalties. Tax-saving instruments such as PPF have a 15-year lock-in period, and ELSS have a lock-in period of 3 years. Withdrawing before the end of the lock-in period could have negative impacts. Therefore, considering the correct lock-in period enables you to have sufficient liquidity to handle emergencies and maintain long-term commitments. 

5. Market Movements

Changes in economic and financial conditions have a significant impact on market movements. To avoid its negative impact and make an informed decision, it is essential to monitor market trends through credible sources, such as RBI updates, SEBI guidelines, and financial reports.

Tax Implications of Different Investments

Although the general idea of investment is to create wealth and generate capital gains, a portion of investment is reduced due to tax implementation. Tax treatment in India refers to how the government applies tax regulations to your investment income, which may be in the form of dividends, interest, or capital gains. 

Capital gains tax is the tax amount levied on the profits earned from selling capital assets such as stocks, mutual funds and property. 

There are two types of capital gains in India: 

Long Term Capital Gains (LTCG)

Securities sold before 23rd July 2024

• Long-term capital gains (LTCG) on listed equity shares and equity mutual funds, where STT was paid, were taxed at 10% on gains under Section 112A of the Income Tax Act, 1961 (without indexation).

• LTCG on other long-term assets were taxed at 20% with indexation under Section 112.

Securities sold from 23rd July 2024 onwards

• LTCG on listed equity shares and equity mutual funds (with STT) is taxed at 12.5% on gains exceeding ₹1.25 lakh without indexation.

• LTCG on other long-term assets is taxed at 12.5% (without indexation).

Short Term Capital Gains (STCG)

Securities sold before 23rd July 2024

• Short-term capital gains (STCG) on listed equity shares and equity mutual funds (with STT) were taxed at 15% under Section 111A of the Income Tax Act, 1961.

• For other short term assets, STCG was taxed at the applicable slab rates.

Securities sold from 23rd July 2024

• STCG on listed equity shares and equity mutual funds (with STT) is now taxed at 20% under Section 111A of the Income Tax Act, 1961.

• In all other cases, STCG continues to be taxed at the applicable slab rates.

Now that you know about the taxability of investments in India, let us look at the tax benefits of different investment instruments: 

Section 80C

According to this section of the Income Tax Act (1961), investors can claim tax deductions of up to ₹1.5 Lakh on contributions made towards funds such as ELSS, ULIPs, PPF, and NPS.

Section 80CCD

Besides Section 80C, specific investment instruments allow investors to claim an additional tax deduction of  ₹50,000 under Section 80CCD(1B) of the Income Tax Act, 1961, such as NPS and 14% of salary for government employees and 10% of salary for other than government employees under Section 80CCD(2) of the Income Tax Act, 1961.

Section 10 (10D) 

This section allows the maturity amount of an investment instrument to be tax-exempt, such as ULIPs and PPFs.  

Let us look at different types of investments and their tax efficiency to determine where to invest money for good returns in India  : 

1. FDs: Interest earned is fully taxable and TDS of 10% after exceeding prescribed limit  of exemptions annually, making these taxes inefficient. 

2. ELSS: Tax-efficient since under Section 80C of the Income Tax Act, 1961, up to ₹1.5 Lakh tax deductions are applicable when invested. LTCG above ₹1.25 Lakh is 12.5% taxable. 

3. ULIPs: Premiums are also tax-deductible under Section 80C of the Income Tax Act, 1961, and tax exemptions are applied on maturity as per Section 10(10D) of the Income Tax Act, 1961, subject to conditions prescribed. 

4. PPF: Contributions to PPF are eligible for tax deductions as per Section 80C of the Income Tax Act, 1961. As per EEE (Exempt, Exempt, Exempt), the maturity and interest are also tax-exempt.  

5. NPS: Besides 80C tax deductions, an additional ₹50,000 can be deducted as per Section 80CCD (1B) of the Income Tax Act, 1961; withdrawals are partially taxable.   

 

It is to be noted that you will get a combined deduction of Rs. 1.5 Lakh under sections 80C, 80CCC and 80CCD(1) of the Income Tax Act, 1961 as specified under Section 80CCE of the Income Tax Act, 1961.

In a nutshell, tax-efficient products such as ELSS, ULIPs, and PPFs enable you to retain more of your investment earnings compared to tax-inefficient assets, like FDs. This is because a significant portion of your returns is allocated to taxes.

Conclusion

Whether you are seeking income generation, capital growth, or wealth preservation, the Indian market offers a diverse range of traditional and modern investment avenues, including fixed deposits, pension schemes, and provident funds. Now that you know where to invest money, careful allocation and balanced investment in these instruments can help you meet your financial goals not only in present but also in future.

FAQs about where to invest money?

Q. Where is the best place to invest money?

The best place to invest money depends on your financial goals, risk appetite, and time horizon. Short-term investors can invest in high-yield savings accounts, money market funds, and short-term bonds for easy liquidity and safety. Long-term investors can opt for high return investments such as stocks, real estate, mutual funds, NPS, PPF, etc. 

Q. How do I decide where to invest my money?

You can decide on where to invest money after assessing your financial goals, risk appetite, and time horizon. 

Q. Can I invest with a small amount of money?

Yes. You can invest with a small amount of money in investment types like recurring deposits, PPF, SIP, etc.

Q. Where to invest money safely with low risk?

You can invest money safely with low risk in NPS, PPF, Fixed Deposits, Recurring Deposits, etc., that provide guaranteed returns. 

Q. How to use online platforms to decide where to invest money?  

Define your financial goals, risk levels, and time horizon and decide where to invest money. Thereafter, use online platforms to compare various investment options and choose the one that suits your requirements. 

Q. What is the 10, 5, 3 rule? 

10, 5, 3 is a financial thumb rule that helps determine the average rate of return from your investments. As per this law, long-term equity funds have the potential to yield 10%, while a debt fund yields 5%, and a savings plan has an average return potential of 3%.

Q. What if I invest ₹5000 per month? 

Depending on where you are investing, the returns vary. For example, if you invest ₹5,000 per month in a Systematic Investment Plan (SIP) for 10 years, depending on the fund’s return potential (suppose 13%), your ₹6 Lakh investment can grow to ₹10 Lakh.