The year 2020 was an interesting one when it comes to investments. On one hand, gold saw its remarkable surge, on the other, interest rates on fixed deposits fell. The most volatile among them, as expected, was the journey that equity markets went through. From levels of over 40,000 points, Sensex fell in a matter of weeks to below 25,000 points, a whopping correction of almost 40 per cent. And by the time the year ended, the equity market had bounced back into a remarkable bull run with new peaks. However, the year 2020, with all its ups and downs, has ended and a new year is on the horizon. So, here are the top five investment options for you for 2021 which is full of hope and promise.
Mutual funds: There is hardly any difference of opinion among financial experts when it comes to the attractiveness of mutual funds as an investment avenue. These funds come in different flavours — debt mutual funds, equity mutual funds, hybrid funds. Depending on one’s financial goal and investment horizon, they can choose a fund that suits their needs the best. Moreover, one can invest in mutual funds in lump-sum, as well as through a simple investment plan, or SIP. These market-linked plans offer flexibility along with a higher rate of interest over the long term compared to fixed deposits and other fixed rate investment options.
ELSS: Although a kind of mutual fund, Equity Linked Saving Scheme is different as an investment option as it has some features that makes it stand apart. While ELSS has most of the advantages of a regular mutual fund, it comes with an added advantage of tax savings. An investment up to Rs 1.5 lakh in ELSS can be claimed as deduction under Section 80C of the Income Tax Act. However, unlike a regular mutual fund, ELSS comes with a lock-in period of three years. One must note, however, that three year lock-in period is the shortest among all tax-saving instruments.
ULIP: A Unit Linked Insurance Plan, or simply called ULIP, is among the best investment options in India. A ULIP offers the dual benefit of insurance coupled with investment. Moreover, investments in ULIPs can also result in substantial tax savings as they qualify for deductions under Section 80C of the Income Tax Act. Since ULIPs also invest in both equity as well as debt, one has the flexibility of choosing a fund under the ULIP that suits their financial goal and risk profile. One must note, however, that ULIPs come with a lock-in period of five years.
PPF: While all three investment instruments discussed so far are market-linked products with returns determined by the performance of the market, be it debt market or the equity market. However, if one wants to play safe and invest in an instrument which offers guaranteed returns, the Public Provident Fund, or PPF, may be the go-to choice. A PPF has a higher rate of interest compared to a fixed deposit. It also comes with the benefit of tax exemption not only limited to the time of investment but even at the time of redemption, including the principal and interest. However, PPFs have a long lock-in period of 15 years, although you can make partial withdrawals after five years.
Gold: Gold has had a dream run in 2020, which is expected to continue into 2021 as well. As per some estimates, it may touch Rs 65,000 per 10-gram level in 2021. And of course, gold in India never goes out of style. So if one wants to diversify their portfolio beyond equity and debt, gold could be a good option to consider. Not only it is a sound investment, it is also considered auspicious in India.
