Investment Avenues

Investment Avenues

There are a large number of investment avenues for savers in India. Some of them are marketable and liquid while others are non marketable. Some of them are highly risky while some others are almost riskless. The investor has to choose proper avenues from among them depending on his preferences, needs and ability to assume risk.

The investment avenues can be broadly categorized under the following heads:

Corporate securities

Deposits in banks and non-banking companies

UTI and other mutual fund schemes

Post office deposits and certificates

Life insurance polices

Provident fund schemes

Government and semi-government securities.

Corporate Securities

Corporate securities are the securities issued by joint stock companies in the private sector. These include equity shares, preference shares and debentures. Equity shares have variable divided and hence belong to the high risk-high return category, while preference shares and debentures have fixed returns with lower risk.

Deposits

Among the non-corporate investments, the most popular are deposits with banks such as savings accounts and fixed deposits. Savings deposits have low interest rates whereas fixed deposits have higher interest rates varying with the period of maturity.

Interest is payable quarterly or half-yearly. Fixed deposits may also be recurring deposits wherein savings are deposited at regular intervals. Some banks have reinvestment plans wherein the interest is reinvested as it gets accrued. The principal and accumulated interests are paid on maturity.

Joint stock companies also accept fixed deposits from the public. The maturity period varies from three to five years. Fixed deposits in companies have high risk since they are unsecured, but they promise higher returns than bank deposits.

Fixed deposit in non-banking financial companies (NBFCs) is another investment avenue open to savers. NBFCs include leasing companies, investment companies, chit funds, etc. Deposits in NSFCs carry higher returns with higher risk compared to bank deposits.

UTI and Other Mutual Fund Schemes

Mutual funds offer various investment schemes to investors. UTI is the oldest and the largest mutual fund in the country. Unit Scheme 1964, Unit Linked Insurance Plan 1971, Master Share, Master Equity Plans, Master gain, etc. are some of the popular schemes of UTI. A number of commercial banks and financial institutions have set up mutual funds. Recently mutual funds have been set up in the private sector also.

Post Office Deposits and Certificates

The investment avenues provided by post offices are generally non-marketable. Moreover, the major investments in post office enjoy tax concessions also. Post office accepts savings deposits as well as fixed deposits from the public. There is also recurring deposit scheme which is an instrument of regular monthly savings.

Six-year National Savings Certificates (NSC) are issued by post office to investors. The interest on the amount invested is compounded half-yearly and to payable along with the principal at the time of maturity which is six years from the date of issue.

Indira Vikas Patra and Kissan Vikas Patra are savings certificates issued by post officers.

Life Insurance Policies

The Life Insurance Corporation (LIC) offers many investment schemes to investors. These schemes have the additional facility of life insurance cover. Some of the schemes of LIC are whole Life Polices, Convertible Whole Life Assurance Polices, Endowment Assurance Polices, Jeevan Saathi, Money Back Plan, Jeevan Dhara, Marriage Endownment Plan etc.

Provident Fund Schemes

Provident fund schemes are compulsory deposit schemes applicable to employees in the public and private sectors. There are three kinds of provident funds applicable to different sectors of employment, namely Statutory Provident Fund, Recognised Provident Fund and Unrecognised Provident Fund.

In addition to these, there is a voluntary provident fund scheme which is open to any investor whether employed or not. This is known as the Public Provident Fund (PPF). Any member of the public can join the scheme which is operated by the post offices and the State Bank of India.

Government and Semi-Government Securities

The government and semi-Government bodies like the public sector undertakings borrow money from the public through the issue of government securities and public sector bonds. These are less risky avenues of investment because of the credibility of the government and government undertakings.