10 best investment plans with high returns in 2020

Your best plan is that which maximizes returns for a given level of risk or which minimizes risk for a given level of returns. Let us look at the 10 best investment plans with high returns, of course, with the risk element factored in.

Jan 20, 2020 10:01 IST India Infoline News Service

Investments
Returns on investments can never be absolute. It is always relative to the risk taken. For example, when you have to make the choice of the best investment plan, you consider returns and risk. Your best plan is that which maximizes returns for a given level of risk or which minimizes risk for a given level of returns. When we talk of returns, we refer to post-tax returns. For example, PPF may not be great in pre-tax terms, but is very attractive in post-tax terms.

Let us look at the 10 best investment plans with high returns, of course, with the risk element factored in.
  1. Direct Equity – It is the highest on the risk scale but also highest on the potential return scale. However, direct equity has the additional risk of stock selection and that is normally best left to experts. It is hard to project returns but a quality equity portfolio can delivery 16-20% per annum.
  2. Equity Mutual Funds – These are the more acceptable alternatives to direct equities. An equity fund pools from investors and gives it to a professional fund manager to take calls on buying and selling of stocks. Equity funds combine diversification and professional management and yield 12-15% over a time frame of 8-10 years.
  3. ELSS Funds – Technically, ELSS funds are a subset of equity funds, but we have presented it separately for its tax benefits. Under Section 80C, investment in ELSS is subject to tax rebate in the year of investment. That reduces your effective investment and substantially enhances ROI.
  4. Gold ETFs – Can gold generate high returns? The need to time the purchase of gold ETFs is paramount since gold gives best returns when global uncertainty is high. In the year 2019, gold ETFs in India yielded more than 30%, making them the best investment class.
  5. Real estate investment trusts (REITs) – REITS is a new product but the performance of Embassy REIT post listing is indicative of its potential. In India, REITs are only allowed in commercial property, not residential property. REIT offers the unique opportunity to participate in commercial realty in the form of an investment.
  6. Debt Funds – How can debt give above normal returns? Like in the case of gold, even in the case of debt funds, timing is crucial. Debt funds perform best when the interest rates are trending lower. In 2019, most debt funds with longer duration yielded between 15-18% returns. Of course, over a longer period of time, the yields on debt funds will be in the range of 9-10%, but well timed investments can be effective.
  7. Public Provident Fund (PPF) – Certainly, the PPF looks out of place as a high return investment, but you need to look at this product in post-tax terms. If you invest Rs100 and get 8% returns, it does not look salivating. But, this 8% is tax-free, so if you are in the 20% tax bracket, it is 10% in post-tax terms. If you also consider the Section 80C benefits, you are getting 10% on 80, so effectively your yield is 12.5%. If you are in the 30% tax bracket, the yields are still higher at 16.33%.
  8. International ETFs – These are yet to catch the fancy of Indian investors, but it is an important asset class. In 2019, the US S&P Index ended up being the star performer. Tech-laden NASDAQ gave annual returns of 33%. International ETFs will not only allow selective participation but also diversify domestic risk.
  9. Fixed Deposits – They may not be in the same league as equity and equity funds in terms of returns or PPF in terms of tax benefits. Private sector FDs pay anywhere between 9-12% based on the ratings making it an attractive yield, but interest is taxable. One can also look at 5-year bank and Post Office FDs that offer the added kicker of tax exemption under Section 80C.
  10. P2P Lending – This segment is still developing as an investment product, but holds tremendous potential. Here, borrowers and lenders can directly interface on a P2P platform. Lenders can earn returns of 14% to 21% depending on the quality of borrowers. Even after factoring risks, this can be an attractive option.

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