Starting out on your investment journey is a daunting experience for every beginner. Most novice investors find themselves confused and lost at the beginning, pondering questions like what the best investment options are to consider or what the worst investment options are to avoid. With so many investment choices available in the market, this confusion is only natural. To sort things out, we’ve curated a list of the best and worst investment options in India.

• Mutual funds, PPF, NPS, and corporate FDs are some of the best investment options in India.
• Cryptocurrency, penny stocks, and endowment policies are some of the worst investment options.
• The best and worst investment options will vary depending on the investor’s risk appetite, return expectations, and financial goals.

Here’s a list of the best investment options you can consider to build your portfolio:

Mutual funds

Mutual funds are market-linked investment instruments that pool money from multiple investors to invest in various assets like stocks and bonds. These versatile investment vehicles are well-suited for investors with varying risk appetites, investment goals, and time horizons. For instance, equity funds are best suited for aggressive investors with a high-risk high-return profile. In contrast, debt funds are better for low-risk low-return investors who prioritise capital preservation. Investors with a moderate risk-return balance can choose from hybrid funds.

Investors can even choose from solution-oriented funds to save for retirement or their child’s future. ELSS funds are designed for high-growth earnings plus tax savings. Simply put, mutual funds offer a wide array of choices for investors, making them the best investment options in the market.

Public Provident Fund

Ideal for risk-averse investors, the Public Provident Fund or PPF is a government-backed long-term savings scheme tailored for long-term goals like retirement planning. PPF is one of the safest investment vehicles available in India. Investors make contributions to their PPF accounts for a period of 15 years, earning a fixed interest on the corpus. PPF interest rate is fixed by the Central Government and revised every quarter. Currently, the rate stands at 7.1% (Q3 FY 2024-25). PPF is a handy investment avenue to build long-term wealth and capitalise on tax savings. The scheme falls under the EEE category. Your annual PPF contributions qualify for 80(C) deductions. Additionally, the interest earned and the maturity amount are also tax-free. While returns from PPF are lower than market-linked instruments, you are assured of capital safety and hefty tax benefits.

National Pension Scheme

NPS is a government-backed retirement-focused investment scheme that allows investors to make market-linked investments and build a retirement corpus. NPS operates through Tier I and Tier II accounts. Tier I accounts are mandatory investment accounts, while Tier II accounts are voluntary accounts that function like regular savings accounts. As one of the best investment options in India, NPS offers you the flexibility to choose different assets for investment based on your risk tolerance capacity.

The active asset allocation mode allows you to actively choose assets and design an investment portfolio. In contrast, the auto mode automatically adjusts your asset allocation on the basis of your age. Like PPF, NPS also qualifies for the EEE status, whereby the contributions made, interest earned, and maturity corpus are tax-free. That said, annuity income earned is taxable as per the applicable income tax slab. Returns from your NPS investment depend on the performance of the asset classes. Generally, NPS is a good investment option for moderate to high-risk investors.

Corporate FDs

If you are a low-risk investor, you can select a corporate FD. Corporate fixed deposits offer better returns than bank FDs, ensuring greater income. Typically, corporate FD rates range from 8%-9% p.a. while bank FDs average 6%-8%. While corporate FDs lack DICGC insurance protection, you can still select a reliable fixed deposit account by reviewing credit ratings issued by agencies like CRISIL. You can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 8.60% p.a.

Let’s review some of the worst investment options you should steer clear of:

Penny stocks

Penny stocks are common on the list of the worst investment options available in the market. These stocks are shares of small, less-established companies that trade OTC (over-the-counter). Prices of penny stocks are generally below Rs. 10/share. The low cost of these investments may make them attractive options, but they are inherently risky investments. Since penny stocks are thinly traded, they are highly volatile and illiquid investments. Moreover, many penny stocks fail to deliver returns and eventually become worthless, resulting in hefty losses for the investor.

Savings accounts

You may be wondering why savings accounts are listed as some of the worst investment options in the market. This is because savings accounts don’t save your money. Firstly, they offer negligible returns, averaging between 2.50%-3%. Secondly, there are no tax benefits or perks linked to regular accounts. While savings accounts are necessary for all, treating them as investment repositories is imprudent.

Simply put, you should understand the difference between saving and investing and keep only enough money in your savings account to cover your monthly expenses. Any surplus funds can be invested in one of the best investment options listed above to earn higher returns. Even for your emergency corpus, you can choose better alternatives like liquid funds and high-yield accounts.

Endowment plans

On paper, endowment policies may seem attractive investment options. These plans proclaim to combine the benefits of insurance coverage with savings and investment components. While these plans offer guaranteed returns, these returns are generally much lower than other investments like mutual funds and direct equities. Additionally, these plans tend to have high premium costs that can drain your wallet. So, instead of mixing insurance with investment, it’s best to keep both separate. For life insurance coverage, you can choose a cost-effective, pure-term plan. For investment goals of wealth creation, you can leverage other investment options.

Understanding the best and worst investment options available in the market is crucial to effectively reach your investment goals. While investments like NPS, mutual funds, PPF, and corporate FDs offer high returns and/or tax benefits, investments like penny stocks and crypto can wash away your investment. The best and worst investment options outlined in this article are from a general viewpoint. They will vary according to the investor’s risk profile, goals, and return expectations. So, it is crucial to align your investments with these subjective parameters before choosing.