What is the first idea that comes to our mind when we think of investments in India? In the past it would boil down to bank FDs, PPF, NSC, Kisan Vikas Patra and the occasional investments in equities. Investments in mutual funds were also limited to US-64 of UTI which gave assured returns to investors. In the last 10 years a lot has changed. Firstly, new and hybrid investments options have emerged that are only more granular to your needs but give you the benefit of diversification from your core asset classes. Secondly, investors have realised that to earn high returns they need to take higher risk of equities. That is reflected in the number of SIPs on equity funds and the growth in the number of folios. Thirdly, investors are looking at post tax returns and pre tax returns to get a clearer picture of their effective yields.
The purpose here is to look at some unique investment options and uncommon investment ideas. These are not only the best in terms of risk adjusted returns but also in terms of pigeon-holing to your unique needs. Above all, they are also represent emerging investment ideas and are the best unconventional investments in India. Of course, you still need to consult your financial advisor about the suitability of these products to your financial matrix before taking an investment decision.
1. Deposits in small finance banks
In the last two years the RBI and the government have permitted a lot of small finance banks to also offer quasi banking services to customers. While these banks can accept deposits they are not permitted to give loans to customers. Since these banks are new in the market, they have been offering much more attractive returns on their savings accounts and also on their longer term deposits. Most of them are backed by large business houses and reputed names and can be relied on to be as safe as any bank. For example, some of the small finance banks are offering up to 6-7% returns on a savings account and up to 9-10% on 12-month and 24-month FDs. That is nearly 250-300 basis points higher than what you could get from a PSU or private bank.
2. Sukanya Samriddhi Account
The Sukanya Samriddhi Account is not only attractive for the purpose of educating a girl child but also in terms of the returns and the tax benefits that are available. If you are looking at saving money for your daughter’s education then this account can be very effectively. Not only does it pay an attractive rate of interest of 8.4%, but it also gives you the benefit of Section 80C which gives you a tax rebate of 30% of the invested amount each year. Effectively, when you invest Rs.10,000 you will earn Rs.840 for the full year. But since you also get a 30% tax break, your effective investment is only Rs.7,000. On that, the return of Rs.840 per year translates into 12% annualized returns, which is a return that no product gives you today.
3. Tax Free Bonds and Tax Saving Bonds
Tax free bonds and tax saving bonds are normally available in the last quarter of the fiscal and are very effective if you are looking at tax efficient investments in India. Tax free bonds are normally issued by companies like IREDA, NHAI, IRFC, REC etc. These bonds come with a lock in period of around 7 years and the interest is entirely tax free in your hands. Hence there is no TDS on interest for you to worry about. Tax saving bonds are more about saving capital gains tax under Section 54EC and are relevant for you if you have long term capital gains payable and you want to save it.
4. Opportunity funds, FMPs and MIPs
These are subsets of mutual funds but have some unique characteristics that can add value to customers. Opportunity funds are just like normal equity funds except that the fund manager has much more leeway in terms of stock selection, sector mix, market cap mix etc. FMPs are fixed maturity plans where there are for a fixed period of time like 1 year, 3 years or 5 years. They are almost like assured return schemes where the maturity of the underlying bonds exactly matches with the tenure of the FMP. They can also result in tax efficiency due to dual indexation benefits. MIPs are structured to give regular monthly income from a debt fund. However, these MIPs can only pay out of returns earned and not out of capital. They are more tax efficient as the returns get split up into returns and redemption.
5. REITS and InvITs
Real estate Investment trusts (REITS) and Infrastructure Investment Trusts (InvITs) are like mutual funds with the only difference being that the underlying asset is either real estate properties or infrastructure assets. This gives investors to earn consistent returns and also gives them diversification through a securitized exposure to real estate.
All the above assets offer unique benefits to the customer. Of course, you still need to consult your financial advisor before taking an investment decision.