Where should I invest my money in India?

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Where should I invest my money in India?

July 3, 2014 / By Srinivasa Reddy

Where should I invest my money – in a bank or in property, business, gold, stocks or REITs? Many of us have asked that question of both experts and ourselves. These kinds of questions do not seem to have an all-time correct answer, nor do they have a universally correct answer.

India has one of the highest rates of household savings in the world. Indian investors are quite conservative and cautious regarding their capital protection. In addition, many individuals confuse a safe investment with one that can provide a high level of return, and many investments are made just to save income tax. About 30% of investments are channelled through equities and other forms of financial investments, whereas 70% of investments are in physical assets, gold and property.

Looking at historical data on returns from various prevailing investment options for 2005-13, Indian equity markets displayed greater volatility compared with many other emerging markets. Despite markets performing fairly well since 2009, investor participation in the equity market is still very low, indicating a low appetite for this instrument, which is seen as a high risk, high reward instrument.

Gold provides significant returns, but is a dead weight, as it does not bring in a steady income. In addition, gold has lost its “safe haven” appeal, as risk appetite has increased due to the improvement in the economic outlook. The returns from fixed deposits in banks witnessed negative returns in real terms for most years, due to inflation outstripping interest rates.

On the other hand, investments in residential property witnessed stable returns since 2010, as shown in the table, and provided a steady cash flow as well. However, residential property has a higher investment entry barrier, so it is still an option only for relatively few Indians.

The Indian Government is formulating legislation for the introduction of Real Estate Investment Trusts (REITs) in India. Some India based REITs listed on the Singapore Stock Exchange have achieved annual returns higher than average residential price appreciation. Once established in India, REITs will attract small-sized investments, reduce individual speculation and allow for more professional investment and management in the sector as well as help to achieve greater cash flows in to the real estate sector, thus helping the Indian economy to grow faster.