The year 2020 passed in a blur. While it started on a positive note, the Coronavirus pandemic and the subsequent lockdowns brought about an economic slowdown in the country.
Even the financial markets buckled under the global effect of the pandemic. The BSE and NSE, which were at their highest values at 42,273 and 12,362 in the first month of January, fell by 38% when the pandemic struck.
The tourism, hospitality and entertainment sectors also fell by more than 40% due to lockdowns and transportation restrictions. (Source: https://www.researchsquare.com/article/rs-57471/v1.pdf). Though the markets are regaining their luster slowly, investors are confused about where to invest in 2021for maximum gains. What do you think?
Though 2020 was a roller-coaster, investors are eyeing the year 2021 with hope. Investment in 2021 is primarily guided by the recovery of the financial markets after the pandemic as the industry is waking up and normalcy is being restored.
Certified financial planners have also pitched in their recommendations for investments in 2021. Here are, therefore, some of the lucrative investment opportunities for 2021

Here Where to Invest Your Money in 2021:

 

1) Invest in Direct Equity

For most risk-loving investors, stock trading and investing into direct equity always holds attraction. Even though the equity market suffered losses in the beginning half of 2020 on the pandemic fears, the market is correcting itself and as of the market closing time on 27th November 2020, the NSE and BSE are already at their pre-COVID levels of 12,968.95 and 44,149.72 respectively. (Source: https://www.financialexpress.com/market/stock-market/).

The boost in the stock exchange was largely due to the promise of the COVID vaccine which is almost in its ready stages. This has resulted in positive market sentiments globally and so, direct equity is once again looking good.

Moreover, history has been a witness that the stock market always bounces back even after a crash, whether it was the Harshad Mehta scam or the 2008 crash. If you invest over a long term period, direct equity is known to yield exponential returns.

 

Have a look at how the stock market has performed over the last 30 years –

Sensex in last 30 years

 

 

 

 

 

 

 

(Source: https://www.tradebrains.in/wp-content/uploads/2017/11/Sensex-in-last-30-years-of-performance.png)

The stock market is, therefore, a good avenue, if you are looking at where to invest money in 2021. If you have the appetite to undertake risks it can be a good start for your investments in 2021.

Here’s a FREE certification course on Stock Market

2) Invest in Mutual Funds

For investors who do not like direct exposure to equity but want to invest in a diversified portfolio, mutual funds are the best solutions. Mutual funds are beneficial because –

  • They help you own a diversified portfolio
  • They come in different variants and you can choose a scheme which is relevant to your investment preference and risk appetite
  • ELSS funds allow you the benefit of tax saving on your investments
  • They are professionally managed allowing you to invest in the best stocks and instruments
  • You can invest in mutual fund schemes with as low as Rs.500 making them ideal for small-time investors too who want market-exposure with limited savings

Given these benefits, the mutual fund market is another avenue which you can explore. In fact, equity mutual funds are less risky compared to direct equity because of the diversification that they provide.

 

As far as returns are concerned, some equity funds have even outperformed the stock market in several instances. For example, Invesco India’s Growth Opportunities Fund, a large and mid-cap fund, has consistently outperformed the S & P BSE Index over the years. Have a look –

S & P BSE Index over the years

 

 

 

 

 

 

(Source: https://www.personalfn.com/fns/invesco-india-growth-opportunities-fund-rising-in-volatile-times).

So, as far as returns are concerned, you don’t have to worry. You can also choose SIPs to invest every month in a disciplined manner and build up a substantial corpus over a long term horizon.

 

In fact, the mutual fund industry has become so popular, that investors are increasingly investing in the avenue to bank upon its returns. The AUM of the mutual fund industry has, therefore, consistently grown over the years –

mutual funds assets under management

 

 

 

 

 

 

 

(Source: https://www.relakhs.com/top-mutual-fund-schemes-2019/)

So, consider investing in different schemes of mutual funds to create a diversified portfolio which is liquid, tax saving and also return generating.

 

Take a FREE certification course on Mutual Funds

3) Invest in National Pension System (NPS)

Have you invested in the National Pension System introduced by the Government? If not, you can consider it in 2021. The reasons? Let’s see –

#1 – It helps you create an earmarked corpus for retirement

#2 – The scheme is market-linked promising inflation-adjusted returns

#3 – You get lifelong incomes in the form of pension after maturity

#4 – Investments into the scheme are tax-free under Section 80CCD (1B) up to Rs.1.5 lakhs

#5 – Additional investments, up to Rs.50, 000 can be claimed as a deduction under Section 80 CCD (1B)

Moreover, if you choose the new tax regime and if your employer contributes to the NPS scheme on your behalf, such contributions would be allowed as a deduction from your taxable income for up to 10% of your basic salary and dearness allowance under Section 80CCD (2).

Besides the market-linked returns, the additional tax benefit, both under the old tax regime and the new one, tilts the scales in favour of the NPS scheme.

 

You can invest in the scheme for long term capital accumulation for your retirement. On maturity, you would be allowed to withdraw up to 60% of the accumulated corpus as tax-free income which would also be tax-free in your hands.

So, if tax-saving and retirement planning is your goal, you cannot go wrong with the NPS scheme.

 

4) Invest in Fixed Deposits (FD)

This is the avenue for traditional investors who are averse to any kind of market risk and want secured and safe returns. Fixed deposits have been an Indian favourite for a long time and this favour is not going to end anytime soon.

Even though the interest rate on fixed-income instruments, including fixed deposits, has been slashed in recent times, fixed deposits continue to find investors for the safety that they promise.

The popularity of fixed deposit schemes, especially when volatility struck during the pandemic, increased and the trend is expected to continue in 2021.

So, if you want to be safe with your investments, you can choose fixed deposit schemes. However, do not dedicate a large portion of your investment in fixed deposit schemes.

Direct about 5% to 10% of your investment in fixed deposit schemes and the rest should be invested in other market-linked avenues. If you are choosing fixed deposits, here are some tips which you can follow –

  • Invest in 5-year fixed deposit schemes offered by banks and post offices. These schemes allow tax-saving on investment under Section 80C
  • If you want higher returns, opt for fixed deposit schemes offered by NBFCs (Non-Banking Financial Companies)
  • Compare the rate of fixed deposit schemes across institutions and choose the scheme which has the highest rate
  • Do not withdraw your deposits before the completion of the tenure. It would attract a withdrawal penalty which would reduce your interest earnings.

For risk-free returns you can also choose debt mutual funds which would help you earn inflation-adjusted returns and also earn the benefit of indexation if you redeem your funds after 3 years.

 

5) Invest in Unit Linked Insurance Plans (ULIP)

While the primary objective of insurance plans is to offer financial protection against premature death, Unit Linked Insurance Plans (ULIPs) serve a dual purpose. Besides allowing insurance coverage, these plans also help you create wealth, a la mutual funds.

ULIPs work on the model of mutual funds. The premium that you pay is invested into different funds of your choice. Each of these funds invests in the capital market depending of the fund’s objective.

For example, equity funds invest in equity stocks while debt funds invest in debt instruments. Depending on the growth of the underlying assets, the NAV of the fund grows and you can earn returns on your investments.

In case of death during the policy tenure, you get higher of the sum assured or the fund value and on maturity, the fund value is paid. The distinct advantages of ULIPs are as follows –

  • Invested premiums qualify for tax deduction under Section 80C up to Rs.1.5 lakhs
  • A single policy gives you the option of different types of investment funds to choose from – equity, debt and hybrid. You can invest in one or more funds as you’re your investment preference. Moreover, you can switch between the chosen funds during the policy tenure depending on the market movements. This switching is completely tax-free and almost all ULIPs allow free switches up to a specific number of times
  • Partial withdrawals from the fund value can be made from the 6th policy year. These withdrawals are also completely tax-free in nature
  • The death benefit received is completely tax-free
  • If the premium paid is up to 10% of the sum assured, the maturity benefit received on maturity is also completely tax-free under Section 10 (10D) of the Income Tax Act, 1961

Moreover, the charges involved under ULIPs have also reduced in recent times pitching them as a favourable product against mutual funds.

 

6) Invest in Real Estate

This avenue is for those investors who want to bank on the growth in the real estate market. In 2019 the real estate market was valued at Rs.12, 000 crores and it is expected to reach Rs.65. 000 crores by 2040.

In 2019, real estate investments amounted to Rs.43, 780 crores and the number is expected to increase in the coming years. (Source: https://www.ibef.org/industry/real-estate-india.aspx) The introduction of RERA, reduced interest rates on home loans and the need to own a house are the major driving factors for the growth of the real estate industry.

Housing is one of the basic needs of individuals and if you want to create an asset, you can explore the real estate market as the pandemic has led to a reduction in the prices which would be good for you.

Moreover, if you avail a home loan to invest in a home, you would be able to avail tax benefits under Sections 80C, 80EEA and 24 on the principal as well as on the interest payable on the loan.

The loan would also improve your credit score and allow you to own your dream house. So, if you have considerable funds at your disposal, opt for real estate either for owning your house or for creation of an asset.

Here’s a complete guide on how to invest in real estate

7) Invest in Gold

Gold is another investment avenue which you can consider if you are looking to hedge against volatility and uncertainty. Gold holds a traditional value for Indian investors as festivities, weddings and gifting is marked with physical gold ornaments and jewellery.

From an investment point of view, however, different avenues are in vogue in recent years with the availability of gold ETFs, gold mutual funds and, the all new, digital gold.

These gold investment avenues are getting much attention because of their safety, liquidity and ease of investing in small amounts.

Here’s a complete guide on how to invest in gold SMARTLY!

When it comes to returns, gold is a safe haven, especially if you are looking for long-term savings. Gold gives cyclical returns and when the markets are volatile, gold is looked upon as a safe investment avenue and its prices surge.

The very recent example is the COVID pandemic wherein the prices of gold jumped in April and May when the pandemic struck India. Moreover, over the last few years, gold has outperformed the Sensex in terms of returns. Have a look –

gold vs silver vs sensex

 

 

 

 

 

 

 

 

 

 

(Source: https://www.businesstoday.in/money/investment/gold-sensex-returns-years-bse-silver/story/392920.html)

So, you can consider gold as an investment avenue but invest in Gold ETFs or gold mutual funds for liquidity and safety of storage rather than physical gold. You can also trade in gold through these investment avenues and book returns when the price of gold climbs.

2021 is supposed to be a breath of fresh air for the Indian economy and the financial markets as the effect of the unprecedented COVID pandemic is expected to ebb.

Use the afore-mentioned 2021 investment opportunities and make wise investment choices to grow your wealth especially if the pandemic ate into your portfolio in 2020. Plan your investment strategy for 2021.

Understand the avenues before you choose them and then pick suitable options based on your investment need, financial planning in 2021 and, most importantly, risk profile. Also monitor your portfolio regularly so that you can make changes to it as per your changing financial needs and market dynamics and keep your portfolio profitable in all seasons.

 

Here’s a FREE financial planning tool to help you with your investments in 2021

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