Many of us always have this question in mind – “What is the best investment option”? Naturally everyone wants to invest in investment instruments in which they can get maximum return. Though there is no fixed definition of maximum return, each one of us expects return more than the fixed rate of return available. For example – If one compares the rate of return of all the available financial instruments and the maximum fixed rate of return is 8% per annum. Any investment which gives more than 8% return is considered as a better investment.
There is no such concept of best investment option. It depends on your personal circumstances as well as general market conditions. Let us take an example – You have Rs 1,00,000 in your account and you want to invest?
The most important thing you should look at the investment horizon (time period when you require the amount). Based on this answer you can decide on the type of investment option which matched your investment horizon. This is the first step towards investing. If you want to invest for your son’s education after 10 years, don’t invest in 1yr bonds for the next 10 years. Choose a long term investment option
Secondly how much risk you can take on your investment. For example – Out of Rs 1, 00,000 you can take a risk of losing money on Rs 10,000 and Rs 90,000 should be safe. Invest Rs 10,000 in stock market and Rs 90,000 in Bank FDs, PPF.
Third point to consider is the rate of return. If you are satisfied with the fixed rate of return offered by certain instruments, invest in those instruments and earn fixed interests. If not, you have to look at instruments which can offer higher returns. However risks are attached to such instruments and you should be aware of all the risks before investing.
To a larger extent, a proper financial planning can help you choose the right investment options. These can become best investment options when you achieve your financial goals.