All Investment Options in India [2021]

Investment is essential to protect our money from the wrath of inflation. But not all investment options are structured to beat the inflation.

This is the reason why we must know about all investment options in India so as to make the best use of it.

Inflation-beating investment options are risky. Hence inclusion of only these investment options in portfolio is not advisable.

One must always strive to maintain a balanced investment portfolio.

A clever mix of different types of investment options is best.

When it comes to investing in inflation-beating investment options, timing the purchase of it is very essential.

So on one hand inflation beating investment options are risky, and on other hand one needs to time the market to buy them.

But risk aversion and market timing is a special skill. Mastering this skill becomes easy if one knows about all investment options.

What is a balanced investment portfolio? A well diversified portfolio is balanced.

A diversified portfolio can be created by inclusion of non-related investment options in ones portfolio.

Selection of correct mix of investment options is essential.

#1. Investment Options – Small Savings

These are such investment options which encourages common man to save money. Most of these small saving options are managed by government of India.

What makes these small saving options so desirable? The provide security of the invested capital, and guaranteed returns.

These small saving options are available for common man through banks (selected) or Indian post offices.

Though the interest rates offered by these small saving options are guaranteed, but they also vary with time.

The interest rates offered by small saving options are generally aligned with G-Secs.

Example: If the interest rate offered by G-secs is 7% per annum, then the small savings option will have interest rate of 7.25% per annum.

So, let’s have a look on few famous small saving investment options:

1.1 Public Provident Fund (PPF)

Public Provident fund is mainly a retirement linked investment option.

Generally, people who are employed in a company are covered by Employee Provident Fund (EPF).

But for self employed people, EPF option is not available. Hence, PPF is generally popular among self-employed people.

Individual can open only one PPF account in his name. It is also possible to open a PPF account in the name of ones minor child.

Non-resident Indians are not allowed to open a new PPF account in India.

PPF is a 15 year deposit scheme.

What makes PPF so popular among Indian masses is the ease with which one can invest money in it. One can open a PPF account even with a small deposit of only Rs.500.

There is a cap on the maximum amount one can deposit in PPF. Maximum amount is Rs.1,50,000 per financial year

It is possible to subscribe to PPF account through a lump sum deposit or through a recurring deposit. In case of recurring deposit annual installments cannot be more than 12.

Once a PPF account is open, it is mandatory for the depositor to deposit the said amount every month/quarter/year without fail. In case of failure penalties are applicable.

Interest calculation on PPF deposit is done each month. Minimum amount available in the PPF account between 5th off the month, and the last day of the month is used for the calculation of interest.

Though the interest is calculated every month, but the interest gets added to ones PPF account only at the end of the financial year.

It is important to note that the investment horizon for PPF account is 15 years.

Ideally one must neither withdraw the principal amount, nor the interest amount before the lapse of 15th year. But for the benefit of the investor, an exception is introduced in the PPF scheme.

One can you draw partial amount of money from one’s PPF account as stated below:

  • One can you withdraw partial amount of money from the seventh year
  • The amount that can be withdrawn in the 7 year must be less than 50% of the balance which was maintained at the end of the fourth year.
  • Only one withdrawal can be made in one financial year.

At the end of the 15th year, one can close the PPF account. It is also possible to extend the PPF account with five-year blocks.

It is important to add a nominee to once PPF account. In case of death of the account holder, the outstanding PPF fund will be paid to the nominee.

PPF deposit also saves income tax under section 80C.

The accumulated PPF funds that is withdrawn after the expiry of 15 years is completely tax-free.

At present (Oct’17), the interest rate prevailing on PPF account deposits is 7.9% per annum.

1.2 National Savings Certificate (NSC)

Like PPF, NSC is also managed by the government of India.

One can buy National Savings Certificates (NSC) from Indian post offices.

NSC are generally issued with the lock in period of 5 years.

It is important to note that the interest calculation is done on half yearly basis for NSC.

Only Indian individuals are allowed to buy national saving certificates. Non-resident Indians cannot buy National savings certificate during the period in which their status is of an NRI.

But if somebody becomes an NRI after purchasing of the NSC, they can continue to hold the certificate till maturity.

What makes NSC so popular is its denominations. These certificates are available in small denominations of Rs.100, Rs.500, Rs.1000, Rs.5000, and Rs.10,000.

NSC deposit also saves income tax under section 80C. But the interest is taxable, though no TDS is deducted

It is possible to transfer NSC from one person to another.

These days it is possible to hold NSC in demat form.

At present (Oct’17), the interest rate prevailing on NSC deposits is 7.8% per annum.

1.3 Senior Citizen Savings Scheme (SCSS)

SCSS is available as an investment option only for the senior citizens (above 60 years of age).

It is possible to open SCSS account in post office or in specified banks.

Open a personal SCSS account or a joint account with spouse in post office or bank.

Open SCSS with a lock in period of five years. After the expiry of five years, it is possible to extend the tenure by another three years. But this extension is allowed only once.

Maximum amount one can invest in SCSS is Rs.15 lakhs. Possible to open multiple CSS account but the sum total of all investment should not cross 15 lakhs.

It is important to note that the interest calculation is done on quarterly basis for SCSS.

NSC deposit also saves income tax under section 80C. But the interest is taxable, though no TDS is deducted

At present (Oct’17), the interest rate prevailing on SCSS deposits is 8.4% per annum.

1.4 Post Office Monthly Income Scheme (POMIS)

This investment option is tailor made to provide monthly income for the depositor.

The lock in period for POMIS is 5 years.

The minimum amount that can be invested in POMIS is Rs.1,500 and maximum amount is Rs.4.5 lakhs.

But in case of a joint account the maximum amount can be Rs.9 lakhs.

It is possible to make a premature withdrawal from POMIS but only after the first year. In case of premature withdrawal penalty is applicable.

At present (Oct’17), the interest rate prevailing on POMIS deposits is 7.5% per annum payable monthly.

1.5 Post Office Term Deposit (POTD)

Like commercial banks in India, Post Office offer term deposits.

Though the duration of term deposits of post office can only be one year, two year, three year for five year.

Minimum amount of money that can be held in the post office term deposit account is Rs.200. There is no maximum limit.

It is important to note that the interest calculation is done on quarterly basis for POTD.

POTD also saves income tax under section 80C.

At present (Oct’17), the interest rate prevailing on POTD deposits are as follows:

I Year Deposit6.80%
2 Year Deposit6.90%
3 Year Deposit7.10%
5 Year Deposit7.60%
1.6 Kisan Vikas Patra (KVP)

Kissan Vikas Patra is another form of small savings investment option.

The maturity period of KVP is 115 months (9 years, 7 months). But it is possible to encash the KVP after lapse of 2.5 years.

One can buy KVP Indian Post Office or from selected banks.

KVP is available in denomination of Rs.1,000, Rs.5,000, Rs.10,000, and Rs.50,000.

There is no maximum limit of investment in KVP.

It is possible to transfer a KVP certificate from one person to another.

Unlike other small saving investment schemes, KVP does not provide any income tax benefit under section 80C.

Interest earned under KVP is also taxable.

At present (Oct’17), the interest rate prevailing on KVP deposits is 7.5% per annum payable on maturity.

1.7 Sukanya Samriddhi Scheme (SSS)

This scheme has been launched by Governor government of India to provide benefits to the girl child.

The SSS account can be opened only in the name of a girl child (age below 10 years). The account can be opened by the parent of the child or by the legal guardian.

Only Indian Post Offices and few banks in India has been allowed to offer SSS accounts to Indian public. These banks are SBI, Canara Bank, Axis Bank and ICICI Bank.

Minimum amount to open SSS account is Rs.1,000 and the maximum amount is Rs.1,50,000 in one financial year.

The interest under SSS scheme is compounded annually.

The SSS account matures after the lapse of 21 years from the date of the opening of the account. But if the girl gets married before the lapse of 21 years, the account gets closed.

Withdrawal from SSS account is possible only after the girl the teens 18 years of age.

SSS also saves income tax under section 80C.

At present (Oct’17), the interest rate prevailing on Sukanya Samruddhi A/c is 8.3% per annum payable on maturity.

1.8 Sovereign Gold Bond Scheme (SGB)

Sovereign gold bond scheme is an alternative way for common man to invest in gold.

Sovereign gold bones are bonds issued by the government of India for a tenure of 8 years.

These Bonds has denomination in 1 gram of gold. One can buy SGB in multiples of 1 grams of gold.

The minimum investment is 2 grams and maximum investment allowed is 500 grams in one financial year.

Upon redemption of the SG bond, the person will receive the equivalent amount only in INR.

In order to buy SGB on can apply online for the same from any commercial banks website. It is also possible to buy SGB physically from a bank or from Indian Post Office.

If one wants to redeem the SGB early, it can be done only after the lapse of 5 years.

In addition to the capital gain, one will also earn 2.5% interest on the deposit.

Capital gain tax is applicable on SGB.

1.9 Gold Monetisation Scheme (GMS)

Under the gold monetisation scheme an individual can earn interest on the physical cold that they have in the locker of their homes.

The gold can be in the form of jewellery, coins, bars.

Important is to note that the deposited gold will be test for purity. Once the purity of gold is confirmed it will be converted into gold bars (after necessary refining).

The minimum amount of gold that can be deposited under GMS is 30 gm. There is no maximum limit.

Here, the deposited gold is actually converted as a bank deposit in the bank. This bank deposit in turn earns interest for the depositor.

The gold can be held as deposit in banks for a tenure of 5 to 7 years (medium term), and 12 to 15 years (long term).

At the time of maturity of the deposit, the value of gold, at the prevailing gold rate, plus the interest will be paid back to the depositor.

It means that GMS offers both, capital appreciation and fixed returns in form of interest.

At present (Oct’17), the interest rate prevailing on GMS deposits is 2.5% per annum for medium term and 2.5% per annum for long term.

Premature withdrawal is also possible, but with a penalty.

#2. Debt Linked Investment Options

In India the debt market is dominated by securities offered by central government and state government. In terms of trading volume G-secs accounts for 90 to 95% of the total trading volume n debt market.

But, common men do not invest a lot in G-secs. Then who invests in G-secs?

Commercial banks operating in India are the major investors in G-Secs. These banks invest in bulk in G-secs. This is the reason why, in common colloquial term, the debt market is also called as a wholesale debt market.

More than 60% of all transactions happening in the wholesale market are done by the banks.

As retail investors do not invest a lot in debt market, for this reason the wholesale debt market has been categorized into two parts:

(1) Wholesale debt market: here the investors are mainly institutional investors like banks, mutual fund companies, FIIs, insurance companies etc.

(2) Retail debt market: here the investors are mainly common men, provident and pension funds etc

So which investment options are available in debt market for retail investors like us?

Lets have a look on the most common debt linked investment options available for common men in India…

2.1 Government Securities (G-Secs)

Government securities (G-secs) are investment options issued directly by the reserve bank of India (RBI).

G-sec is an investment option using which, the government of India borrows money from investors (like Banks, etc).

When there is a deficit between expense and income, government issues G-sec.

Government of India has several expense planned for the financial year. But it may happen that the total income generated by the government may not be sufficient to fulfill all planned expenses.

In such case, government issue G-secs and raises funds to meet its expense-demands.

Out of all G-secs issued by the RBI, 5%  is located for retail investors. This is done to encourage participation of retail investors in the debt market.

But how common man can buy G-secs? This procedure is not so simple.

First, one has to approach their bank and open an account called CSGL (Constituent Securities General Ledger). But the account opening itself is not as easy as opening a normal bank account. There are several criteria following which CSGL account can be opened for an individual.

One of the criteria can be like, the individual must have a net worth of more than rupees one crore.

The minimum amount that can be invested in G-secs through CSGL account is Rs.10,000.

Interest earned by the investor in G-secs is credited as specified date in the account of the investor. The interest earned in G-secs is fully taxable. No TDS is deducted.

People wants to redeem their G-secs holding, they can do it easily. The redeemed amount gets credited into one’s bank account automatically.

Generally the debt market where G-secs are traded is not so liquid for common men. Means that if one buys the G-sec, he/she may have to hold this security till maturity. The liberty to redeem it mid-way is not available.

One of the main advantages of investing in G-secs is that, it can be used as a collateral to obtain loans from banks.

In the present financial market, G-secs are probably the safest investment option available for common men.

At present (Oct’17), the yield of G-secs is 6.77% per annum.

2.2 Inflation-Indexed Bonds

This is perhaps one of the best investment options that can be used by common men for investing in debt linked plans.

Inflation indexed bonds (IIBs) are issued by Reserve Bank of India (RBI).

How the inflation indexed bonds work?

To understand this, let’s compare the return of inflation indexed bord with a bank FD as an example.


Invested Amount : Rs.10,000

Investment Horizon : 2 Years

Interest offered by FD : 8% per annum

Return at end of year 1:

Interest = 10,000 x 8/100 = Rs.800

If Inflation in first year is say 6% per annum.

Interest (after inflation) = 10,000 x (8-6)/100 = Rs.200

Return at end of year 2:

Interest = 10,800 x 8/100 = Rs. 864

If Inflation in second year is say 5.5% per annum.

Interest (after inflation) = 10,000 x (8-5.5)/100 = Rs. 250

Total Interest Earned = 800+864 = Rs.1,664

Total Return (after inflation) = 200+250 = Rs.450

Here we can see that, though the total return of FD was Rs.1,664, but when it was adjusted with inflation, the net returns was as low as Rs.450. Which means that, the net yield of a bank FD is as low as 2.225% per annum.

Now lets see how an Inflation adjusted bonds works…


Invested Amount : Rs.10,000

Investment Horizon : 2 Years

Interest offered by bond : 2% per annum

Return at end of year 1:

Inflation in first year is 6% per annum.

Principal after 1 year : 10,000 x (1+6%) = Rs,10,600 (gain of Rs.600)

Interest = 10,600 x 2/100 = Rs.212

Total Return (year 1) = 600+212 = Rs.818

Return at end of year 2:

Inflation in second year is 5.5% per annum.

Principal after 2nd year : 10,600 x (1+5.5%) = Rs,11,183 (gain of Rs.583)

Interest = 11,183 x 2/100 = Rs.223.66

Total Return (year 1) = 583+223.66 = Rs.806.66

Total Return (after inflation) = 818+806.66 = Rs.1618,66

The net returns is Rs.1618.66. Which means that, the net yield of the bond is 7.79% per annum.

Another investment option available for retail investors which provides a hedge against inflation is called Inflation-Indexed National Savings Securities (IINSS). This is the type of bond issued by RBI retail investors.

Minimum amount of investment in IINSS is Rs.5,000, and maximum amount is Rs.500,000 per person.

Investment tenure is for 10 years.

Interest earned is IINSS is taxable.

These bonds bear an interest rate of 1.5% per annum.

The inflation rate prevailing for the financial year is calculated from Consumer Price Index [CPI Base 2010 = 100].

At present (Oct’17), the yield of Inflation-Indexed bonds is 2.5% + Inflation (CPI).

To know how to calculate inflation from CPI check this link

2.3 Fixed Deposits

When I started investing, this was my favorite investing vehicle. The reason why I used to like this option was its ease with which I can put money in it. Using my online banking account, I could transfer my money from saving account to fixed deposit account in few seconds.

This investment option is liked by all range of investors starting from new to a pro, the reason being its suitability and low risk investment option. When we are thinking about several, low risk investment options then probably fixed deposits of banks will rank highest.

Here we lock our money for a predefined period and in the gross interest we earn is very reasonable. Over all there can be three categories of fixed deposits: 1) Deposits in Banks, 2) Deposits with companies & 3) FMP’s of Mutual Funds.

a) Deposits in Banks: 

Deposit in banks are very easy to execute. These days all savings accounts are linked with fixed deposit account. From compfort of our home we can click start a fixed deposit. Online fixed deposits can be start from denomination of Rs 5000 and above.

The tenure of deposit can be from few days to several years. The interest you earn will depend on the principal value of investment and tenure of deposit. One can be 99.9% sure that the returns promised by banks will be offered by end of the holding period.

These fixed deposits in banks also offer the facility of monthly income withdrawal of interest. This works as a great income generator for many specially senior citizens.

The interest generated from fixed deposit are taxable.

b) Deposits with companies: These fixed deposits are same as bank FD’s but the only difference is, instead of banks we lend our money here to companies.

Banks are more closely regulated and hence investment in banks are lot safer. In comparison fixed deposit in companies are slightly more riskier.

In case the company goes under liquidation then the invested money is under risk. But this generally does not happen and fixed deposits has worked fantastically for risk averse investors.

The interest generated (above Rs 5000/year) from fixed deposit are taxable.

c) FMP’s of Mutual Funds: FMP’s are better known as fixed maturity plans offered by several mutual fund companies. Their functionality is very similar to traditional fixed deposits. Here the mutual fund companies ask investors to lock their money in their fund for a certain period with a promise of certain interest.

When you will see a mutual fund brochure you will notice that at the beginning of its features a term will be mentioned like ‘Closed Ended Scheme’ or ‘Open Ended Scheme’. These closed ended scheme are nothing by FMP’s. When these FMP’s are launched we can buy its units and should hold on to it till a predefined period of time.

2.4 Infrastructure Bonds

Infrastructure bonds are generally offered by government of India.

These bonds offer tax saving benefits under section 80C.

The past the bonds has been issued by institutions like IDBI, IIFCL and NABARD. The infrastructure bonds offered by these government entities offer tax benefits under section 80C.

Investments in infrastructure bonds upto Rs.20,000 is available for tax benefits under section 80C.

Maturity period for these infrastructure bonds are close to 10 to 15 years.

At present (Oct’17), the yield of infrastructure bonds is 6.77% (matching G-secs yield).

#3. Direct Investing in Stocks

Stock market is one of the most profitable investment option. But what comes with this profit is huge risk of losses.

The expertise that one requires to invest in stock market is not possessed by majority. The risks associated with stock market is because of the price volatility.

The short term volatility of stock market is absolutely unpredictable. If someone is doing it, this is only speculative approach not investing.

But in long term the way stock behaves is strictly as per the linked business fundamentals. This is one reason why investors are asked to analyze business fundamentals of a stock and buy them for long term.

Suppose a stock is showing EPS growth at rate of 20% per annum in span of 5 years. It means the market price of stock will also appreciate in the same rate, but the time they need to exhibit this growth is 5 years or more.

In short term this stock may behave very erratic, but looking at the long term picture (5 years) the growth pattern will be very evident.


§  Dividend Earning   §  Potential for high returns in form of capital appreciation in long term §  Return can beat inflation §  Very easy to buy and sell §  Very reliable return in long term§  Provides Ownership in a Company   §  Entitles you to a portion of companies Profits §  Gives you voting rights in a company §  Allows us to invest small amount of money in form of SIP. Lump sum investment is not essential.
§  In Short term stock prices is very volatile. Hence certainty of returns is very low.   §  Not suitable for passive investors. Self knowledge about stocks is essential. §  Individuals with low risk tolerance should avoid investing in stocks directly.§  Very high risk of Loss of invested money in case of company getting liquidated or bankrupt.   §  No protection under market collapse as investment is not well diversified.
Buy Fundamentally Strong Stocks which are Undervalued. Holding Time > 5 Years

#4. Best Invest Options for Common men

Why I call these investment options as best for common men is because of their potential to yield high returns with less risk.

These two investment options are traditionally more utilized by common man when it comes to investing.

These investment options are easy to understand, and easy to trade.

4.1 Mutual Funds

There is a reason why I am proposing mutual funds among the first investment options.

If you are a beginner in investment who wants to know how and where to invest money then mutual fund should be the first logical choice.

Why I am saying that mutual fund should be the first logical choice for beginner, because this is a no-brainer option.

Mutual fund companies has fund managers who collects money from citizens and invests this pooled money in different investment option.

The options in which the pooled money is invested depends on the objective of the mutual fund.

If one is not aware about different investment options then mutual fund becomes the obvious choice.

Once the pooled money is generated it start making loss or profit depending on the situation. The income gets shares between the investors who has invested in that mutual fund.

Typical fund objective can be mainly categorized into three types. Mutual funds can be either growth focused, income focused or a mix of growth and income which is called as balanced funds.

Growth focused funds mainly invests in equity and hence holding time should be long term.

Income focused funds invests in securities that are risk free like bonds or debentures. These risk free options generate regular income which is paid as dividends among unit holders.

As the name says, balanced funds invests in both equity and risk free securities. The return of balanced fund is between long term returns of growth and income funds.


§  Suitable for passive investors. Self knowledge about Equity is not required. Expert Fund Managers Invests on our behalf.   §  Very Reliable Return in long term §  Investors with low risk tolerance can buy equity mutual funds §  Returns can beat inflation§  Take service of best fund managers who can select best stocks for us.   §  Allows us to invest small amount of money in form of SIP. Lump sum investment is not required. Minimum investment limits can be as low as Rs 500/month §  Opportunity to investment in large number of blue chip stocks even with small funds
§  Returns are reliable only in long term   §  Low Liquidity of Funds §  Not as easy as stocks to buy and sell mutual fund units§  As portfolio contain only equity, investment is not diversified. Risk of loss in case of market collapese is very high.
Keep contributing to Equity Mutual Funds using SIP with investment horizon of > 5 Years
4.2 Gold

If any investment option can compete with stocks,  it is gold. Returns of gold in last one decade is better than stocks.

But it must be admitted that gold in itself carries no fundamentals. It is purely a speculative asset. The price appreciation of gold is totally dependent on increase in demand.

As population of this world is ever increasing so demand will also go up. Unlike stocks gold cannot generate any assured income for you (like dividends or interest income).

To make profit you must sell-off your investment holdings (gold).

I personally consider gold as a better emergency saving option. This is one reason why I do care to keep at least 10% in my portfolio as my emergency savings.

We can buy gold as physical gold (bullions, coins & bars) or in Electronic form (mutual fund or ETF).

Other form of precious metal that is available for investing is SILVER.

4.3 Real Estate

Investment in real estate properties like land, residential apartments, commercial buildings etc can be very profitable. Investment in real estate properties generates the reliable form of income called  rental income.

Like stocks generates dividend income real estate generates rental income.

But you can buy stocks any day, but real estate cannot be bought as easily like stocks. The main reason being high capital requirement. Real estate properties are very capital intensive.

This is one reason why majority of invests in real estate by taking loans. The loan drastically reduces the profitability of real estate properties. In addition to rental income, real estate investment can also give substantial capital appreciation.

PropertyLaunch Rate(Rs./Sqft)Year of LaunchRate as on 2013 (Rs./Sqft)Annualized Growth Rate %In Years

SWOT Analysis of Real Estate Property

§  Potential Passive income generator in form of rental income   §  Capital appreciation is also very fast.§  Owning a large physical asset like this gives a emotional and monetary back-up
§  Very capital intensive investment hence people often buy it with home loan. This decreases profitability of investment   §  Expenses linked to real estate property is property tax and maintenance cost §  Its not as easy as stocks or mutual funds to sell the property. Liquidity of fund is limited.§  Wrong Location of property can give very low returns   §  Aged and dilapidated property is a potential threat
Buy a Property of Best Builders. Book property during pre-launch on project launch itself.
4.4 ULIP

Unit Linked investment is comparatively a newer form of investments than what we have discussed till now. People invested in Unit linked plans (ULIP’s) very heavily in early 2000 when it was first released. It was marketed as ‘safe equity linked investment’.

But later when people realized the extra cost that goes into ULIPs, and as a result low net profitability, they shelved ULIP’s.

Now ULIP’s marketing strategy has changed and even people’s expectations have evolved post 2008 financial crisis.

ULIP’s are investment opportunity which is a combination of a insurance plan and equity.

ULIP is more of a insurance plan than an investment. Hence people must not invest in them with expectation bug returns.

Read more about ULIP’s here

4.5 Art or Antique

Common people generally refrain themselves from in investing in Art or Antiques. It is not easy to identify if a particular item is a good art or is really an antique.

Like gold, Art and Antiques is also speculative asset. Its value lies in the eyes of a beholder. It cannot generate any income on its own, so you can never evaluate its true value.

Its value is simply estimated by how much others are ready to pay for its possession.

#5. Alternative Investment Options

Alternative investment options are called such because, they do not operate like traditional investment products.

They are slightly more complicated for a common man to understand and execute.

Nevertheless, they are such options which if handled well, provides excellent diversification to ones investment portfolio.

These are such investment options whose current market value is difficult to comprehend. Hence any historical data is not available for such investment.

When historical data is not available, it makes the study and understanding more complicated.

SO not doubts for guessing so as to why less common people invest in these alternative investment options.

5.1 FUTURES Trading

Theoretically it is not so easy to understand how FUTURES work.

So lets try to understand it through a simple example.

Example: Normal procedure

Suppose you want to buy 10 nos shares of Tata Steel.

The shares of Tata Steel is currently trading at Rs.670.

Lets assume that, you are also aware that in next 6 months, the share of Tata Steel will jump from Rs.670 to Rs.750.

Now, in normal way of buying stock, you will have to spend Rs.6700 to buy 10 nos shares of Tata Steel.

And, when after 6 months, the stock price becomes Rs.750, you sell your stocks holding of 10 nos shares.

In this case your profit is (Rs.750-Rs.670) x 10 = Rs.800.

Your returns is 800/6750 X 100 = 11.85%

Example: Investing through FUTURES

Suppose you want to buy 10 nos shares of Tata Steel.

The shares of Tata Steel is currently trading at Rs.670.

Lets assume that, you are also aware that in next 6 months, the share of Tata Steel will jump from Rs.670 to Rs.750.

Lets see how you can buy stocks in future market.

Here you will have to buy a FUTURES contract linked to share of Tata Steel, valid for the period of 6 months.

In Future market you need not pay the full amount on the date of buying of the Futures. One needs to pay only the margin amount (of say 20%).

In this case the cost of buying the futures contract will be Rs.6750×20% = Rs.1350.

After 6 months, when the stock price becomes Rs.750, you sell your futures contract.

In this case as well, your profit is Rs.800 [(Rs.750-Rs.670) x 10].

But the different is in the return percentage.

Your returns is 800/1350 X 100 = 59.25%

Read more about Futures Contracts here

5.2 OPTIONS Trading

Like FUTURES, theoretically it is not so easy to understand how OPTIONS as well.

So lets try to understand it too through a simple example.


Suppose you want to buy shares of Tata Steel.

The shares of Tata Steel is currently trading at Rs.670.

Lets assume that, you are also aware that in next 6 months, the share of Tata Steel will jump from Rs.670 to Rs.750.

Lets see how you can buy stocks in Options market.

Here, you will enter in a contract today, which will be over in next 6 months. You will quote that you are willing to buy the option, 6 months from today, at a rice of Rs.730 per share.

As a matter of entering a deal with the seller, you will have to pay a premium to the seller. Here the premium can be as low as 1% (means Rs7.5). This premium you will have to pay the seller upfront.

After the expiry of 6 months, when share of Tata Steel will be trading at Rs.750 per share, you will buy Tata Steel by exercising your option.

In this case you will have Tata Steel at a cost of Rs.730+7.5 = Rs.737.5.

These share you can immediately sell at a market price of Rs.750.

Your profit will be Rs.12.5 per share.

Your returns is 12.5/737.5 X 100 = 1.69%

The return is too low, right?

But consider this, if the stock of Tata Steel after 6 months rose only to Rs.725. What you will do?

In option trading you have the right of not buying the Tata Steel shares. You can just refuse to buy.

You only loss is the premium amount of 1%.



Hi. I’m Mani, I’m an Engineering graduate who in pursuit of financial independence, has converted into a full time blogger. After working in the corporate world for almost 16+ years, I bid it more

6 Responses

  1. The illustration of calculation of net yield for inflation adjusted bond is incorrect.
    The yield in first case was calculated to be 2.225%, while is the second case it is written in the starting only that it is 2%. However, the article goes on to calculate the yield as 7.79%, which is in-fact, not inflation adjusted.

    Major error, kindly fix.

  2. Hi Mr.Mani,
    Would request you to give some ideas on HOW TO SAVE(MONTHLY,QUARTERLY,HALF-YEARLY,YEARLY) FOR PURCHASE OF PROPERTY(50Lakhs+) ….with the TENURE…

    1. If objective is to generate funds for property purchase, through savings, it is a tough ask. Better alternative will be to invest. How to think investment in this case?
      – (1) Finalise the time horizon (say 5 years).
      – (2) Select a suitable balanced fund.
      – (3) Start a SIP in this mutual fund.
      – (4) Keep contributing for next 5 years without fail.
      You can use access this SIP calculator to make your calculation.

      Thanks for your comment.

Leave a Reply

Your email address will not be published.