Investment opportunities for small investors

SATISH SINGH

India, a vast nation teeming with approximately 1.4 billion residents, presents a unique landscape for investment. As of March 2025, the stock market saw the participation of over 113 million investors, while an impressive 130 million individuals turned to post office schemes as their preferred savings method. Moreover, by March 31, 2024, banks were holding more than 2.53 billion deposit accounts. Among these account holders, a significant demographic breakdown revealed that 39.2% were women and 60.8% were men. Particularly noteworthy is the fact that 42.2% of women residing in rural regions-maintained bank deposit accounts. The financial snapshot shows men collectively had deposits amounting to a staggering ?113 lakh crore, while women's deposits totalled ?44.82 lakh crore. This disparity indicates that the average deposit for men surpasses that of their female counterparts.  

When examining, they can be broadly categorized into two essential streams: the first being earnings derived from employment or entrepreneurial ventures, and the second stemming from investments. The latter generally manifests as interest, dividends, or returns sourced from diverse assets such as bank deposits, post office savings, stock market investments, and precious metals like gold.         
At banks and post offices, investors typically accrue interest on their deposits; however, this interest rate fluctuates based on the length of the investment commitment. In contrast, the stock market provides a dynamic investment avenue where individuals purchase shares in publicly traded companies featured in key indices such as the Sensex and Nifty. For example, if an investor acquires a share of a hypothetical Company X for ?100 and later sells it for ?200 after a year, they realize a net profit of ?100. Additionally, investors in gold can achieve substantial gains when market prices for the metal rise.        
Historically, investment options were somewhat limited, with individuals predominantly relying on traditional avenues like banks and post office schemes, often motivated by the prospect of tax benefits. However, the investment landscape has evolved substantially, presenting a plethora of new opportunities. A notable trend is the significant decline in interest rates on traditional bank deposits and post office schemes, prompting today’s savers to seek alternatives that promise better returns. As a result, many are gravitating toward investments in the stock market, bonds, mutual funds, and gold, with the hope of capitalizing on potentially higher yields in this changing financial environment.  
In May 2025, Punjab National Bank and Kotak Mahindra Bank offer an attractive interest rate of 8.25% on deposits made with their respective institutions and post offices. In contrast, other banks offer a more modest interest rate of 7.05% for citizens, while senior citizens enjoy a slightly higher rate of 7.55%. The post office also provides a competitive 7.5% interest rate on National Savings Certificates (NSC), making it a viable option for conservative investors.        
Turning our attention to gold investments, the financial year 2024-2025 has proven exceptionally rewarding for those who purchased gold. Investors who acquired 10 grams of gold realised an impressive return of 33%. Similarly, individuals who invested in gold during the calendar year 2024 enjoyed a robust return rate of 20%. Over more extended periods, those who held their gold investments for 5 years saw a commendable return of 17.2%. Meanwhile, individuals who maintained their investments for a decade enjoyed a return of 11.07%, and those who committed for 20 years experienced a notable return of 13.8%.        

Additionally, the Sovereign Gold Bond from the 2017-18 series boasted a strong yield of 17.5%. Gold ETFs also provided remarkable performance, with returns of 29.97% for investments held over a year, 16.93% over three years, and 13.59% over five years. This trend highlights that gold investment remains a lucrative option for many, particularly during economically turbulent times.    
In 2024, investors faced a somewhat mixed bag in the stock market. The Sensex indices experienced a steady average growth of 8.16%, while the Nifty saw a slightly higher appreciation of 8.80%. This similarity in returns suggests that investors in both indices had comparable experiences, though the inherent risks associated with stock market investments remain significant. To safeguard their capital, investors should maintain a well-diversified portfolio and resist the temptation of greed, which can lead to substantial financial pitfalls.

In India, many investors rely on Rule 72 to gauge the potential of their investment schemes offered by banks and post offices. This rule provides a simple formula to estimate the time it will take for an investment to double: dividing 72 by the annual interest rate. For instance, if one selects a fixed deposit scheme with an annual interest rate of 8%, applying Rule 72 reveals that the investment would double in approximately 9 years.    
Moreover, specific 5-year term investment plans qualify for tax exemptions under Section 80C of the Income Tax Act of 1961. This provision allows individuals to claim an income tax deduction on investments up to Rs 1.5 lakh, effectively lowering their annual taxable income. However, it’s worth noting that this deduction applies only to those who choose to file their income tax returns under the old tax regime.       
The Public Provident Fund (PPF) is widely regarded as one of the most secure and trusted investment avenues available. For individuals aiming to accumulate a substantial fund by retirement age or by the age of 60, this scheme stands out as particularly advantageous. The PPF scheme spans a period of 15 years, after which investors have two choices: withdraw the entire balance or choose to extend the scheme for additional 5-year terms. Over a total investment period of 25 years—including the initial term and possible extensions—one could transform a total deposit of Rs 37.5 lakh into approximately Rs 1.03 crore, all thanks to the power of compounding interest.
Currently, the PPF investment remains entirely risk-free, boasting a fixed interest rate of 7.1% that is compounded annually. This means that investors earn interest not just on their principal amounts but also on the accumulating interest itself over time. Significantly, both the interest earned, and the final maturity amount are exempt from taxation. In this scheme, the minimum investment is Rs 500, while the maximum permissible investment each year is capped at Rs 1.5 lakh.    
In summary, banks and post offices continue to be reliable and secure investment options for small investors. While the returns from gold investments are currently appealing, liquidity issues may pose a concern. On the other hand, stock market investments carry substantial risks, increasing the likelihood of potential losses. Therefore, investors should prioritize the safety of their capital, even if this means settling for lower returns. Ultimately, it is important to recognize that a primary reason for financial losses in investments often stems from unchecked greed.

(Satish Singh is a Senior Columnist based in Ahmedabad. Views expressed are his personal opinions.       Contact: 8294586892)