Mutual Fund Industry
| August 22
If you ask any investment expert, he will always advise you to keep a long-term horizon. By doing so, you are giving your money time to grow, absorb market fluctuations, re-invest the returns and benefit from compounding factor. Eventually, you accumulate a corpus, which not only provides you a consistent financial cushion, but also meets your financial goals exactly as you planned for them.
Here are various investment vehicles that are specifically suited for long term investment.
With a thriving economy, greater transparency and falling interest rates, investment in market securities makes good sense. Historically, Sensex has delivered over 15% annualised return since inception. The trend is expected to continue with more vigour as demonetisation has directed untapped savings to markets. Investors also have the choice of picking amongst various types of stocks and instruments according to their risk and reward appetite. However, you must assess the risk and return before investing as stocks are subject to market volatility.
For those who are wary of investing directly in the market, mutual funds are the right solution. They allow investors to participate in the stock markets through them. This saves the investors from tricky situations of assessing and picking the stocks themselves. To invest directly, an investor should have a reasonable awareness of a company’s performance as well as its forecast. Direct investment also needs continuous monitoring to save losses and register gains. But with mutual funds, the specialised work is entrusted to experienced fund managers that enable even the most inexperienced investors to invest and take advantage of markets.
Moreover, mutual funds offer various options as per the investor’s risk appetite. They can choose between equity, debt or hybrid (a mix of debt and equity) funds. For instance, high risk tolerant investors can expect higher returns from equity, whereas conservative investors can opt for debt funds for steady returns with comparatively lower risk. Those looking for the twin benefits of capital appreciation and moderate risk, can invest in hybrid funds.
Investment in mutual fund can be kicked off with an amount as low as Rs500 through Systematic Investment Plan (SIP). So, this investment avenue also makes a good choice for people who have low income, but want to invest whatever they can save.
Government of India floats bonds to raise money from the public. It gives a fixed rate of interest on these bonds over the bond tenure. The life of bond is usually 10 years, but the investor can trade them just like shares, before the maturity. The return of capital plus interest is guaranteed. This makes bonds liquid and also safe from market volatility, a disadvantage that shares and stocks suffer from.
A booming population and migration of rural dwellers in cities has made the land a scarce commodity. We all know how humble farmers of Haryana and Punjab became millionaires overnight when cities like Gurgaon and Chandigarh mushroomed in these areas. The cities are expanding and this is why land in suburban areas can fetch multifold returns in future. A small piece of land can prove to be a goldmine when the area around it develops. The only downside of this investment is its physical safety from encroachment and its illiquid nature.
Though the recent slowdown in real estate has some buyers and investors worried, this still remains one of the most attractive options for long term investment. With The Real Estate (Regulation and Development) Act, 2016 (RERA) now effective, clamp down on black money in real estate, and the rules around builders becoming more stringent, this sector is poised to become safer and more organised from the investment point of view. Compared to investment in a parcel of land, the risk of intrusion and illegal occupancy in case of residential and commercial properties is far less. While selling a self-owned property can take quite some time, it is definitely an asset that can fetch a good price on sale. And, if you are not considering self-occupancy or sale, then you can put it on rent or lease, and generate regular income thereof.
In India, gold can never lose its sheen. The prices of gold have usually shown an upward trend. Gold as a metal has great utility for the Indian families. It can be mortgaged for raising a loan or sold off for meeting exigencies. However, investors in gold usually have a tendency to accumulate it without any real intention of selling, unless the circumstances are too unfavourable. So, in such cases, gold is nothing less than a dead asset.
Public Provident Fund
PPF is an ideal investment for investors who are salaried and have a low risk appetite. The existing rate of return on PPF is 7.9% and it is one of the few highest return (tax-free) generating low risk investments. Investment in PPF also brings in tax benefits under Section 80C of Income Tax Act. The only disadvantage of PPFs is the mandatory lock-in period, but for those who are investing for long term, this should not be a deterrent.
An investor must create a diversified portfolio with a mix of investments. This reduces the risk and assures handsome returns. It is also extremely important to review the portfolio at regular intervals, and switch investments as and when they become more lucrative or risky.