Savings and investments is the mantra to living a secure and a debt free life. However, not many that, with inflation still in the air, their savings can be harmed. Here are four products, investing in which, you can earn better returns in future.
Equities:
It is prudent to invest directly in the stock markets only if you understand markets well. Says Ranjit Dani, partner, Think Consultants, a Nagpur-based financial planning firm, “If you do not have the time or the expertise to select good stocks and analyze them, then it is always advisable to route your money in equities through a reputed mutual fund. The fund manager has both skills and size on his side and it’s his full-time vocation so he will ensure the best for your investments.”
Investing in equities requires patience. It is the best route for fulfilling your long term financial goals, which are preferably 10 years from the time you start investing. Withdrawing your investments after a short duration can make you enter into losses and you will not be able to take full advantage of reaping maximum returns. Shift funds to safer instruments as your goal nears and not let market fluctuation erode its value.
Gold:
“In case of physical gold you will have to bear the short-term capital gains tax up to three years, the quality may not be assured and there is emotional attachment, too.” says Shankar S., certified financial planner, Credo Capital, a Chennai-based financial planning firm.
It is better to invest in gold by taking ETFs or gold mutual funds as it is much more safer and convenient to posses them. However, the proportion of investment in comparison to your portfolio size should be between 5-10% and must be used as a hedge.
Real Estate:
It has been observed that most conservative investors feel it very safe to invest in real estate than compared to investing in equities market. Although it may be partly true but there are a lot of things involved in the decision making.
Investing in real estate involves a lot of paper work, price decisions to arrive at, location to be chosen etc. Moreover, since they are fixed assets, they cannot be liquidated very easily. Considering the recent slowdown in this sector, investing a good amount in them does not seem prudent. There are various recurring expenses such as property tax, maintenance, deemed rentals, problems with tenants and periodic renovation. If you sell it, then depending on how you use and invest the proceeds you may have to bear the capital gains tax as well. Moreover, in the largely unregulated market in India, cases of fraud and title dispute are pretty common.
But having investments in the realty of about 20-40% is what is advised by most financial managers and not more.
Public Provident Fund:
Says Shankar, “Say out of every Rs. 100 you put away for your long-term goals, Rs. 70-80 has to go in equity, the rest can be distributed across other asset classes. It is advisable to open a PPF account and exhaust its limit. Which other debt instrument can give you a guaranteed tax-free return as high as 8%?”
In the debt basket, provident funds are capable of remaining abreast with inflation. For the current year, Employees’ Provident Fund’s 9.5% rate makes it more attractive than it already was. Public Provident Fund (PPF) gives 8% per annum. The best part is the returns are tax-free in both the instruments.
Your decision:
After factor in the inflation, tax benefits and returns, decide on how much you want to invest. Follow a savings pattern that will not be able to support your post retirement needs with inflation in your lives. Opting for a personal loan or a home loan, although may seem to be the last resort to finances; you do not want your old age life to be burdened by repaying loan amounts.