In today’s world, we have options everywhere and people often tend to get excited with more and more options in life. But this coin has two sides.
People are almost always divided whether having more options is good or bad. While we’re not looking to start that debate here as it’s a very subjective topic and depends majorly on the use case, when it comes to money, more so investing, having multitude of options might not be in your best interests.
When it comes to investing money, not all Investment options are worthy enough and thus you need good Financial advisors or platforms that can educate you on the most suitable investments Plans, tailored for specifically you.
In this article, we will cover:
Table of Content
Investment Options
Investments can be categorized as short-term, medium-term and long-term.
- Short-term funds help in liquidity and emergency cash requirement
- Medium-term funds help you achieve goals such as traveling abroad, owning a flat, owning a car etc.
- Long-term investments funds are those which helps in wealth creation and achieve costlier goals such as owning a bungalow or a private jet, children’s education, etc.
Of all the investment avenues such as real estate, gold, equities, bonds, and mutual funds, we believe mutual funds are the best investment option as it offers the best returns which beats inflation while creating wealth.
Remember the Mutual Fund Sahi Hai adage? Yeah, we’re talking exactly about that.
Short-term Funds
It is important to keep some funds aside for emergency situation. This should be highly safe and very liquid. Try liquid funds for creating an emergency corpus. Liquid funds are such funds where investment is comparatively safe and gives you better return as compared to the savings account.
Some of the funds include Indiabulls Liquid Fund, HDFC Short Term Debt Fund, ICICI Prudential Short Term Fund and Axis Short Term Fund. You can also look at debt funds with less than three years maturity. Some notable funds include Franklin India Low Duration Fund.
Medium-term Funds
In this case, you should explore balanced funds with a horizon of 3-5 years. These funds are typically safe and comprise both equities and debt securities. Some of the funds are Kotak Equity Hybrid Fund, Aditya Birla Sun Life Balanced 95 fund.
Investors can also look at equity funds that are dominated by large-cap companies, as they tend to offer stable returns over time with less volatility. Some of the funds include Kotak Standard Multicap (erstwhile Kotak Select Focus), Mirae Asset Emerging Bluechip Fund, HDFC Top 100 Fund.
Long-term Funds
In this case, investors should take a higher risk as the horizon is typically long (greater than 7 years). Thus you should explore funds that have a higher allocation to the small-cap and mid-cap segment.
This segment tends to offer inefficiencies that help in wealth creation over the long-term. Some of the funds include IDFC Core Equity Fund and ICICI Prudential Bluechip Fund.
Other investment Plans apart from mutual funds
If your goal is retirement planning, investment in schemes such as Employee Provident Fund, Public Provident Fund, National Pension Scheme is beneficial.
However, this should not account for 100% of your portfolio as then you lose out of wealth creation. These instruments are beneficial for providing security and also tax benefits.
The real estate market in India or gold for that matter, are not lucrative investments at this point in time but offer a good option to diversify your portfolio.
How to Choose a Suitable Investment Option?
You should choose a Best investment option based on the following factors:
- Investment horizon and risk profile: These two factors play a big role in determining your investment choice.
- Short-term goals (less than a year): Invest in safe instruments such as bank deposits and company deposits.
- Medium-term goals (2-5 years): Use relatively safer debt schemes such as liquid funds.
- Long-term goals (5+ years): Invest in equity mutual funds or stocks. Go for the latter option only when you have sound knowledge of stock market. Also, take risk into consideration. For e.g., Large Cap Funds will occupy the major portion within the Equity exposure for client’s whose risk tolerance is low. As the risk tolerance goes up, Mid Cap & Small Cap Funds would start fitting the bill.
- Investment ticket size: Many of alternate investment options have high minimum ticket size, which restricts retail investors. For a retail investor, mutual funds offer a good diversification in small ticket size.
- Your circle of competence: You level of knowledge and comfort in making investment decisions can play a big role in your choice of investments. Not everyone has knowledge and understanding of derivate or exotic funds. If you don’t understand the investment option, don’t invest in that option. You can read more about the circle of competence here.
“What an investor need is the ability to correctly evaluate selected businesses. Note that word ‘selected’: You don’t have to be an expert on every company or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
-Warren Buffett
- Time and effort you can commit: Don’t underestimate this point. Even if you have an understanding of investment options, you need to spend time in evaluating schemes and monitoring your portfolio. That’s why you need to choose an investment option accordingly – intra-trading in stocks is a huge commitment while investing in index funds required negligible time and research.
Tips to Get Started with Investment
#1 – The best investment option for beginners: One of the best options for a beginner is to invest in mutual funds because they offer a number of advantages:
- Low minimum amounts
- Diversification
- Paperless investing
- Withdraw anytime (in most cases)
If mutual funds are the investment of your choice, then check out this complete guide to investing in mutual funds.
#2 – Follow a disciplined investment strategy: What I mean is don’t get swayed by the momentum of the stock market.
Invest regularly, no matter how small the amount is. Even if you start small with just INR 30 per day, you will you get a sum of INR 7 lakh after 15 years. Don’t wait for a right time to start. Start stashing away your money on a daily and weekly basis and then invest at the month end.
#3 – Start early: The earlier you start investing, the better. In facts, the sooner you start, the less money you will need every year to achieve your investing goals. Your earnings will compound over time, so don’t be afraid to start investing
#4 – Make automatic investment: You can make use of e-mandate to make automatic investments every month. By doing so, you avoid stalling and consistently invest. This helps reap a greater return in the longer run.
