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Rupees and sense
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- Fixed income instruments
As the name suggests fixed income instruments (also referred to as assured return schemes) offer a high degree of certainty in the returns. The time of maturity and amount to be received on maturity are known in advance. Bonds, debentures, fixed deposits, and small savings schemes (National Savings Certificate and Kisan Vikas Patra among others) are some of the variants. Insurance products like endowment plans which offer steady returns (albeit the exact returns may not be known upfront) can also find place in the portfolio.
While fixed income instruments pale on the returns parameter vis-â-vis their equity counterparts, they play a very important role by imparting much-needed stability to the portfolio. Another feature worth mentioning is their relatively low risk profile. For investors with a low risk appetite, fixed income instruments should form the mainstay of the portfolio.
- Gold
Gold as an asset class has always been a vital commodity for most Indian households. However gold purchases have not necessarily been made from an "investment perspective"; instead it has found place in the form of ornaments for purposes like usage and religious factors. There is a need for investors to look beyond these "emotional reasons" and evaluate gold from the investment perspective.
The price of gold is driven by factors which are different from those that drive the price of other assets such as equities. This results in what is generally seen as a contrarian trend and makes gold a good bet from the diversification perspective. However, in the Indian context, over the long-term, the performance of gold as an asset class is unlikely to be superior as compared to other asset classes like equities; this should be factored in while adding gold to one's portfolio.
- Property
Provisions for holdings in real estate / property should ideally be made at an early stage in one's lifetime; this is necessary on account of the high costs involved and also the importance of the investment. Once you have a family, the daily expenses tend to rise for the first few years as you settle down. That does not leave much scope for investing. Though the returns from property are only notional, it is good to have the security and comfort of owning one's own home. Real estate funds have recently been launched in India. Despite the fact that they are presently available only to institutional investors and high net worth individuals (HNIs); the same can emerge as a means to invest in the property segment for retail investors in the future.
- Cash
Investors must hold a sufficient amount of their assets in cash i.e. in liquid form; this will help them tide over unplanned expenditures and other contingencies. Also one must remember that equity-oriented investments are made with a long-term perspective and liquidating them to meet any contingency may prove to be a loss-making proposition depending on the market conditions. On the other hand, avenues like property and fixed income instruments tend to be intrinsically illiquid. Holdings in cash include amounts held in savings bank accounts, liquid funds and short-term fixed deposits.
personalfn.com is focused on providing research-backed personalised financial planning services.
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