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Investing in right instruments can make you rich

May 28, 2009 10:17 IST

Are you confused about where to invest your hard-earned money? Do you want to earn high returns while ensuring the security of your capital? Then here are some hot investment options that will help you maximize the returns on your investment.

Equities and equity mutual funds: Equities are at the top of the list of hot investment options. Despite the market slowdown and crash in stock markets, Indian economy is still strong and the companies are still making profits.

Moreover the Indian economy is not dependent on exports, thus shielding it from the global economy problems. Also the conservative policies followed by the RBI and Indian government have provided the necessary security to the Indian economy.

So despite all the surrounding doom and gloom, Indian equities and mutual funds remain your best bet to make money. However don't make the mistake of buying when the markets are up. Instead wait for the market to crash, which will help you buy good companies with strong fundamentals at bargain prices.

Income funds: Do you want to earn a regular income? Are you looking for safety and security of your capital? Then income funds should form a part of your portfolio. They are mutual funds that invest in various debt instruments in order to generate regular income.

With the inflation showing downward trend, the interest rates are set to fall. This in turn, will cause an increase in the value of the units of the fund. However don't expect your capital to appreciate.

Gold: Looking for stability and reasonable returns? Then gold must form a part of your portfolio. While you will not get any income from gold, you can always sell it at the current market rate and get money, as it is the only investment people turn to in case of crisis.

However as in the case of equities, gold can be very volatile and so makes sense to buy only when the prices are down. Also instead of buying physical gold, it makes sense to opt for gold ETFs, as they are more cost effective. You just need to visit your broker to buy or sell gold ETFs.

Real estate: Does the thought of considering real estate as an investment actually scare you? Don't be. With many reputed builders facing liquidity crisis, and banks reluctant to lend money to this sector, you can drive a hard bargain if you are considering purchasing a home either for residential or investment purpose.

Not only, the real estate prices have started crashing and the banks have already lowered their interest rate. So it makes sense to look at real estate as an investment option at this rate. However it will take some time for this sector to rise.

So ensure you can hold on to this investment as real estate is not a highly liquid investment, unlike equities and gold.

If you are wondering how these investment classes rate against each other, then here is a brief overview of these assets.

Equity/Equity mutual fund

Income funds

Gold

Real Estate

Very Volatile

Stable

Volatile

Volatile

No guarantee of returns

Returns guaranteed

Very low returns

Variable returns

High Liquidity

Liquid

Liquid

Low Liquid

Can be purchased with small amounts

Need minimum investment of Rs 5000

Amount required can be high (for actual gold purchase) or low (for ETFs)

Very high amounts required

Quite cheap to own

Quite cheap to own

Can be costly for purchase of actual gold or low to invest in an ETF.

Ownership is very expensive

Offers capital appreciation

No capital appreciation

Offers capital appreciation

Offers capital appreciation

Conclusion: While these are some good investment options for those looking for long term investment, it is always important for you to understand your goals as well as your risk appetite.

Don't be taken in by the high returns offered by equities or gold if your goal is short term (within 2-3 years of investment), or if you cannot withstand the volatility of these assets. Similarly, just because income funds tend be safe, don't put your entire corpus in those funds, as inflation tends to erode the value of your investment.

In case of real estate, don't be swayed by the falling property prices and low interest rates, if you cannot bear the other expenses associated with this purchase. Also remember you should be able to hold on to your purchase as real estate cannot be liquidated easily.

So weigh the pros and cons of these options, find out your risk appetite and then diversify your portfolio to get the best returns from your investment.

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