Till debt do us apart

Krishnamurthy Vijayan

A wise man once said invest safe, but more importantly invest smart. In doing so, a lot of questions that frequently arise in an investor’s mind, such as those listed below find answers. How do I invest and where do I invest, more importantly, how do I invest with the lowest risk possible? Where do I get good advise on investment. Today, there are various financial products and tools that would fit the above profile. The most prominent among them being mutual funds, fixed deposits and insurance.

Fixed deposits remain the most popular instrument for financial savings in India. For nationalised banks, the yield is generally low with a maximum interest of 10-10.5 per cent per annum for a period of three years or more. However, with successive cuts in interest rates, the desirability of bank fixed deposits has decreased considerably.

Insurance, on the other hand, reimburses people for covered losses in the event of an unfortunate occurrence. At the same time, it encourages prevention and safety, and provides investment capital. Until something untoward happens, paying for insurance may seem like buying something you’ll never use. But even if you never submit a claim, insurance investment in your future is as important as pension and personal investments. This is a general understanding of a common man.

However, the above, known as term insurance, is just one of the two types of insurance plans available. In a term-insurance plan, the premium is relatively low and there are no returns.

The other type of insurance plan, known as permanent insurance plan, is also a tool of saving, whereby, one gets certain return, albeit with a much higher premium as compared to term insurance.
A lot of people think that investing in funds is investing in equities. This is a misconception.

Mutual funds invest in various asset classes, and equity is just one of them. They also invest in debt instruments. Based on the asset classes, mutual funds are broadly classified into equity funds, debt funds and balanced funds. However, if your objective were to find a secure investment with a possibility of regular income then an income fund from a good mutual fund house would be the option for you.

The key objective of an income fund is to generate stable income by investing in debt instruments issued by governments and also by private companies, banks and financial institutions and other entities such as infrastructure companies or utilities.

All income generated through the divideds in income funds are tax-free, though a dividend distribution tax is paid out of the NAV of the fund.

The fund house charges a fee covering his costs and his professional charges, for the amount you invest; some of them also charge a minor percentage to cover cost of sales and service at the time of entry, called entry load. When you want to cash in your investments, the fee charged by the income fund is known as exit load.

In short, the market today is flooded with investment options and tools. However, the only key to a successful investment is the identification and a thorough understanding of your personal investment objective/s.

(The author is the CEO of JM Mutual)