There are many investment options available in the market to park lump-sum money. However, choosing an option will depend on the investment period and risk-taking capacity.
For retired people having low risk-taking capacity due to the absence of regular income, the choice of investment would be limited – like Fixed Deposit (FD), Senior Citizen Savings Scheme (SCSS), pension plans etc.
However, for young people having a long working life, there are plenty of choices to park their investment money. While the risk-taking capacity of young investors is high, choosing an investment avenue would depend on the ability of a person to tolerate investment risks.
While a risk-averse person would like to stay away from the investment options having market risks, another person may choose a risky avenue for higher returns in the long run.
“As a young investor you have time on your side and if you have a steady source of income, you also have a higher risk appetite than older investors like your parents. If you’re planning to invest a sizable amount of money into new age assets, alternative investments offer you a generous buffet of asset options,” said Nikhil Aggarwal, Founder & CEO at Grip.
Before starting investing, however, you should first cover your risks to ensure that the investment journey doesn’t get interrupted by unforeseen eventualities.
“Before you even consider investing your hard-earned money anywhere you must ensure you have invested in basics such as health insurance, life insurance and created a liquid fund that you can access in case of emergencies,” said Aggarwal.
For investment avenues having market risks, instead of lump-sum, it’s better to invest gradually through Systematic Investment Plan (SIP).
“Post this you should ensure you have invested in a traditional asset such as stocks or mutual funds via the SIP route to get the dual benefit of compounding and rupee-cost-averaging,” said Aggarwal.
To reduce investment risks, instead of choosing a single investment avenue, you should diversify.
“The next step would be to diversify and spread your remaining corpus across alternative investment options such corporate bonds, asset leasing, inventory finance, commercial real estate and start-up equity. This will ensure you earn between 8 to 22 per cent pre-tax IRR across these options and will help you earn non-stock-market linked returns,” said Aggarwal.
To decide how much to invest in which investment avenue to reach your financial goals on time, it’s better to chalk out a financial plan before you start investing.
“How much money you allocate across these asset types depends on your money goals and the capital you wish to allocate. Leasing and Inventory Financing are two more options that can act as great balancers because they give you monthly payouts, exciting returns and tenure options ranging from 2 months to 36 months,” said Aggarwal.
Along with mixing risky and conservative financial assets, having assets like gold, real estate etc would give you a better diversification.
“On the conservative side of alternative investing, you have corporate bonds that also give you regular payouts although with a lower return of ~ 8 per cent to 10 per cent. Beyond this you can also bolster your portfolio with some long-term investments like commercial real estate or get exposure to specific high growth sectors via startup equity investments,” said Aggarwal.