By Kanika Agarrwal
Given that the new financial year has just started, many of you may have recently received bonuses from your employers. It is always a great idea to invest this lumpsum windfall. If you don’t need the money immediately, what you should not do, is put it in a fixed deposit. Given the interest rates today, your money is actually decreasing in value because of inflation.
If you have Rs 5-10 lakh to invest, there are multiple avenues available to you across asset classes. Let’s discuss a few:
Index Funds are a great first investment
As an investor that is just starting out, it is very difficult to figure out which stocks to buy. Even if you want to buy a mutual fund, how do you figure out which is a good one and then track it regularly?
If this is your first investment in the stock market, an index fund is a great way to dip your toe in. An index fund essentially tracks an index. For example, the NIFTY is an index of 50 large companies. The companies all have weights assigned proportionate to their market cap. Simply buying the NIFTY index means you will make returns similar to the NIFTY.
Sovereign Gold Bonds – The only way you should buy gold now
What if you could hold 999 purity gold digitally, earn tax free capital gains from the rise in its price and make an extra guaranteed 2.5% as a sweetener? And all of this from the Reserve Bank Of India (RBI)? Enter SGBs. The RBI issues multiple tranches of SGBs throughout the year that allow you to invest in highest purity gold. You would anyway make capital gains if the price of gold goes up but the deal is made nicer by making your capital gains exempt and adding an extra 2.5% interest per annum that the RBI pays out semi-annually. Its easy to buy as you can buy SGBs through your normal broking account online. The only catch is that SGBs are locked in for 8 years, but the secondary market for SGBs is increasing to sell your paper if you really need the money.
REITs – Can’t buy a house in Rs 5-10 lakh, but you can earn from real estate
A Real Estate Investment Trust (REIT) is like a mutual fund where money is pooled from investors and used to buy income generating commercial properties. In other words, the money from the fund is invested in corporate parks, malls, etc and earn rent from these properties. REITs are launched by companies that actual own/operate/finance commercial properties. A REIT makes money through capital appreciation of its underlying projects and through rent. As a unit holder of a REIT, you will make money through dividends and increase in price of the REIT. This lets you own property without actually owning property! While REITs are very popular world over, they are fairly new to India and there are only a handful that are available to buy. It is important to buy a well reputed REIT because the quality of that unit is only as good as the underlying assets.
Max out government saving schemes
One of the ways the government borrows money is through its small savings schemes like Public Provident Fund (PPF), Post Office Savings Scheme, Kisan Vikas Patra, etc. The good part about these is that (a) they are backed by the government; (b) highest interest rates in the market given the risk you are taking; (c) lots of tax benefits at the time of investing and/ or maturity. The fine print includes dealing with bureaucracy and lock-ins but if you want to invest in debt with this money, small savings schemes are a great place to start.
(The author is co-founder of Upside AI, ML-backed PMS Firm. Views expressed above are those of the author and not necessarily of financial express.com. Please consult your financial advisor before making an investment decision)