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Build your Portfolio with the right Asset class

  • Akshatha Sajumon
  • 20 Jun
  • 7 minutes

Retirement

We’ve grown up with FD’s, Real estate and Gold as a “Holy Grail” of investments. Let’s understand the true nature of all the investment options which you can include in your portfolio.

Basic finance is not tough to understand, but it’s good to have knowledge in finance which will help you in choosing the right product that suits your financial needs. Finance keep things tough because the less you understand, the more you can be cheated. It just takes common sense and some time to ‘get’ finance.

Before we choose the financial product, we do look into aspects such as the cost, the number of years you want to have that product, risk and security, and the post-tax returns that you earn.

There are various investment options available

Portfolio

Let’s talk on “Debt” as an Investment Option

When we hear the word “Debt” makes us think about all the debts that we have (car loan, house loan). Here the “debt” forms a part of your portfolio where you’ll get fixed returns likes your FD and Public Provident Fund. Debt is based on borrowing- where the bank will borrow money from you for a fixed and periodic return. The principal amount will be given back to you upon the completion of the agreed time period.

Why do you earn interest on your money?

  • Because you delay your consumption- you get compensated for this.
  • You bear the risk of the borrower not returning it.
  • You take the risk of money-losing its value (due to inflation).

Why do government bonds pay less interest?

Higher the Risk- Higher the Return. The more you get paid on your lending, the more risk you take (Risk→ non-payment of both your investment and interest is much higher).

Debt product with Guaranteed Return:

  • Public Provident Fund
  • Employees Provident Fund
  • Fixed Deposits
  • Corporate Deposits
  • Bonds

Features:

  • Debt product provides money at short notice and stability for long term investments.
  • These are safe, tax-free, and provide a solid core to your portfolio.

Why not put all your money into debt?

We want to be certain about what we get back in the future. If you drop your entire money into debt- your risk will be high, where the chances of getting the money back become doubtful. And also you can’t see the growth in debt when compared with Equities. Debt is for stability rather than growth.

Is there an alternative?

Yes! That is Debt mutual fund. They invest mainly in debt or fixed income securities such as corporate bonds, government securities that have various time horizons. The benefits of having Debt Mutual Funds are:

  • Unaffected by market volatility
  • Provides stability
  • Tax deductions
  • Highly liquid

To get access to Debt Mutual fund, Fisdom is one top destination.

Fisdom  Screen shot

Let’s talk on “Gold” as an Investment Option

We find that money kept in a bank is eroded by inflation. In order to mitigate risk and inflation, we started buying gold. Gold is treated as a weapon to fight inflation which means that- as the prices of gold rises, your money will not lose it’s purchasing power.

Can you make profits in gold?

You make a profit in gold- when there is a rise in prices. Adding on- profits you make will also depend on when you bought it and how long you held it for. Suppose you purchased gold

  •  3 years ago- you would have earned 2-3% returns.
  • 5 years ago- you would have got your investment back with zero returns.
  • 10 years ago- you would have earned 9-10% returns.

Thus, if you buy Jewell thinking that you’re making an investment- this is how your returns will vary.

Gold Jewell as an investment option:

Every investment we make has a cost attached to it, which can be seen or unseen- like making chargers for gold jewelry. When you sell Jewell, you’ll lose 10-30% depending on the purity of gold and making charges. So, buying gold Jewell as an investment doesn’t make sense.

Options to buy Gold:

  • Gold coins and bars.
  • Gold ETFs (Exchange Traded Funds).
  • Bonds issued by Government.

A smart investment decision you can make is to buy gold bonds issued by the government which will not only give you full market value when to sell the product but also gives you 2.5%-4% of returns every year.

Thus, when you buy gold do buy it sensibly where not more than 5-10% of your portfolio goes to gold and do not buy Jewell as an investment.

Is there an alternative?

Digital gold is relatively very new to the market. It is very simple and transparent to buy and sell gold instantly. Physical gold has limitations on safety and security issues. But there is another gold investment option that overcomes all the challenges of holding physical gold and that option is “Digital Gold”.

Are you looking for the best platform to make a gold investment?, here are some of the features of 24K Gold on  Fisdom ,

  • You can buy 24k Gold and skip the responsibility of safe-keeping and traditional lockers.
  • You can get a free and secure locker from BRINK’s, a global leader in gold custodian services with 100% insurance cover.
  • Sell your gold with one click, anywhere and any time.
  • Get your gold delivered to your doorstep, hassle-free.

Fisdom  Screen shot

 

Let’s talk on “Real Estate” as an investment option

Real Estate is a must-buy thing for people with investing in their minds. After gold, people are obsessed with Real Estate. It is a “chunky investment” with a huge cost attached to it.

Why “Real Estate” is not a good investment option?

  • It is very limpid- you can’t sell in a hurry. You have to sell the whole property at once.
  • A huge maintenance cost-  you will incur periodic expenses to maintain it.
  • The risk associated is very high because they do not come with any guaranteed returns.

Why do we like it so much?

There are mainly three reasons why people go for Real Estate:

  1. Habit
  2. Black money
  3. Fear

Habit:

we’ve heard stories about how the land in the village that cost just a few thousand is now valued at crores. The reason why people think real estate is a great investment because they just look into the returns ignoring the risk associated with it. The fact is that the time gap between selling and buying includes a maintenance cost, property taxes, brokerage, and insurance. The effective rate of return before considering these costs is what that matters to everyone. And again between the same time gap, a lot of things can happen and can go wrong as in like- the title can be disputed, the land can be grabbed, the tenant can create a problem.

Black Money:

The habit of black money is so strong that we can’t even imagine where a cash payment is an exception and full cheque is a norm. Unless you have illegal money stay away from real estate in India because the prices get inflated due to improper cash flow in the system and if corruption is cracked, you can’t see any price rise for decades.

Fear:

People always choose real estate just because- the fear of unknown investment options. Earlier they had only a few investment options- gold, real estate, bank deposits where everyone has chosen to invest in, but now the presence of many guaranteed return investment schemes are stopping them. This is because the stock market scams in the past are haunting them.

Thus, we should be careful about where we invest our money. Before making investment count the cost which you may incur and also decide upon the period- for how many years you want to hold a particular investment. To see the true face of your investment- you can even look at the post-tax returns which you earn.

Go for a real gain, not just for the gold!

Think Fisdom !!!

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Akshatha Sajumon

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