Nirav Panchmatia's Blog

Investment Strategy for the Conservative Investor

If you have been following the financial news off late then I am sure it would be sending jitters down your spine…

2015 throughout & 2016 till date was a rare period during which practically all Investment options lost money…

First the darling of Indians precious metals Gold (from Rs. 30,000 to 24000 & back to 30k) & Silver (from 77k to 36k) corrected massively from its peak; then Real Estate Market pan India has corrected & the pain is not yet gone & then lastly our beloved Stock Market is down 23% from its peak today…

Traditional Insurance Policies like Money back & Endowment wont earn you more than 6-7% per annum…that too before expenses & hefty agents commissions…

To add salt to the injury the Traditional Investment avenues like Bank Fixed Deposits, Post Office Products like PPF, Kisan Vikas Patra, NSC etc also saw Interest rate going down…Imagine an SBI offering 7.85 % per annum interest on 1 year Bank FDs…and that too taxable…

After taxes & after Inflation the real rate of return on Bank FDs (&other traditional Investments) is now negative…Its STUPID to keep your money in these products anymore…

Real Rate of Return = Nominal Rate of Return – Taxes – Inflation

 SBI Bank FD Real Rate of Return = 8% – (10/20/30)% Tax – 7.50% per annum Inflation

PPF @8.70% tax-free is the only saving grace…

 So where does a Conservative Investor save his hard earned wealth in these turbulent times???

 Don’t worry, all is not lost…

That’s where the skills & expertise of a Financial Planner comes to your rescue…

First let us define a Conservative Investor?

A CONSERVATIVE Investor is an Investor for whom RETURN OF CAPITAL is more important than Return on Capital & SAFETY of money is of paramount importance…yet he has to earn enough returns to compensate for Expenses, Taxes & Inflation…

Hence while on one side beyond a point he cannot invest in Shares or Equity Mutual Funds or even real estate, the traditional Investments will not even earn him enough to beat inflation…so where does he go???

Look no further then Mutual Funds…Very few people know that out of 12 lac Crore that 44 Mutual Fund Companies in India Manage, 8 lac crore is not into Equity Mutual Funds (that invest in Stocks) but into Debt Mutual funds that are very Safe Products & not volatile like Equity Mutual Funds…in fact the entire corporate Sector in India & medium & Small business park their money in Debt Mutual Funds…

How safe are they? What returns? Are they Taxable???

The safest Debt Mutual Fund is known as a Liquid Mutual fund…

A Liquid Mutual Fund is meant to keep your very Short term money super SAFE yet keeps earning 7-8% per annum returns & can be withdrawn at 1 days notice…

PARK your SURPLUS funds here while you are thinking what to do with it & earn double of Savings a/c & 7-8% more than current a/c

Then comes the Medium & Long Term DEBT Mutual Fund to SAVE your money for 6 months to 3 years and earn SAFELY 9 to 10% per annum Compounding and tax-free if withdrawn after 3 years…

This is more than any Bank FD or Post Office Products or tax free bonds can offer; 9% tax-free Compounded v/s less than 8% taxable on bank FD; the diff is Huge

But the most promising category of Mutual fund is something known as Hybrid Mutual Funds…they come in 2 flavours; the safer Equity Income Fund that has a bare minimum 15 to 30% Equity Markets exposure but can deliver 9 to 13% per annum Tax-free ;

And a bit risker but still safer Asset Allocation Funds are meant for 2-3 years when your money is systematically switched between Debt to Equity based on market valuations; this is much safer than Equity Funds and can weather even a 30% correction in the market ; expected to give 10 – 14% tax free returns over next 3-4 years

Divide your wealth between the above Mutual Fund products based on your Funds requirement & you cannot go wrong…

Invest Wisely & after thorough Research & with Professional help…

After all it’s your hard earned money; it pays to take professional help

 

Do you have any money lying here??? What is it earning? Tax rate Alternative Expected rate of Return** Taxation
FDs <8% 30% Debt Mutual Funds 8.75 to 10.25 % per annum tax-free after 3 years
Insurance Plans-Moneyback/Endowement 5-7% varies Debt Mutual Funds 8.75 to 10.25 % per annum tax-free after 3 years
Insurance Plans-ULIPs 9 to 13% 30% Mutual Funds-Balanced/Asset Allocation 13 to 18 % per annum tax-free after 1 year
GOLD / Silver ??? 30% Debt Mutual Funds 8.75 to 10.25 % per annum tax-free after 3 years
Real Estate* -ve 20% Mutual Funds-Balanced/Asset allocation/Equity 13 to 18 % per annum tax-free after 1 year

Happy Investing…


Print pagePDF page

Leave a Reply

Your email address will not be published. Required fields are marked *