Global COVID-19 pandemic has changed our lives in many ways. Emotionally and financially, we have learned many things in this year 2020. As Warren Buffet said, “never depend on single income. Make investments to create a second source.” This is biggest learning of the pandemic.
Financial experts are constantly advising to make wise investment decisions in the new year for a healthy financial future. As this year comes to an end, FPJ brings the top five investments options for you to decide in the upcoming year 2021.
Most of us want to make investments that gives us high returns without the risk of losing principal money. However, a high-return, low-risk combination in an investment product, unfortunately, does not exist. Risk and returns are directly related, higher the returns, higher the risk and vice versa. Below are top five investments for you:
Direct Equity
After experiencing fall in March, Indian indices are now up by about 80%, driven by liquidity and low-interest rates. Governments fiscal stimulus and monetary stimulus by global banks has made ways in the emerging markets. Sectors such as IT, Pharma, telecom and FMCG along with large-cap such as reliance, have started participating in the rally. Banks the biggest beneficiaries of economic recovery. This trend is expected to continue in 2021 as well. Overall sectoral rotation observed will continue into 2021. Retail investors can take exposure to equity as rally gets more broad-based.
Mutual funds
Mutual funds, as experts advise, must be the preferred option for first-time investors as these are professionally managed by fund managers. Mutual funds cover almost all types of assets, that is equity, debt, hybrid (equity/debt mix) gold and real estate. It provides the best investment options to retail investors and the investments can be started with as low as Rs 100,
Gold
Gold prices in top 17 consuming countries are higher by 22 per cent on average, varying between 13 per cent to 60 per cent. “The gains were driven by strong investment demand. The reliance on gold as a safe haven was truly evident when the pandemic hit the world. Prices in December 2020 have corrected to $1860 / Oz from a high of $2067 in August 2020, but are still more than 22 per cent up YTD,” said Prof Arvind Sahay, Chairperson, India Gold Policy Centre @ IIM Ahmedabad.
The price of gold is expected to move up in 2021 as well. Hence, investors may think of allocating anywhere between 5 – 10% depending on their requirement and other factors. Investors can choose from Sovereign Gold Bonds issued by Govt. of India, Gold Funds or Gold exchange traded funds (ETF) for their investments.
Public Provident Fund (PPF)
The Public Provident Fund is one product many people look for investment. As PPF has a long tenure of 15 years, the impact of compounding of tax-free interest is huge, especially in the later years. Nonetheless, investors can avail partial withdrawal after 5 years. A minimum deposit of Rs 500 per year is required to keep the account active. This will fetch 7.1 per cent interest. Moreover, since the interest earned and the principal invested is backed by sovereign guarantee, it makes it a safe investment. Interest rate on PPF in reviewed every quarter by the government. PPF also provides tax benefits, tax-exemption and security to capital.
Fixed Deposits (FD)
Looking for risk free assured income, Fixed deposits are also one of the best options for you. In FDs, a lump sum amount is locked-in for a specific period. Investors can choose tenure usually in the range of 7 days to 10 years. However, one should be careful while choosing FDs as banks have recently announced reductions in rates.
