Personal Finance

Think Beyond The Traditional Investment Options

April 20, 2020

Think Beyond The Traditional Investment Options

We all invest with the goal of saving up money for the future and also to make that money work and grow. With time, the investing landscape has seen a transition from traditional forms of investing to some of the newer alternative investment options of the present.

Traditional investments offer you comfort and safety, no doubt. However, they may not generate returns high enough to counter rising prices. Thus, in order to earn higher returns and to accumulate greater wealth for your financial goals, you might want to look beyond the traditional options and explore the new-age alternative investment options.

Let’s have a look at some of them.

Equity-oriented Mutual Funds

These funds invest the majority of your contribution in a wide range of stocks that span across sectors. They are high risk-high return avenues that you may find suitable if you have a relatively high-risk tolerance. Each fund is assigned to a professional fund manager who keeps track of the equity markets and takes buying/selling decisions on your behalf. This way you can enter the equities conveniently even if you lack sufficient financial knowledge and the time to monitor your investments. SIPs are considered to be the most preferred way to invest in equity funds. This allows you to harness the power of compounding to accumulate a large corpus over the long term.

National Pension System (NPS)

NPS allows you to save up for your retirement and earn a regular pension in your post-retirement life. In this, you get to create a well-diversified portfolio that is a mix of equity, corporate bonds, and government debt. This allows you to earn market-linked returns on your investments. Also, your investment portfolio gets rebalanced once every year in which your allocations in equity shares are shifted to debt as your age increases. In addition to this, NPS offers you an option to choose your fund manager based on their track record. The option to invest in NPS starts with contributions of as low as Rs 1000 per year. This way NPS investments don’t fall heavy on your pocket.

Liquid Funds

These funds invest in money market instruments like treasury bills, commercial papers and the likes that have a maturity of up to 91 days. Due to a lower maturity, liquid funds are relatively stable as compared to other debt funds. In order to ensure the safety of your investments, these funds look for high-quality debt instruments. As compared to bank deposits, liquid funds offer you higher returns on your short term savings. But at the same time, they carry a higher risk than the regular bank deposits. Also, your returns on liquid funds aren’t assured and may vary from one period to another. Still, you get to enjoy high liquidity as you can make flexible withdrawals as and when the need arises. Thus, liquid funds are the best fit when you want to create an emergency fund.

Debt Funds

These funds invest in fixed-income options like bonds and government securities to provide better returns than traditional bank deposits. The fund manager of a debt fund constantly aligns your portfolio with the changing interest rates to offer an optimal return. Additionally, there is a whole spectrum of debt funds that you may invest in to grow wealth for your short term and long term goals. For example, in liquid funds, you can park your excess cash for the short term. Similarly, in Gilt Funds, you may invest to achieve goals that have a time horizon of say 4 years and/or beyond. While debt funds are a good option over traditional investments, they also come with risks that you should know. Thus, it is better if you invest in a debt fund that suits your risk profile and investment requirements.

Index Funds

These funds are a great way to invest in only those stocks that match a particular index like a Sensex or Nifty. So, unlike actively-managed funds, you may not find frequent changes in their stock composition. It is only when the index changes its portfolio that you may see buying/selling activity in your portfolio. This makes the index funds low on management costs and high on returns. But an important point to note is that these funds aim to generate as much returns as their index instead of trying to beat them. At times, there might be small differences in the fund returns and that of the index. Even then, these funds may generate sufficient wealth for your goals over the long term.

Conclusion

From a returns standpoint, new-age alternative investment options are much better than traditional investments. But at the same time, they come with their own set of risks that you need to understand fully before investing. Also, it is important that you spread your investments across various options to balance out the risks and return. At Paytm Money, you can invest in the top-rated mutual funds to reach your financial goals with ease and convenience.