Investors who want to set up a tax-exempt pool and want stable returns should also not miss the Public Provident Fund (PPF) and gold.

As the Sensex and Nifty stock market indices touch new highs on a daily basis, many investors tend to shift their surplus money toward stocks or stock-based mutual funds. However, it is necessary to direct one’s savings towards various goals which include the education of children, the purchase of a home and their retirement.
Investors should not allocate their investments in a skewed manner. They should have a judicious mix of investments across asset classes like debt, gold, etc., in their portfolios. Let’s look at some of the asset classes in detail.

Investment objective and asset class
When investors want to hold the investment for a reasonably longer period, say three to five years, investing in stocks or through mutual funds fits the bill perfectly. For the short to medium term, i.e. between one to three years, it is a good idea to choose funds destined for debt or debt. Investors who want to set up a tax-exempt pool and want stable returns should also not miss the Public Provident Fund (PPF) and gold.

Public Provident Fund (PPF)
It is a time-tested investment that one should be a part of achieving long-term goals such as retirement. Since PPF is long-term in nature (15 years), the effect of tax-exempt compound interest is significant especially in the later part of the maturity. The interest rate offered is currently 7.1% per annum. Since both the principal and the interest earned are backed by a sovereign guarantee, it is one of the safest investments.

National Pension Scheme
NPS is a long-term investment product focused on retirement. The contribution made to the NPS goes to a mixture of stocks, corporate bonds, liquid funds, fixed deposits, government bonds, and others. As an investor, one can decide how much to contribute to the shares through NPS. The advantage of investing in NPS is that when you retire, you can withdraw up to 60% as tax deduction from the body, and the remaining 40% is paid out as annual consideration for life. Investing in an NPS ensures that your investments are geared toward retirement and your retirement pension becomes payable.

Equity mutual funds
Investing in stock-based mutual funds is the easiest option to get an offer in stock shares. As mentioned earlier, stock funds are the best investment vehicle to achieve your long-term goals. Consider investing in mutual funds through a Systematic Investment Plan (SIP). Investing through SIP develops financial discipline and reduces the timely temptation of the market. While investing in stock-based mutual funds, choose a large-cap fund as well as exposure to mid-tier corporate plans as well. Sector funds require frequent review and investors need to manage them effectively; So it is not best suited for amateur investors.

Sovereign Gold Bonds
The Government of India has launched a series of Sovereign Gold Bond (SGB) schemes for investors who want to invest in gold. SGB ​​provides an opportunity to earn interest as well as to own gold. The term of the bond is eight years with an option to exit from the fifth year onwards. The interest rate on these bonds is 2.5% per annum payable twice annually. As an investment, SGBs are much better than owning physical gold.

In conclusion, before investing in any of these, you should have a suitable emergency fund to turn to in case of any financial emergency and then allocate the available income to investments that help you achieve your goals without having to borrow from friends or take advantage of loans.

Writing Professor of Finance and Accounting, IIM Tiruchirappalli

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