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Investment mantras for the young and restless

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New Delhi: Given the youth of India have more disposable income than ever before, there is no better time than now for them to invest. With fewer responsibilities and time on their side, people who invest early enjoy the benefits of interest on their assets being compounded for a long period of time. For example, investment on a fixed deposit over five years with an interest rate of 7% would yield a return of over 40%, higher than the 35% that would be achieved if interest was not being compounded. With the right know-how, safe investing can easily be done to secure oneself a comfortable financial future.

Investing has always been a trade-off between the returns an individual wants to earn and the risk they are willing to take. Young people often complain that they are at a loss when it comes to knowing where to invest, but there a range of options available, ranging from low to high returns and the risk that comes with investing in them.

The safest asset class is bonds, which contains investment in savings accounts and fixed deposits. These are easy to understand instruments, are low risk and provide a consistent stream of income. They are not impacted too much from economic growth, making them all in all a very reliable investment. This however also leads them to providing very low returns. The income from these investments is also taxed at the highest rate so those looking to make a killing while investing need to look at other options. Fortunately, there are many.

There is also the option of investing in a short-term debt mutual fund; these funds buy debt securities from institutions such as the government and various blue-chip companies. The interest earned from these is then distributed to the fund’s investors while also being taxed at a lower rate. This is still a relatively safe investment as far as mutual fund investment goes. It is worth considering funds like the SBI Magnum Gilt Short-Term Fund or the Morgan Stanley Short-Term Bond Fund.

The next asset class is equity, or stocks as most people call them. While they provide better returns in the long run, they are not for the faint-hearted, as they are very volatile and frequent research is needed when it comes to deciding where and when to invest. Options include investing in stocks of individual companies or investing in mutual funds like the HDFC Index Sensex Plus, which invests mainly in the 30 stocks listed on the benchmark Sensex. There is a semi-consistent revenue stream when investing in equity, with companies often compensating their shareholders in the form of yearly dividends.

Commodities such as oil, coal and natural gas form their own asset class. The benefit of investing in commodities is that you hedge your investments, that is, the investments are protected from inflation. The asset class is negatively correlated to equity and does well during rough economic conditions. A serious drawback of investing in commodities is their prices are strongly affected by global and political factors.  Another drawback is that there is no revenue coming in from holding on to commodities.

Investment in real estate and infrastructure make up the final two main asset classes. Both these sectors take advantage of India’s growing economy. They are both correlated with equity however and crash if businesses aren’t doing well. As you have probably guessed, there are mutual funds which purchase stocks in both these sectors, so they are always an option to those wanting to leave some of the decision making to experienced fund managers.

 

(The article is only for information based on our research, NewsMobile doesn’t endorse any stock or funds in any way)

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