by Young investors have varied objectives while choosing their investments – buying a home, purchasing a car, their child’s education, early retirement plan, etc, are some of the goals individuals set for themselves early in life. Each of the goals may require a specific type of investment. Further, it is essential to time your investments in such a manner that they pay returns at a time when you need the money. For example, if A wants to buy a car on loan and repay his EMIs using the returns on his investments, then his investments should pay him returns equal to the number of his monthly instalments. So, if he invests in an FD, then the interest amount that A earns on his FD should equal the monthly instalment that A pays towards his car loan.
It is important to set your investment goals so that your investment can work accurately for you. For example, one must know the time and amount of money that he/she will need in the future. At the same time, it is important to evaluate the risk involved in the investment as well as the return amount and initial investment required. Say B would like to invest a lump sum now and time his returns to pay for his child’s marriage somewhere after ten years; he needs to choose an appropriate investment. An FD would be safe, but returns may be lower. Stock investments are likely to pay higher returns, but the risk involved is greater.
Here are five recommended investment options in current times:
1. ETFs
This is a relatively new path of investment, and one is likely to have a fear of the unknown. However, considering the returns that ETFs have fetched for their investors, it is certainly among the top 5 investment options of this era. Much like stocks, an investment in ETF should be for the long run. Here is a table of popular ETFs in India:
Name of ETF Index Largest Sector Expense Ratio
PIN Indus India Index Energy 0.78%
INP MSCI India Total Return Financial 0.89%
EPI Wisdom Tree India Earnings Index Financial 0.88%
INDY S&P CNX Nifty Index Financial 0.89%
Commodity ETFs especially Gold ETFs have done very well in India. ETFs are yet an untapped market amongst individual investors. However, we would recommend them as investment with high earning potential and also an investment type that has different source, like a commodity ETF can have its source in agriculture.
2. Gold
Gold is a high return and is traditionally favoured as an investment option. It stands well in most economic conditions. Even during times of recession, gold prices increased at an average rate of 19.30 per cent in 2009 and 12.5 per cent in 2010. Here is a table of changes in the prices of gold in the past five years:-
Year Change in Gold Price (%)
2005 24.2
2006 20.8
2007 16.5
2008 28.8
2009 19.3
2010 12.5
An investor can buy gold as a long-term investment. Long-term goals like your child’s marriage are well covered by investments in gold. You can also use 24-karat gold coins/chips to make jewellery for the wedding. Or you may sell the gold and use the money to meet any other wedding expenses.
3. Fixed Deposits
This is another safe investment with reliable and known returns. One can invest in FDs with a predefined goal for its returns. One knows the amount of returns as well as the timing of returns on investment in case of an FD. Hence, one can reliably plan expenses and time them with the FD maturity date. For example, you can plan your vacation by using the returns on your investment in FDs. FDs are a good investment option to match the repayment of loans. The interest amount of FDS can be timed with the repayment of loan instalments. So, if you want to buy a car or two-wheeler on loan, you can invest in FDs and match the interest amount with loan instalments, either in whole or part. On the other hand, you can time your purchase to make the down payment towards the vehicle from the proceeds of an FD
In case you are willing to take a higher risk, floating rate FDs may be an option for you. In a growing economy, a floating rate FD has a higher earning potential than traditional FDs.
4. Mutual Funds
Mutual Funds are another ‘must have’ in your investment portfolio. The SIP system enables investors to take modest steps into mutual fund investments. You need not invest a lump sum – one can invest an amount of Rs. 500 per month only under most SIP plans of mutual fund houses. Since experts handle your money, mutual fund investments are less risky as compared to stocks. They also have a large earning potential. However, it is difficult to predict the amount of returns. It is, therefore, difficult to time your investment for an exact amount of return.
5. Stocks
As compared to fixed deposits, investments in equity, on average, paid 26.5 per cent higher returns in 5 years. Even for a longer term, investments in stocks have paid higher returns even in comparison to real estate and gold. Here is a comparison of investment in stocks against other options:
Nature of Investment % Returns after 5 Years % Returns after 10 Years
Real Estate 30% 14%
Gold 10% 7%
Bank FDs 8.50% 12.50%
Equity 35% 16%
Equity investments are good for long term goals like retirement savings, purchasing real estate or buying a car. Mr. A has stocks in a reputed company that earned him high dividends and bonus shares over time. He could pay for his Europetrip through the funds he got from selling these shares. Z used the money from selling his stocks towards the down payment of his vacation home! Now all he has to manage from his salary is his EMI.
