Dec 10, 2001 03:30 PM
6740 Views
(Updated Dec 10, 2001 03:30 PM)
With decreasing interest rates and market slump in certain conventional investment instruments like gold and real estate, it has become essential to common investors to enter into stocks and other instruments to maximize the returns. Mutual funds have entered in big way in Indian market to provide many options for investments in relatively hassle free way, not only for stocks but for other instruments like bonds, debentures, call money and index futures, etc.
The choice of investment depends on your present condition, future needs and risk taking capabilities and to very large extent to you knowledge and reach to the market. I am not writing this review for experts but readers like me who have limited resources and knowledge.
It is always better to have a prudent and cautious approach towards investment especially for small investors, for effective investment to optimize your returns, first and foremost is:
Define Your Needs: To optimize the returns to spread the risk evenly it is important to have a diversified portfolio, this again depends on three criterion I have defined earlier, i.e., 1) Present 2) Future and 3) Risk. Basically other than property three kinds of investment are available in market, viz., a) Low risk- low return, b) Medium risk- medium return and c) High risk- high return. Ideally one should have mix of all these three in the portfolio.
It is advisable to use low risk instruments for your short term or foreseeable needs, the interments generally available are Band FDs, Bonds, saving accounts and Bond funds in Mutual funds, etc. The return on these instruments varies depending on liquidity, e.g., saving accounts are very liquid with low interest rates but it is always advisable to keep enough in this account to meet regular and emergency needs. One of the best options in this category is Bond based schemes of mutual funds which gives better returns with reasonable liquidity.
Medium risk categories are debentures, company FDs and income schemes in mutual funds and best suitable for medium term needs, now a day with volatile stock market, these are becoming very popular instrument. Mutual funds are best option available for optimum returns and liquidity.
The high-risk category instruments are shares, equity funds and index futures. Shares no doubts have best possibility of return, but knowledge of markets and constant vigil is essential to reap the benefit otherwise one may have to face heavy losses especially for investment in riskier stocks. Mutual fund schemes in this category, though risky but it hedges the risk to certain extent due to larger and diversified portfolio and market vigil. One must keep in mind that these are long-term instruments and a long-term view(7 to 10 years) is essential to maximize the returns. Another important thing is disciplined and regular investment and SIP in mutual funds are very good option for hedging the risk and optimizing the returns.
One should ideally have mixture of all these three in the portfolio, depending on age and needs. Typically for below 30 age group 20:30:50 in low, medium and high risk category should be the mix, whereas for above 45 age group this should be around 40:50:10, the ratio varies with the age, in addition it always advisable to invest certain portion properties. Many on line tools are available for investment planning one good one is in walletwatch.com. It is always better to be cautious for common investors.
The review is my opinion one has to use the judgement and may be expert advice for one’s need, if my review able to add some value to my fellow mouthshutters my purpose is served.
Thank you.
