The economy is slowly getting back to its preslowdown growth path. This is evident in factors like the strong Index of Industrial Production (IIP) numbers, positive consumer sentiments, job market cheer and signals from the government as well as the Reserve Bank of India (RBI). The cheer is slowly getting back in the financial and investment sectors. The stock markets and all linked investment instruments have yielded high returns over the last one year.
A good rally in the markets has helped in rebuilding the confidence of investors in the markets. However, investors should not look at investing only in stocks or equity-based instruments. They should look at various investment instruments to suit their needs and allocate funds accordingly.
Here are some of the instruments to consider for a portfolio:
Tax-saving options:
According to income tax laws, every individual can get a rebate in income tax by investing in certain instruments . For example, provident funds, NSCs, infrastructure funds etc. Since income tax drains a significant portion of an individual's hard-earned income, one should look at investing in various tax-saving instruments . Since the current financial year has just started , investors should look at planning their investments across various classes of instruments.
Insurance
A general thumb rule of insurance is an investor should have an insurance/life cover of at least five to eight times his annual income. Life insurance is available in term and endowment plans. One should strike a balance between the term and endowment plans to optimise investment and risk cover. Insurance schemes taken at a younger age come with smaller premiums and therefore , it is advisable to go for it during the early stages of life. Health insurance is another area which one should consider for himself and family.
Debt instruments
There are various classes of debt-based investment instruments available in the market. For example, deposit schemes (bank fixed deposits, post office deposits, company deposits), debt mutual funds etc. Debt-based instruments secure the principal amount invested in the scheme and most schemes guarantee returns as well. Inclusion of debt-based investment instruments provides stability to a portfolio and reduces the overall risk. However, the percentage of allocation towards equity and debt-based instruments should depend on the risk profile of the investor and a study of the prevailing market conditions.
Equity-based instruments
There are many schemes and investment instruments available in the market in this category. They are of two broad categories - direct investments in stocks or indirect investments through equity-based mutual funds. Investors who have time and an understanding of the markets should look at investing directly. Others should look at investing through mutual funds.
Mixed schemes
There are many mixed schemes available in the market that provides the flavours of more than one of the investment classes. For example, equity-linked insurance schemes, equity plus debt schemes etc. These schemes are a good way of balancing investments. One should understand the various terms and conditions well before investing in such schemes.
Commodities
Investments in commodities , especially gold, have picked up in recent times. A gold-based investment adds another dimension to the portfolio. It acts as a debt instrument and usually provides good returns during uncertain economic conditions . The prospects of investments in gold look good on the back of the ongoing economic uncertainty in the European markets.
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