Smart investing: What is the right way to invest for long-term financial goals, know the opinion of experts

Smart investing: The stock market indicators Sensex and Nifty are showing tremendous growth. This boom in the stock market is luring investors to invest their surplus funds in equity or equity-based mutual funds. However, experts believe that investors should take care of their financial goals like education of children, buying a house and retirement etc. while investing their money. It is important to have a judicious mix of investments in your portfolio across asset classes like debt, gold etc. Here we are going to tell you about some such asset classes.

Investment Goals and Asset Classes

Experts believe that for such investors who want to invest for a long period i.e. three to five years, investing through equity or equity mutual funds can be a better option. At the same time, it is good to opt for debt or debt oriented funds in case of investment for short to medium term i.e. one to three years. Investors who want to save their tax through investments and at the same time want stable returns can consider investing in Public Provident Fund (PPF) and Gold.

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Public Provident Fund (PPF)

For long term goals i.e. retirement, a good corpus can be accumulated by investing in Public Provident Fund. In this, not only do you get tax benefits on investment, but there is no tax to be paid on the interest amount and maturity amount received on the investment. At present, the interest rates of PPF have been fixed at 7.1 per cent.

National Pension Scheme (NPS)

NPS is also considered better for retirement planning i.e. long term investment. The money that investors invest in NPS is invested in equities, corporate bonds, liquid funds, fixed deposits, government bonds, etc. As an investor one can decide how much money to invest in equities through NPS. The advantage of investing in NPS is that after maturity, you can withdraw up to 60 percent of the amount deposited in the account. While the remaining 40 per cent is used to buy an annuity plan. Not only this, investing in it also gives exemption under section 80C of Income Tax. Through this, you can save tax up to Rs 1,50,000 in a year.

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Equity Mutual Fund

Investing in equity based mutual funds is the easiest option to get exposure in equity shares. Equity funds are the best investment avenue to achieve your long term goals. You can consider investing in equity mutual funds through Systematic Investment Plan (SIP). In investing through SIP, you have to invest a fixed amount regularly. While investing in equity based mutual funds, one should invest in large cap funds as well as mid-cap schemes. Sectoral-based funds require frequent reviews and are constantly managed by investors, so they are not considered suitable for amateur investors.

Sovereign Gold Bond (SGB)

The Government of India launched a series of Sovereign Gold Bond (SGB) schemes for investors who want to invest in Gold. Not only do you get interest in SGB, but you can also buy gold through it. The tenure of the bond is eight years and from the fifth year onwards, the option of exit is also available. The investors of Sovereign Gold Bond get a fixed interest every year. The rate of interest is 2.5 per cent per annum. This interest is available on half yearly basis. As an investment, SGB is considered better than buying physical gold.

Investors should make sure that they have enough money available for financial emergencies before investing in any of these. Only then should investors consider such investments so that you do not have to borrow money from your friends or relatives during any kind of financial emergency.

(Article: P Saravanan) This article has been written by Professor of Finance and Accounting, IIM Tiruchirappalli.