The ongoing pandemic has shaken our finances and money management in the country. Everything we know about financial management has changed given that we are in an unprecedented situation. The need to take a step back and revisit our finances has become even more important in such times. As financial goals and needs have changed drastically, it is best to adapt financial portfolio as per the current requirement. Given the uncertainty we are facing, many of us would be scouting for risk-free options to invest in. However, the task is difficult because every investment / financial instrument carries an inherent risk. Thereby, the next best option is to opt for investment in low-risk instruments.
Let us look at 5 low-risk investment options you could invest in during Covid-19.
• Liquid funds:
This investment is carried in i liquid money market instruments such as inter-bank call money market, treasury bills, commercial papers and certificate of deposits. These are the open-ended schemes that provide a short-term investment option and have the lowest interest risk associated with all class of debt funds.Also, the volatility of liquid funds is short-lived, as the regulations require liquid funds to hold only papers with up to 91- day maturity. The NAV (Net Asset Value) of the funds is calculated for one year, unlike other debt mutual funds where NAV is computed only for business days. Further, they don’t have any restrictions of a lock-in period and enable withdrawals to be processed within 24 hours on business days. Such investmentsare done with an objective is to preserve capital and supply financial gain. Currently, there are different plans like growth plans, daily dividend plan, weekly dividend plans and monthly dividend plans. These plans have to be chosen based on your risk appetite & fund requirement. Liquid funds are ideal to save emergency funds and cushion your portfolio from volatility of equity investments.
• Bank Fixed deposit (FD): This one is among the most traditional investment available in India.
You can open an FD account in a bank offering the most attractive interest rates. Most banks give you interest rates in the range of 7-9% depending upon the tenure of your deposit. Unlike market-led investments where returns fluctuate over time, returns on an FD are guaranteed when you open the account. Even if interest rates fall after you open an FD, you will continue to receive the interest decided at the start. Having less risk, FDs are considered much safer than investments in other assets like equity. If you opt for a cumulative fixed deposit, you will have quite a sizable corpus in the long term. You can be certain that your capital will be protected, and returns are guaranteed.
In India, Gold has historically been the default store of value. However, gold cannot be identified as investment, because it does not produce a dividend or return. Gold maintains the “buying power”
of your money. In case, the safety of wealth is your goal, then keeping some of your savings in the form of gold as a part of an overall portfolio is a sensible choice. At present, gold coins and bullion are the simplest and most convenient form of investing in the yellow metal.For your information, gold bullion, bars and coins are made with a purest physical form of gold. Having made in 24K (carats), these can be kept safely in bank lockers or any other safe place. Also, gold coins are available in different sizes. It can be easily liquidated and converted into cash. The value of gold will more or less remain the same no matter which currency it is converted into.
• Index funds
: As the name suggests, this is a type of fund that invests in the indexsuch as Nifty50, Sensex, sectoral indices, etc. Index funds are passively managed funds which allow investors to participate intelligently in the stock market. After adjusting for tracking error and expenses of the fund, the index fund mirrors the returns that the index generates. So, if the market is bullish, the fund will do well, however, the same will not be the case for some individual performers (companies or sectors). Similarly, not all individual stocks will suffer when the market is witnessing a bad year. Since the index fund is passively managed, the expense ratio is very low as compared to actively managed funds. The index fund is the safest option for a retail investor who has little or no knowledge about the stock market.
• Post Office Monthly Income Scheme:
These schemes are an ideal option for those who want to earn a regular fixed income monthly. Banks have variety of monthly schemes that are seen to help investors earn a supplementary income. This type of term deposit promises the investor guaranteed returns at a certain rate of interest, every month. It keeps your capital safe and gives decent returns. Also, a depositor can operate with more than one account under POMIS, subject to the ceiling of maximum amount, which may be invested in single or joint account. Under POMIS, the maximum limit is cumulative Rs4.5lakh in single accounts and Rs9lakh in joint accounts. Such investment is a good option, especially for pensioners, who are looking to augment their income in some way.
In these times, safety is of utmost importance. Managing your finances through bad markets is very difficult and requires experience. These are the times for consolidation and not expansion.