All of us work very hard to earn our money. However, do we really work hard in terms of deciding where to invest that to maximize our corpus? Most of us manage to create a pool of savings, which we popularly call ‘surplus money’, but we don’t know what to do with it.
Let’s evaluate 3 popular asset classes to see, which are the best ones for you to invest your money. If we have Rs. 100 surplus with us, the fact that would need to decide is how much will you invest in bank FD and how much in the equity markets. We need to understand that our decision to invest in a particular asset class depends largely on the time horizon we are looking at and the quantum it will generate after that time horizon. Moreover, risk perception changes with every individual. Therefore, let’s not assign numbers against each asset class. The best way to understand whether an asset class is a good investment option is to do an analysis of risk vs. returns. Therefore, let’s rank the three chosen asset classes based on risk vs. returns.
Bank fixed deposit (FD)
In case of bank FDs, returns are very low compared with equity. However, the risks are also very low compared with equity.
The equity asset class tends to provide investors with high returns. That said, the risk component to earn those returns is also appreciably high.
Mutual funds have become a highly popular asset class owing the fact that they provide high returns to investors, but the risk component to earn those returns is moderate or low. This is one of the major differentiating factor for the MF asset class compared with pure equity. One of the major reasons for the moderate to low risk for mutual fund investment is that they spread the risks using an effective diversification strategy among different asset classes. Moreover, if you use the SIP route, you will own smaller proportions of various shares, which the fund divides into unitsand gives you. Thus, they are the best way to invest in top stocks, midcaps, and largecaps. Mutual funds enable you to participate in the India growth story.
Mutual fund investments are managed by expert fund managers. They not only ensure that your risks are spread across asset classes, but also strive to provide you with your expected returns.
ACMIIL has great news for you. Now, you can invest your money into mutual funds at the tap of a finger using our ‘Investmentz App’ (available on App store and Play store). Our app allows to set up your financial goals, investment time horizon, and will help you invest in mutual funds based on your risk propensity.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.