I have a horizon of over five years and an amount of Rs 12 lakh to invest. How and where should I invest it? I cannot invest in direct equity shares due to some office restrictions.
Every investor should be guided by two things. One is the time horizon and that you have clearly stated - over five years and secondly, your experience in equity investing. If you have never invested in the market before, not even the tax-saving funds (ELSS funds), you should consider an aggressive hybrid fund (erstwhile balanced fund). They typically invest around 65 per cent in equity and the remaining in fixed income. So, because of this one third investment into fixed income, they are a steadier take on growth. More importantly, these funds don't crumble as compared to pure equity when the markets crash, so that's a good strategy to start with.
Moreover, another rule that one should follow is not to invest the entire amount in one go and spread it over 12 months. This way, you will be able to average your investment cost, and it will also be a great shock absorber against your behaviour. When you invest Rs 12 lakh in one go, something like a 20 per cent decline will make you lose your cool and then you would be in a hurry to get out of it at the earliest occasion when you break even. So this will also help you navigate the market and get a nice footing with confidence.
Here are 12 best investments for consideration, generally ordered by risk from lowest to highest. Keep in mind that lower risk typically also means lower returns.
12 best investments
1. High-yield savings accounts
2. Certificates of deposit (CDs)
3. Money market funds
4. Government bonds
5. Corporate bonds
6. Mutual funds
7. Index funds
8. Exchange-traded funds (ETFs)
9. Dividend stocks
10. Individual stocks
11. Alternative investments and cryptocurrencies
12. Real estate
1. High-yield savings accounts
Online savings accounts and cash management accounts provide higher rates of return than you’ll get in a traditional bank savings or checking account. Cash management accounts are like a savings account-checking account hybrid: They may pay interest rates similar to savings accounts, but are typically offered by brokerage firms and may come with debit cards or checks.
Best for: Savings accounts are best for short-term savings or money you need to access only occasionally — think an emergency or vacation fund. Transactions from a savings account are limited to six per month. Cash management accounts offer more flexibility and similar — or in some cases, higher — interest rates.
If you’re new to saving and investing, a good rule of thumb is to keep between three and six months’ worth of living expenses in an account like this before allocating more toward the investment products lower on this list.
Where to open a savings account: Due to lower overhead costs, online banks tend to offer higher rates than what you’ll get at traditional banks with physical branches. See our roundup of the best high-yield savings accounts to find one that fits your needs.
Where to open a cash management account: Investment companies and robo-advisors like Betterment and SoFi offer competitive rates on cash management accounts.
You must be logged in to post a comment.