World Savings Day – What are the different ways to invest your savings?
The concept of saving is as old as money itself. Once, long ago, we saved our money in jars and pots, under mattresses, and hidden away in secret nooks and crannies. Today, we save it in banks, through savings accounts or recurring deposits.
On World Savings Day, it is important to recognize that while savings are important, it’s just one part of the wealth-creation journey.
Why savings by itself is not enough?
Here’s an important fact: saving without investing actually depletes your wealth. How? The villain is inflation. The money you have today will buy you less tomorrow. If you keep your savings idle, you are actually losing money. So, save by all means. But only to invest it in ways that you can earn a better return than the rate of inflation.
How to move from savings to investments?
Before you plan to make investments, you should keep two important things in mind – what are your financial goals, and how much risk you are willing to take. When it comes to investing, risk and return are directly proportional – the higher the risk, the higher the probability of return.
To ensure you get the returns you seek while minimizing risks, you must diversify your investments. Traditionally, Indians have had a fascination for fixed deposits. While fixed deposits are one of the safest investments, their post-tax returns are often sub-inflation. If you are looking at really long-term, reasonable and safe returns, Public Provident Fund is a good option. But if you have a bit of appetite for risk, then here are six ways to invest your savings.
1. Equities – Equities are one of the most popular asset classes over the long term. There are many benefits of equities – you can start small and gradually increase your exposure; easy to invest; you can invest in a wide range of companies; it’s highly liquid so you can buy and sell at any time; it can be very tax-efficient with proper planning.
2. Mutual Funds – Mutual funds offer a wide array of investment options, including equity mutual funds, debt mutual fund, exchange traded funds, tax-saving funds etc. Depending on your financial needs, return expectation and risk appetite, you can choose a mix of funds. The great thing about mutual funds is you can invest as little as Rs 500. Using the SIP route, you can create long-term wealth with regular investments of small sums.
3. IPO – Initial Public Offers allow investors to buy shares of companies that are new to the stock market. Often, IPOs allow you to buy shares of a promising company at a reasonable price since many companies keep their offer price attractive.
4. Derivatives: Derivatives are instruments or contracts that derive their value from an underlying asset like a stock. Seasoned investors use derivatives to hedge their risks, to benefit from arbitrage and to take leveraged positions. For example, derivatives like Options allow you to take larger positions on equities with lower exposure.
5. Commodities: Commodities are pivotal to any economy. They can also act as a hedge against your equity portfolio, because many commodities have an inverse co-relation with equity. You can trade in commodities like gold, silver, metals, food grains and other agricultural produce just as you do in shares of companies.
6. Currencies: Currency prices keep fluctuating offering investors an opportunity to benefit from the changes. Most traders use derivative contracts to trade in currency. Even individuals and companies use derivatives to hedge their currency risk.
Regardless of where you choose to invest your money, make sure you track it closely, and regularly evaluate whether your portfolio is in line with your life goals.
Keep saving. Keep investing. Happy World Savings Day!
Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.