The New Year is often an occasion to set new goals and resolutions for most people, and if 2023 is the year of your choice to begin your investment journey, then we got you covered. While a wide range of investment options may be available in the market, we have collated the top five smart investment avenues that could maximise your returns and minimise risks.
As Rachit Chawla, CEO of Finway FSC, a fintech company, points out: “In a challenging market scenario, not only beginners but also seasoned investors should look for investment options which are of low risk and can yield high returns.”
The following are some of the investment options:
Equity Index Funds: Index funds are considered a low-risk investment option as they provide diversification across a broad range of stocks, which can help lower the portfolio’s overall risk. “Index funds are a type of low-cost mutual fund that aims to replicate the performance of a particular stock market index, such as the S&P BSE Sensex or the Nifty 50 index. The fund holds a diversified portfolio of stocks that closely tracks the composition and performance of the underlying index,” says Manish P Hingar, a chartered accountant and founder of Fintoo, a fintech company. Since the fund invests in a basket of stocks that reflect the market, its performance will be similar to the market. “Data shows that S&P BSE 100 TRI, a major benchmark of index funds in India, has delivered a CAGR (compound annual growth rate) of 15.44% and 11.77% over three and five years, respectively,” Hingar explains. He says it is important to remember that market volatility can affect index funds and ETFs (exchange-traded funds) as their performance is directly tied to the market.
Government Securities: The Indian government occasionally issues certain securities to organisations like oil marketing firms, fertiliser companies, the Food Corporation of India, etc., (commonly known as oil bonds, fertiliser bonds, and food bonds, respectively) as compensation to these businesses in lieu of cash subsidies, says Ashwin Chawwla, founder and managing director, Escrowpay, a payment solutions company. While these securities are often long-dated and have a somewhat larger coupon than the yield of comparable-maturity long-dated securities, “these securities are acceptable as collateral for market repo transactions but not as SLR (Statutory Liquidity Ratio) securities. The beneficiary entities may sell these securities in the secondary market to primary dealers, banks, insurance companies, etc., to raise money,” Chawwla explains.
Sovereign Gold Bonds: Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold and are issued by the Reserve Bank of India (RBI) on behalf of the government. These bonds are considered a low-risk investment option as they are issued by the government and backed by gold. Additionally, “capital gains are tax-free if held till maturity, and the bonds have a maturity period of eight years; an investor can purchase a minimum of 1 gram of gold and a maximum of 4 kg. SGBs can be bought and sold on stock exchanges. The price is linked to the prevailing market price of gold,” says Hingar, adding that SGBs can be a good option for those who want to invest in gold but do not want to worry about the storage and security of physical gold.
Public Provident Fund: Public Provident Fund (PPF) is one the most popular solutions for those interested in investing money in safe vehicles, as the government offers this long-term savings scheme. “The 15-year plan is the most effective investment strategy for securely achieving your long-term objectives,” according to Chawwla. “PPF account matures after 15 years, and the current interest rate offered on PPF investments is 7.1%, which is tax-free. It is suggested that beginners should open a PPF account and regularly invest for their retirement goals,” Hingar says.
Bank or Corporate Fixed Deposits: This list would be incomplete without mentioning this highly-popular low-risk instrument – fixed deposits. The main advantage of a fixed deposit is that the interest rate is generally higher than the rate on a regular savings account, “so you can earn more money on your deposit. You can consider investing in fixed deposits for your near-term goals or park your savings as an emergency fund,” according to Hingar. Investors with a low-risk appetite and lower tax bracket can consider investing in fixed deposits for short-term needs. He explains that given the current scenario, with the rise in interest rates, banks and corporate fixed deposits have also increased their interest rates on deposits, making it a lucrative option, Hingar adds.
Meanwhile, when it comes to strategising for a low-risk, high-return portfolio, Edul Patel, CEO, and co-founder of Mudrex, a global crypto investing platform, explains: that “obtaining high returns while minimising risk can be a difficult task when it comes to investing; new investors can employ strategies to find a balance between the two, such as, investing in small amounts, maintaining discipline in investment, diversifying their portfolio, investing in index funds, and adopting a long-term perspective.”