Insurance Basics

Smart Investment Options for 2017

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In early 2015, it was predicted that equity investments will be rewarded with good returns but instead, the SENSEX declined by 6%. While it is unfair to expect good returns on equities in just a year, any investment which has a time period of 1 to 5 years is considered as a short term investment. Equity investments are typically more conducive if your investment horizon is longer, say 5-6 years. 2015 would have been a great year to systematically build a portfolio of quality stocks and buying them at low prices during the year. The stock market graph is never a straight line.

Nifty's jagged trajectory has rewarded patient investors over the year with average returns of around 15%. So what are some of the best bets you should place in 2016? Are equity investments still the most likely to give you the best returns?

Here are some smart investment options for 2016:

1. Fixed Maturity Plans

A fixed maturity plan or FMP is a closed ended mutual fund scheme that invests in debt instruments. With pre-defined maturity offered for tenures varying from 30 days to 5 years, the most popular tenures are 30 days, 180 days, 370 days and 395 days. When the interest rates rise, Fixed Maturity Plan is the most recommended investment among debt funds due to its subtle features like relatively low interest rate risk, transparency in portfolio disclosures and tax advantages. FMPs serve is to generate steady returns over a fixed tenure, thereby protecting investors from interest rate fluctuations. This is achieved by investing in a portfolio of debt securities such as certificate of deposits (CDs) and commercial papers (CPs) whose maturity or tenure matches that of the scheme. These securities are redeemed at the end of the FMP term.

2. Insurance policies

Even though strictly speaking, Insurance is a means of protection from financial loss, several ULIPs and other insurance related investments have shown good results. ULIP or unit linked life insurance products which provide risk cover for the policy holder along with investment options to invest in any number of qualified investments such as stocks, bonds or mutual funds. Unlike a pure insurance policy or a term plan, ULIPs and other insurance related investments give investors both insurance and investment under a single integrated plan.

3. Monthly Income Plans

Monthly Income plans typically refer to mutual fund investments that provide regular monthly income as well as capital protection. However, one can also use bank fixed deposits that provide monthly interest but this will be fixed and typically market related investment plans offer better returns than FDs. An MIP fund manager will traditionally invests 15-25 per cent of the amount in equity markets while the rest is deployed in a combination of corporate bonds and government securities.

4. Gold ETFs

Traditionally, Indians have invested in gold for many generations and it is indeed one of the most preferred form of investment for the most financially illiterate and savvy investors alike. Gold exchange-traded products are exchange-traded funds (ETFs), closed-end funds (CEFs) and exchange-traded notes (ETNs) that aim to track the price of gold. Gold ETFs are units representing physical gold, which may be in paper or dematerialized form. These units are traded on the exchange like a single stock of any company.

5. Real estate

Real estate investments are usually high return investments, purchase of a real estate investment usually means that an otherwise balanced portfolio will become lop sided or overweight real estate. With the lowering of interest rates and attractive financing schemes, Indian investors are finding it easier to fund real estate purchases. As buyers usually have to put down +only 20% of the cost, the balance 80% being funded by lenders, property purchase has become easier for investors.

You should continue to save and invest for their goals and not be deterred by the noise about returns. More importantly, they should not lose sight of their asset allocation. If the equity portion of their portfolio has shrunk due to the decline in equities, it is time for them to get rid of some fixed income instruments and increase the allocation to stocks

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