Wealth building and diversification options you should be aware of
Everybody aspires to earn high income and generate wealth. Undoubtedly, the level of your income is crucial for your wealth planning but that’s really not the only factor. Your overall money habits are always at play.
As JRD Tata famously said, “Money is like manure. It stinks when you pile it; it grows when you spread it”. The essence of his invaluable advice is that when you make your money work for you by investing it in various available options; you stand a chance to create wealth. Else, no matter how well you might earn, you are unlikely to see your money growing.
Are you someone who knows how to secure your next loan in minutes but not what to do with your money? Well, here’s a guide to devising your personalized investment strategy.
Think of four investment buckets:
- Fixed income
- Real estate
In personal finance terminology, these buckets are called asset classes.
Some investment avenues grant you exposure to just one asset class. For example, Fixed Deposits, Small Savings Schemes (SSS) such as Public Provident Fund (PPF) and National Savings Certificate (NSC) amongst others, help you generate fixed returns. Similarly, equity shares can allow you to enjoy partial ownership of the company and grow your wealth in line with its growth.
Others, such as mutual fund investment plans and National Pension System (NPS), can help you to leverage multiple asset classes. Moreover, they can offer the additional benefit of diversification.
Let’s first see some basic investment options
Equity shares: The internet is full of success stories of many legendary investors such as Warren Buffet, Peter Lynch and Rakesh Jhunjhunwala, who made their fortune in equity. Still, just about 9 crore Indians have a demat account. In other words, less than 10% of Indians invest in equity.
Equities can generate returns through a combination of capital appreciation and dividends. Protecting you from the effects of inflation and helping build wealth in the long run.
For that, you must carefully select companies for your portfolio and have a long time horizon, of say at least 7-10 years. In case you need any assistance with this, Ventura’s stock research reports discuss high potential stocks and offer 360 degree analysis of companies.
Moreover, if you want to accumulate the same stocks over the months/years for the long term, you might even think of starting a SIP (Systematic Investment Plan) in stocks.
If you are 45 or below and still don’t have a demat account, it’s high time to have one. If you are serious about wealth creation and understand risks associated with equity investing, open a demat account with Ventura and make your first equity investment today!
Mutual Funds: Mutual funds manage investors’ money for a fee. Depending on the category and sub category of schemes, mutual funds invest in various asset classes. For instance, equity funds invest in equities, debt funds invest in fixed income instruments and hybrid funds invest in a combination of debt and equity and may even dabble into other asset classes such as gold.
Mutual fund schemes can also give you exposure to real estate as they can invest in Real Estate Investment Trusts (REITs). When investing in mutual funds, you can opt for a lumpsum option or select an SIP to invest.
Mutual fund SIPs can help you grow your money in the long term without putting any stress on your wallet. Use our SIP calculator to know the ballpark amount you may be able to accumulate by investing in SIPs.
NPS: If you are an Indian citizen in the age group of 18-70 years, irrespective of whether you’re a resident or not, you can invest in NPS.
NPS is a voluntary pension scheme that provides you one of the lowest cost alternatives to invest in professionally managed investment pool. You can start with just Rs 500. You get two management options—active choice and auto choice or life cycle fund.
Under active choice you can invest across options from various asset classes. Including equity, government securities, fixed income instruments and alternative investment options such as Real Estate Investment Trust (REITs).
Besides, claiming NPS tax benefits you can use accumulations in your NPS account to buy an annuity (pension) plan. Additionally you can use tools such as NPS calculators to estimate a ballpark figure of pension you aim to amass.
Sovereign Gold Bonds (SGBs): Indians don’t require any explanation for why gold is a crucial asset class. However, many investors shy away from buying gold for a number of reasons including security and storage concerns.
If you are one such person, worry not! SGBs are precisely for investors like you. They carry a sovereign guarantee, so there’s a no default risk. These bonds are issued by RBI on the government’s behalf. Unlike any other gold investment options, SGBs pay you an interest of 2.5% p.a. They have a maturity period of 8 years. And gains made on maturity are tax-free.
Once you draw a detailed roadmap, you can choose suitable wealth planning options that are consistent with your risk appetite and time horizon.
The key takeaways are:
- Your money habits are the most crucial aspect of your wealth creation journey
- Beyond what you need to meet emergencies, money kept idle in a savings account will be counterproductive to your wealth creation
- Intelligent investments fetch smart returns—a prerequisite for long term wealth creation
- Invest across asset classes—fixed income, equity, gold and real estate, to name a few
- When unsure, always take professional help
Here’s a bonus tip: Start early and don’t underestimate the power of compounding.
Best wishes for your happy and mishap-free wealth creation journey today!
The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made there from shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. If you follow any research recommendations made by our fundamental or technical experts, you should also read associated risk factors and disclaimers.
We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.
We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company.
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Diversification is the way to go when it comes to making sure that wealth can be created. But at the same time, timely rebalancing is also important.