• Ankur Kapur, CFA, CFP

Where can you Invest?

There are so many options to invest, ranging from safe to rather more volatile options. It is important to understand all your options before you plan to start investing.

Investment options

Agents to relationship managers aggressively promote products that they want to sell. Their goal is to meet their sales targets. Buying those products may or may not be prudent. It is expected from an investor to evaluate the merits of the investment product before any investment is made. You cannot have any other person making financial decisions for you.

Every investment option can be described in terms of its risk and return characteristics. The risk characteristic is associated with short-term volatility and not the loss of capital.

Traditionally the asset classes were broadly equity and bond. However, as investment options have extended beyond capital market products, these basic categories have also expanded to include commodities, real estate and currency.

The risk and return features of each asset class are distinctive. Therefore, the performance of each asset class may vary from time to time.

Following is the list of generally used asset classes and their risk-return attributes:

Debt or bond

Bonds provide a fixed return in the form of coupon/ interest income. These are also known as income products. Risk and return characteristics of bonds are relatively lower than equity and hence, suitable for an investor seeking regular income flows with minimal risk.

One may argue then why not a fixed deposit? There are safe debt options that are more tax-efficient in comparison with a fixed deposit.

There are a variety of debt instruments including government and private debt. Government debt options include public provident fund (PPF), National Savings Certificate (NSC), Provident Fund, government bonds and treasury bills. Private debt options include corporate deposits and debentures.

Investing in a debt instrument is critical. However, the choice of the instrument should be solely based on the safety of funds.


A stock represents ownership in a company. An empirical study suggests that this asset class provides higher returns if invested for the long term.

Volatility is higher in this asset class than debt/bonds as an asset class.

You may either decide to invest directly in the equity market or through an instrument say a mutual fund or an insurance policy (eg ULIPs). This choice would depend upon how much time you can give to research. In case you are constrained with time, indirect equity investment choices will make more sense.

Real estate

Real estate involves investments in land or buildings. Real estate is also considered as a growth asset that has the potential of providing higher returns if invested for a long run. Real estate investments include commercial real estate, residential real estate, land and real estate investment trusts (REITs).

Real estate prices follow a cyclical trend ranging between 12-15 years. Unlike developed countries where rental yields are high, Indian real estate investing is done primarily for growth. Cost of funds is high in India in comparison with the rental yield.

Often the best time to invest is when real estate developers are defaulting. Also avoid the risk of capital erosion, by investing in land or developed property.


A popular asset within the commodities basket is gold. Gold pricing is decided

internationally and is often linked to the global economic environment. Gold is used by governments across to world to hedge against an economic downturn. Investing in gold can provide a hedge against equity downturn too.

The sovereign gold fund is a reasonably good option to invest in gold. Physical gold comes at a high cost related to making charges and safe storage charges.

These are broad investment classes and often financial products are created by using these products are their underlying assets.

Here is a list of recommended instruments in each of these asset classes:

1. Debt – Other than directly investing in debt or bonds, you can invest in a debt mutual fund, a portfolio management scheme (PMS) or an Alternative Investment Fund (AIF). There may be more specific strategies available in actively managed debt strategies. A simple way to get started is to invest in a short-term debt fund with majority exposure to the government bond.
2. Equity – There are a variety of equity forms available in mutual funds. More specific strategies would be part of a portfolio management scheme (PMS) or an Alternative Investment Fund (AIF). In the case of private investment, start-up equity or VC/PE funds can be explored.
3. Real estate – Although there is a growing market of Real Estate Investment Trusts investor still prefer owning physical land or property.
4. Gold – Investment in gold can take forms such as ETFs, mutual fund or sovereign gold. The preferred option is a sovereign gold fund but you cannot sell before the term expires.

The question is not which is the best asset class but rather what allocation to be made in each of these asset classes. There is a place for all in your portfolio but your specific needs define in what proportion.

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