Dhirendra Kumar makes a case for taking measured exposure to equity
For long, I have been a fixed income investor, investing primarily in fixed deposits. Now, I want to start investing in equity. I understand that SIPs in mutual funds, NPS Tier II account, etc., are some alternatives. Can you suggest which of them will ensure the safety of my capital even if the initial return remains low? Please throw some light on these.
Investors like you must try and get equity exposure, as interest rates on deposits have been falling. Although both saving and investing are equally important, investing in bank deposits amid a falling interest rate scenario may not provide handsome returns.
As an investor, your aim should be to generate real, sustained returns. Fixed-income investments, over a long period, fail to provide you with inflation-beating returns. In order to generate sustainable returns, you will have to take some risk. Having said that, you can well take measured exposure to risk. An aggressive hybrid fund should be mainstay. This fund invests predominantly in equity, while some portion is allocated to the debt. The debt portion acts as a cushion and provides downside protection.
The NPS Tier II account can also be of help here. However, to have an NPS Tier II account, it's important to have a Tier I account at first. Further, the equity allocation in NPS is limited to 75 per cent, which for a new investor like you is appropriate.
I would advise you to go for aggressive hybrid funds over NPS. Also, invest like a recurring deposit and not all at once. Further, invest with a time horizon of at least three to five years, as this will help you get accustomed to the market volatility and returns. While returns in equity aren't guaranteed but by and large, over longer periods, equity is believed to provide better returns than fixed-income.