In my own quest to understand the different financial/investment options and the “where to invest” conundrum, I realised that there are many more persons like me who are quite the illiterate when it comes to managing and investing their hard-earned money in the right channels. Many, I realised, like me, have been terribly vulnerable and naïve and have suffered to some degree, more or less, in the hands of the many people calling themselves financial advisors and relationship managers (appointed by our trusted bank/s).

So, I decided to share a few snippets of my understanding of the basics, the information, I, being a complete novice, could fathom and some information which could act as a start to a person’s journey of understanding his finances (investments) a little better.

Okay, to start off the process, we should know that the burning question of the ages has been, “where do I invest?” To answer that, it is important to first understand some of the instruments of investments available in our country. Some of the popular instruments of investments, as per my knowledge, available in India, are,

Let us understand the above, one by one.

Gold

Over the ages, this yellow metal has been a trusted investment option for many, especially if you ask an elderly person or an orthodox person, they believe that Gold is the best investment. There is some credence to that because we have seen the value of Gold going up several times over the past decades and more. Even the Governments of countries keep Gold with them as an investment. However, is it really safe to invest in Gold? Let me start by saying that the returns on Gold can be, to put it mildly, erratic. It is used, by the regular consumers, more as a kind of a safeguard against future financial emergencies or uncertainties. If there are any political and financial turmoil in the country or anywhere else in the world, the value of Gold goes up. A currency may fail, but Gold is considered to be failproof but still as an investment option it is an unreliable instrument, for example, if we invest in Gold and expect to get very high returns if we sell it after 3-4 years then it may not happen because the returns are very uncertain. Gold is purely a speculative instrument. If a person can forecast a dip in the economy and currency of the country in the coming future, only then, a prior investment in Gold is a clever thing to do because a failing economy/currency has always shown an increase in Gold prices in India. 

 Another issue with Gold is, unlike equities and FDs, no money is invested back into the market. So, in essence, it doesn’t help the state of industries and economy of the country, so, in my opinion, and in a sense, it is sort of a dead investment. Prices of Gold are based on the demand and supply situation of the economy, at the time.

 So, according to me, a wise decision would be to invest, if at all, a very small fraction of one’s investment portfolio in Gold – and the rest in other options.

Real Estate

According to a 2016 Gallup Poll, real estate was rated the best long-term investment – well ahead of Gold, stocks and mutual funds, savings accounts/CDs and bonds. However, in our country, real estate investment is generally for the financially comfortable/high net worth (HNI) individuals who have surplus money. It is normally not a very feasible option for the population falling in the middle-income group category and lower, as well as retiring/retired folks in India – when it comes to the masses or the general population. Real estate, like Gold and unlike FDs and mutual funds is not a very productive asset (unless it is on rent) because it is not helping the economy grow. There is some return by renting the premises, however, the returns are not good if compared with the current value of investments. Another issue is that it is a highly illiquid asset, one cannot sell it whenever one wants to, or in case of emergencies, then it is seen as a distress sale and the property is sold at a much lesser value than what it demands.

So, coming back to the first point, I feel the option of real estate investment should (a) sit well with the moneyed who have a good amount of disposable income in their banks to either support a down payment or an expensive EMI, (b) for folks who can afford to wait patiently for return on their investment (to sell), sometimes years since the sector calls for an eye for detailing on the part of the investor, one who understands the highs and lows of the industry and can make the right choices (c )In case of land and stand-alone buildings, there are some unique challenges in India, the problem of the property being illegally captured by local goons and dishonest builders if the property stands empty or vacant for some time. Getting a solution to this problem often follows a very murky and time consuming path which might be a bit too much to handle for some.

However, in spite of all the drawbacks, as billionaire Andrew Carnegie had once said, 90% of millionaires got their wealth by investing in real estate – and that might well be true if you have the right foresight and environment to do so. 

Disclaimer: These are my personal views and understanding and in no way should this writeup be treated as a guidebook/instruction/expert opinion on investments options in India.

Image source: https://www.paisabazaar.com/mutual-funds/investment-plans/

To Be Continued…