Saturday, February 5, 2011

Chapter 3- Investment options : safety vs returns

In India common man believes in safe and risk free investments like , gold ,silver ,FDs  , Personal Provided fund , Employee Provided fund EPF and property.
For him equity and share markets are some like gambling.

Lets consider all investment options in current scenario .
10 years back with 10 Rupees you could buy 1-2 Kg onions , Today you will get 250 grams to 400 grams onions.  Reduction in purchasing power of money is known as inflation (मंहगाई) .

Following is the illustration for Jan 2000 - Jan 2011  . We showed returns from various instruments for last ten years.


So you can clearly see that which investment instrument is best for you to get proper return and fight with inflation .
If we consider income tax also then FD gives negative returns (depends on your tax bracket).
Other options give you real returns even after deducting tax.

You can't invest 1000 Rs in property so I didn't consider that option in this scenario.
Property return may vary drastically from location to location and its usage. A average location property gives almost same return  as Equity in the same time frame. Prime location property will fetch best result but it is difficult to buy as you needs loads to money to buy property in one shot.


So now think about requirements in future and how much money you want in future to meet them.
This will help you to decide proper instruments of invest .

Child education after 10 years , Marriage , buying car after 5-6 years , Buying house after 10 years , retirement  fund etc ,  where time frame is something more than 4 years , are good for equity , MF and Gold investment.

In my next few post we will discuss How to select good Mutual fund as first step towards equity investment.
or read my exclusive post on best mutual fund of Indian mutual fund Industry ..
No one tell you about this fund.
Learn Investment discipline here .

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