Every individual is different. And so is their ability to take risks on their investments. As many people are not aware of their risk tolerance, they tend follow their friends and colleagues blindly. But this is a dangerous path to thread. Investing is not an adventure or a roller coaster ride. Before investing you should know your risk tolerance. People can be broadly classified into risk takers and risk averse. Two individuals of different risk profiles will react to the same financial situation in a different manner. It is seen that during a financial turmoil or short term volatility, it is the risk averse individuals who are hit the most.
Hence, it is important to look for investment options according to the risk tolerance. Here are some of the investment options for individuals who can’t take risk.
Savings account is one of the basic saving avenues for individuals. It is seen that many people continue with the bank account that were opened by their parents or the salary account provided by their employer. However, this may not be a very wise decision as there a number of savings accounts that give you high interest rates such as Kotak 811. Also, you can open a new savings account just for saving and not for daily use. Set up a monthly automatic debit mandate from your salary account to your new bank account. Other than the monthly amount, you can also save money that you receive as bonus or gifts in this savings account.
The main benefit of a savings account is the liquidity. You can save and withdraw money anytime you want. Hence, it can also come in handy during emergencies as you can withdraw or transfer money in no time. However, you have to make sure that you are not using this account for your daily expenses. To curb the temptation of using the money saved in your other bank account, restrict the use of the card and don’t carry the card to shopping malls. It should only be reserved for emergencies and other financial goals. Savings account is a good saving option for people who love to travel. The saved amount can be later used to make purchases or fulfil other financial goals.
Fixed deposit is one of the favourite investments options for individuals. And why it should not it be? It is safe and gives a certain interest rate. You also have the option to select what you want to with the interest, whether you want your interest with the principal at the end of the term or withdraw every month or quarter. Open a fixed deposit as little as Rs. 5000 and watch your money grow through the years. Fixed deposits are available from a period of 7 days to 10 years. Gone are the days when one had to visit a bank branch to open an FD. Today it takes just a few seconds to open a fixed deposit through bank app and online banking.
Park your excess funds in fixed deposits and receive fixed interest rates. While equity investments are prone to market fluctuations, fixed deposit is immune to market conditions. Hence, you can sleep like a baby after opening a fixed deposit.
Calculate how much you need to save to reach your goal amount through FD calculator. Fulfil your financial goals with fixed deposits. Link your fixed deposits with your financial goals. E.g. let us consider that you have excess funds which you don’t need in the present scenario. You may need the amount later to fulfil other financial goals such as buying an appliance. This will also help to lock your money for a specific period so that you don’t use for other reasons. Easily open a fixed deposit online and streamline your financial goals. If you don’t have enough money to open a fixed deposit, open a recurring deposit. This leads us to another saving avenue for risk averse individuals which is a recurring deposit.
Recurring deposit is an easy and safe way to start saving. You can start saving in a recurring account with as little as Rs.500. Saving through recurring deposits can also help you to build financial discipline as a fixed sum of money will be debited from your account every month. Open a recurring deposit from bank app or online. You can set up a mandate based on your financial goal and tenure. Use a RD calculator to understand how much you would need to save every month and the duration of the investment. It is better to park a portion of your income in recurring deposits as it fetches a higher interest rate than a savings account. Fulfil your short term goals such as travelling with an RD.
While savings deposit, recurring deposit and fixed deposits can help you fulfil your financial goals, Public Provident Fund will help you to save for your retirement. It is a long term investment option for individuals who want to plan for their retirement with minimal risk. It also gives assured returns plus it is tax-efficient as well. However, PPF has higher lock-in of 15 years after which it can be extended in blocks of 5 years. The current interest rate for PPF for the April-June 2019 is 8% which remain unchanged from the previous quarter. You can invest as little as Rs. 500 in one financial year in PPF. Just like RD, in PPF also you can spread your investment into 12 months which will be light on your pocket. In terms of liquidity, you can withdraw money from the seventh year onwards but you are only eligible to withdraw only once in a financial year.
Knowing where to invest is as important as the investment amount. Even if you invest a large sum of money, it may be rendered useless if you invested in a high risk product and could not digest the volatility. Hence, it is a ‘must’ to know your risk tolerance and invest accordingly.
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