JOIN USStock markets, mutual funds, government bonds, tax returns…these words usually give the jitters to even the most well-informed, financially-independent women. After all, while earning money is challenging, managing it the right way is not easy either.
Let’s look at how to make the most of your moolah — information on wealth management, tips from experts as well as practical suggestions on saving tax
and buying property. Here are some commonly asked questions:
What kind of investments will ensure that my principal will not be eroded?
Investments in fixed income or debt securities are designed to keep your principal investment safe and grow it to protect against inflation. Purchasing a bond or a debt-based mutual fund is ideal if principal preservation is your goal. Mind you, in the case of mutual funds, be sure that they are entirely debt-based rather than hybrid (that is, with some proportion of equity).
What kind of returns can I expect from my investments?
Your returns depend entirely upon the interest generated from the assets you
decide to invest in. When it comes to debt instruments, bank fixed deposits can earn up to 8-9.5 per cent, while mutual funds can go up to 13-14 per cent. The interest rates are determined entirely by the RBI and will fluctuate over time. In the case of investing in equities, the price of shares depends upon various factors, including the general economic conditions, how well the company is doing and what people think of it, despite how well it is actually doing.
How can I predict the future of my investment and its appreciation, especially when it comes to gold and property?
The price of gold fluctuates daily, just as shares do. Keep a watch on this price and read as much as you can about the demand and supply of gold in the financial press.
Property prices vary with regard to the demand and supply of real estate in the particular location. Land has a tendency to rise in price in the long-term because as development occurs, land becomes scarce. In cities, there might be fluctuations in prices of flats and sometimes, there are market crashes, but in the long-term, property prices tend to rise. The price of flats may not really fall as such, but the comparative appreciation is lower than that of land.
Do your research on areas that have high demand. Property prices will often rise. There are plenty of property sites where you can check the rates online. These are generally listed by location and type (that is, whether they are commercial or residential).
With all your assets, regardless of what type they are, resist the tendency to be ‘wedded’ to them. Every year, if not more frequently, you should assess whether it is worthwhile holding on to them or whether it is time to sell.
Always remember to diligently check before investing, especially in property-related matters, to ensure that the papers are okay and there are no defaults.
There are plenty of assets that come with specific tax benefits. You also have the option of opting for investment-related financing that provides tax benefits. For example, if you apply for a home loan, you will receive a tax benefit while investing in a piece of property as long as you intend this to be your primary home.
Mutual funds are tax-exempt, as are dividends from fixed income investments.
Before you invest in anything, check with your investment advisor and your tax consultant as to which investments have tax benefits.
Is investing outside the country an option for me?
You are allowed to invest up to the equivalent of US $2,50,000 in any currency in most countries without RBI approval. There are a few countries, like Pakistan, where you cannot invest without the government’s approval, and Bhutan and Nepal, where you can invest only in Indian rupees. To do this, however, you will need to work with a broker outside the country or invest in global mutual funds.
Prices of essential commodities like petrol, vegetables and cooking gas, etc, are going up at an alarming rate. Will investing help me in planning for this?
Investing will certainly help as the basic aim of saving and investing is to grow your money to counter price inflation. We all know that prices of commodities are
determined by the economics of supply and demand. Generally, when there is a scarcity of goods, their prices will rise. We see this periodically with food, cooking gas, etc. Creating a fiscal buffer through investment will certainly help you deal with this more easily.
Will currency fluctuations affect my investments?
If you are investing in Indian securities, it should not make much of a difference. However, if you are investing in foreign funds, commodities, or any kind of investment denominated in currencies other than the rupee, then currency fluctuations will certainly affect your investments.
(Excerpted from Money Smart: The Indian Woman’s Guide To Managing Wealth by Reenita Malhotra Hora and Divya Vij; Published by Hachette India)