Focus on risk minimisation,capital preservation in 2019

Under volatile market conditions, one should have significant exposure to fixed income securities for capital preservation, fixed income exposure can either be gained through debt mutual funds or through extremely safe banks FDs or high rated corporate debt instruments.

The focus in 2019 should be risk minimisation and capital preservation because the markets are expected to be extremely volatile during the first half of the year. Under volatile market conditions, one should have significant exposure to fixed income securities for capital preservation, fixed income exposure can either be gained through debt mutual funds or through extremely safe banks FDs or high rated corporate debt instruments. Here are some of the best safe investment options in India available in 2019 and among them some are also very tax efficient.

Debt instruments

One can consider investment in select safe debt instruments such as government bonds, corporate bonds, short term money market instruments and debt mutual funds as a part of their portfolio. Significant exposure to fixed income securities in 2019 will provide a cushion against equity investment volatility.

After a high-interest regime in 2018, going forward in 2019, it is broadly expected that there will be a one or more rate cuts by the RBI and reduction in interest rate will benefit the debt holders as their bond prices will increase with decreasing yields. One can directly invest in debt instrument by buying bonds outright or through debt funds, but it is advisable to invest in top-rated debt instrument and allocate into both short-term and long-term debts. The debt instruments also carry some risk but the overall volatility is very low compared to other investments like equities.  

Public Provident Fund (PPF)

PPF offers many advantages with safe returns and that makes this the most preferred investment avenues for a majority of risk-averse investors. It offers decent returns coupled with income tax benefits under Section 80C of the Income Tax Act. PPF comes under the exempt, exempt, exempt (EEE) category of tax status. This means that returns, maturity amount and interest income are exempt from income tax.

Since the PPF has a long tenure of 15 years, the main benefit is that it gives a fixed return and helps to build a long term investment corpus for retirement. Additionally, a PPF account can be extended for the next 5 years after the completion of its tenure. Minimum investment required in case of PPF is Rs 500 per month and the maximum is Rs 1,50,000 in one financial year. PPF account can be opened with a bank or post office. Currently, the rate of interest on PPF account is 8% for January – March 2019 (Q4 FY19) and interest rates are now set on a quarterly basis (every three months).

FDs and RDs 

Investors with extremely low-risk appetite can also opt for secured fixed deposits that are offered by commercial banks, small finance banks, NBFCs and post offices. The investment can be either made through a one-time lump sum investment or through regular investments at fixed intervals through recurring deposits.

The tenure of investment in FDs can be as low as 7 days and can be spread up to 10 years. The rate of interest can vary from 3.5% to as high as 8% per annum depending on the period of investment and type of banks.

An FD requires a one-time investment whereas a recurring deposit is a kind of term deposit under which one needs to deposit a fixed amount at fixed intervals. Investors can deposit the sum every month and earn an interest income on the same. The interest rate on RDs varies from bank to bank, however, the RDs available through the post offices offer the best interest rates.

Monthly Income Scheme (MIS)

Risk averse investors looking for safe investment option with decent returns can consider post office monthly income scheme. The investment does not attract TDS, but unlike PPF the income from the MIS is fully taxable. Presently, the Post Office Monthly Income Plan offers an interest rate of up to 7.8%, which is not bad at all. This is one of the best and the safest investment option in India as it is guaranteed by the government of India.

Gold and Sovereign Gold Bonds

Gold is one of the oldest investment asset class and is considered as a safe haven against uncertainties and market turmoil. Investment in gold can either be made by buying physical gold or through gold mutual funds, gold deposit schemes or through gold ETFs. Since buying physical gold consists of carrying cost, and also is risky to store, it is advisable to buy gold through exchanges in the DMAT form.

Investors can also invest through Sovereign Gold Bonds (SGBs) as an alternative to holding physical gold which are backed by the government of India. SGB are denominated in units of gold (grams) and issued by the RBI on behalf of the GoI. Investors to secure these SGBs need to pay the issue price upfront. Investors at the time of maturity can redeem the bonds in cash. Investors can benefit from the likely capital appreciation of value in SGB due to an increase in market price of gold at the time of maturity or premature redemption. Apart from this, investors will also be eligible for periodic interest payment of 2.5% per annum payable semi-annually.

Special Category Investment Schemes

Investors falling under some eligible categories can opt for the investment schemes designed to benefit them the most. Senior Citizen Savings Scheme and Sukanya Samriddhi Account are popular among these schemes.

Senior citizens can invest in Senior Citizen Savings Scheme which can be opened in the post office as well as banks. The current rate of interest offered is 8.7% per annum. However, there are no tax benefits available here and also TDS is applicable on these deposits.

Sukanya Samriddhi Account is only for a girl child and can be opened at post offices and commercial banks. There are several advantages of placing money in the Sukanya Samriddhi Account. Currently, this account offers an interest rate of 8.5% per annum which is best among the same type of investment options available in India. It also has tax benefits under Sec 80C of the Income Tax Act.

To sum up, 2019 is expected to be a volatile year therefore investors should focus more on capital preservation and risk minimisation with their investments and advised to stay equity light at-least in the first half of the year and increase their allocation to safer asset classes. 

(The writer is Director at Wealth Discovery/EZ Wealth)

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Focus on risk minimisation,capital preservation in 2019

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