Not all of your investments are probably connected to clear future objectives. Financial gurus frequently emphasize the value of a well-balanced investment portfolio and the risk-return trade-off. Returns may not be necessary for all investment decisions, though.
Not every choice can be evaluated just in terms of financial ROI. There are many obstacles in life, both material and immaterial. Therefore, one must understand how to maximize their financial resources to address them successfully.
Some situations involve investments when qualitative criteria, such as enjoyment, safety, and even indulgence, take precedence.
Let's examine the four significant investments from which no return should be anticipated. Then, this article will discuss the following investing opportunities when other factors take precedence over returns.
Here are the four key investing areas where returns are unimportant-
1. |
Emergency Fund |
2. |
Life Insurance |
3. |
Gold |
4. |
House Property |
Let us now examine in more detail why these four investment avenues are designed in such a way that returns are irrelevant to them-
A Contingency Fund is intended to do precisely that, as the name indicates. A certain amount of money must be set aside for unforeseen events, and the corpus should increase with age. In addition, crises can arise out of the blue.
As a result, one must establish a sizable emergency corpus on a military basis. Additionally, any money taken out should be quickly refilled for upcoming occasions. Therefore, a cash buffer cannot be expected to provide significant profits.
Let us investigate why.
Let us say a 62-year-old senior citizen has a ₹20 lakh fixed deposit. She decides to renew the FD annually. An investment manager would advise her to select a better return product.
She chose to save, nevertheless, for a good reason. She has health issues. Therefore the FD money, with its one-year short-term, acts as a reserve to draw on in a medical emergency. She is, therefore, okay with modest returns because liquidity, not generating profits, is her first concern. Think about Groww's user-friendly FD Calculator.
Continuing with the same example, she earns a moderate annual interest of ₹1.2 lakhs. Liquid mutual funds may also be taken into account in this situation. In any event, liquid funds offer more significant returns than FD because they are low-risk investments.
Unlike investing, insurance operates in the other way. One receives a return on their investment when one invests.
On the other hand, pure life insurance pays the nominee when the covered person passes away. No one makes any money if the insured person survives. Life insurance, however, is not about life but about death.
Insurance is a low-risk product that offers life coverage so that life does not end for the rest of the family in the event of a sudden death. However, despite the poor yield, insurance offers protection for loved ones. As a result, a sizable portion of people in India chooses to get life insurance.
Take LIC's new endowment plan as an example. A 30-year-old person purchases the plan for the promised ₹5 lacks over 20 years. The yearly fee is ₹ 23,809.
The cover is significantly smaller when the premium is lower. Ideally, one should not combine insurance with investing because the goal is frequently defeated. The dividend payable for a modest corpus at maturity is often more extraordinary.
"High Risk-High Reward" is a fundamental tenet of finance. Given that insurance is a low-risk product, the return on a set sum insured is minimal and may not produce inflation-proof returns.
Indians like gold, particularly when it is used to make jewelry. It should not be surprising that India is one of the biggest consumer markets for gold jewelry, with demand reaching its height around Diwali or during the wedding season.
Although actual gold in the form of jewelry is an excellent investment option, it is not the recommended method. This is because of the decrease in value brought on by costs made by the jeweler, such as waste and creating and polishing fees.
In addition, the buyer loses out on the jewelry store's margin between the price of the gold and its actual market worth.
Gold jewelry is also a dead and illiquid investment since it is difficult to convert into cash. However, most reputable jewelry stores would be open to trading actual gold for other jewelry.
In other cases, the jeweler would remove several expenses from the money received from the sale of gold. As a result, the sum decreases with each exchange of actual gold.
Jewelry is typically worn by the rich as a status symbol or decoration for special events. Therefore, it is not a good idea to store actual gold. Gold ETFs, on the other hand, are liquid and provide better returns.
"Home Is Where the Heart Is," they say. For many Indians, owning a home continues to be a top dream.
It makes financial sense to invest in a property as soon as possible, given the escalating cost of rents, particularly in urban regions. However, it must be remembered that choosing a home as an investment entails several criteria, including the home's location, industry trends generally, macroeconomic situations, etc.
Consequently, while a home property makes financial sense for utility purposes and to reduce rent, it may not necessarily be the case for investment objectives.
Even if one must purchase a second home to rent it out, the house's location, proximity to amenities, infrastructure, etc., affect rental rates and tenant availability.
As a result, even though the choices above might be considered investments, they should be made without only considering profits. Otherwise, it could lead to disappointment.
When the primary goal is to produce returns that beat the market, several different investment options exist, including Stocks, Mutual Funds, ELSS, etc. These risk-averse investors who would rather be safe than sorry should consider these security solutions.
Happy Investing!