Where to park your hard earned money PPF or Equity?

This is the question which is running in every Investor’s head now. Considering the reversal of PPF & other small savings rate done by Govt. It’s evident that this withdrawal is done for sake of elections. So, be prepared to see the interest rate coming down in the above asset classes.

Now, the next question is where do I should invest my hard earned money. When PPF and other SSS( Small savings scheme) gives you sub 7 % returns & your inflation is close to 5%. What will be Real Rate of Return (RRR)? After reducing the inflation from your returns . eg:let’s take the higher interest giving Sukanya samridhi scheme for girl children is 6.9% and minus the inflation 5% , your net net return is just 1.9%. Does your hard earned money is justified in this case? You yourself might have the answer now.

The alternative for these investments are Mutual Funds and Direct Equity Investments.where you have full control on your money and you can withdraw full or partial amount anytime you need. liquidity is right there for you whenever you wish. To achieve your dream goals, on a longer run Equity ( MF’s & Stock’s) would be the best option. When you talk about RRR, you can achieve a desired double digit returns only through these asset classes. Mutual Funds are handled by Fund managers who are expert in the equity investments. Your risk is reduced in MF’s and can Long Term Capital Gains are also 10% only, which is far better than other asset classes.

What about a conservative investor who isn’t ready to bear the equity market volatility, who need a secured returns for a longer term. There are gilt funds & debt mutual funds who invest in low-risk debt instruments such as govt securities & corporate bond’s. Eventhough there are interest rates risk associated with gilt & debt funds, by and large when you stick to the duration of the bond you can expect decent returns with indexation benefits in these instruments. On the other hand you have better endowment plans in the market ( eg: HDFC Life Sanchay Plus ) gives a better Guaranteed Returns for next 25 year’s , irrespective of interest rate cycle and market movements. Because, these are contracts and when your enter in to it, they are liable to give you the guaranteed amount what they have given in the contract when you sign. Which ensures the preservation of capital along with moderate returns which is also Tax free returns in investor hands. We shall discuss in detail about debt funds & endowment plan’s in a separate blog.