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With all modern investment instruments taking investors for a ride, traditional investment options are back in action with all guns blazing
The lust for big bucks has taken its toll on the public’s otherwise robust investment function lately. Maturity in the debt and capital markets had spawned a great deal of interest in non-traditional instruments and the response had been overwhelming. If not for the economic turmoil, non-traditional instruments would have continued with their frenzy in a flexible investment-high return scenario. However, after the recent chain of events, with investors losing money and sleep, the apparently forsaken traditional instruments are back in action.
R. K. Gupta, MD, Taurus Asset Management Company avers, “Traditional instruments of investment are for social security and are held by investors in order to meet future requirements and uncertainties.” Agrees Ramesh Dalal, VP (Financial Planning), Bajaj Capital, “Traditional investment instruments are basically meant for wealth preservation or regular fixed income. Suitability of an investment vehicle depends on one’s objective, time horizon and risk appetite.”
There are a plethora of traditional investment instruments in the market today and investors can choose as per their requirements. Each instrument is designed with a separate investment/ return scenario and investors are advised to take into account their personal preferences before going forward. Such instruments are effective for those investors who are looking at a steady flow of income irrespective of the comparatively lower rates as compared to those offered by non-traditionals. First on our list is a tried and tested instrument of Public Provident Fund; the instrument takes 15 years for maturity and has upper investment ceiling of Rs.70,000 annually. Return on investment comes to an uncompetitive but sufficient at 8%. The investment does not come under the tax net and is a friendly option for the working class. The limitation of investment is perhaps the only impediment in this investment. The monthly income plan of the post office is another productive option for the salaried and those looking for a regular income option. The plan has a lock in period of 6 years and has a maximum ceiling of Rs.4.5 lacs. The income earned from this source is exempted from tax as well. National Saving Certificate comes next in line with an investment period of at least 3 years; an investment up to Rs.100,000 is entitled for benefit under section 80C of IT Act. These instruments are virtually risk free and investors are required to have prior knowledge of such investment avenues. A diligent follow-up of the capital and money market is uncalled with such investment instruments. Considering the downturn when preserving existing capital itself is a problem, traditional investment options are the best way to beat volatility.
Investors should however bear in mind that these forms of investments are not intended for a rapid fire wealth creation. “You cannot create wealth by keeping money in the bank you have to take risks for that to happen,” opines Gupta. As per Dalal, “For short to medium term horizon and conservative investors, traditional investment avenues are definitely a better option but for long term wealth creation, one may consider market related instruments.” In all, there is enough talk on the traditional mode of investment and the ever green status of this avenue stays in this difficult time.
Karan Mehrishi
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Source : IIPM Editorial, 2009
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