- Date : 27/10/2022
- Read: 4 mins
Alternatives to equity investments
Equity instruments have the potential to deliver attractive returns. That is why many investors prefer the equity route of investing when building their financial portfolio. However, the associated volatility risks cannot be ignored. While equity has a high return potential, it also has high volatility risks, especially in the short term. As such, you need to add other instruments besides equity to bring a little stability to your portfolio.
Related Article - Find out if it is wise to invest all your savings in equity
Adding alternatives to equity investments also helps in risk mitigation through portfolio diversification. So, here are some alternatives that you can consider
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Debt mutual funds
Debt mutual funds are those that invest in debt instruments like Government securities, bonds, money market instruments, etc. Debt funds, thus, have negligible exposure to the equity market and are devoid of volatility risks. You can earn stable returns from debt funds even when the equity market is volatile or falling. The approximate returns that you can earn from debt funds range from 6% to 10%, while the risks are low.
Moreover, there are different types of debt mutual funds that you can choose based on your investment horizon and strategy. Common examples include liquid funds, short-term debt funds, long-term debt funds, gilt funds, etc.
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Gold
Gold is viewed both as an asset and an investment. You can invest in physical gold through jewellery, ornaments or bullion or buy digital gold, which is convenient and affordable. There are gold bonds and ETFs, too, that help you track gold price movements and earn returns depending on the performance of gold.
Gold, as an investment, acts as a hedge against equity market volatility. As equity markets turn volatile, gold is considered a safe haven. Moreover, gold also hedges against inflation as inflation also pushes up gold prices, thereby offering you higher returns.
Gold experiences cyclical price movements. Thus, the risks of gold investment are low, and the returns depend on your investment tenure and the price movement during the said tenure.
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Real estate
Real estate is also a good investment avenue as you can generate regular rental income if you let out a property that you own. Moreover, real estate can appreciate in value over time, giving you capital gains when you sell the property.
Real estate can give attractive returns. However, there's a liquidity risk as you might not be able to sell off your assets immediately when you need instant funds.
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Bonds
Bonds are debt instruments offered by Governments or companies looking to raise funds from the public. Bonds usually carry a fixed rate of return so that you can earn guaranteed income on your investment. The return starts from 6% while the risks are low.
Bonds can be traded on the stock exchange, which also makes them a liquid investment avenue. Moreover, there are capital gains bonds too that can give tax benefits on capital gains that you incur when you sell a house property.
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Traditional investment instruments
If you are looking for fixed-income investments, you can choose from a wide variety of traditional investment avenues. These avenues deliver a guaranteed return on your investment. The investment tenure is different across different instruments, and you can even get tax benefits on some of them.
Some of the common traditional investment avenues are as follows –
- Fixed deposits with returns ranging from 2.50% to 8%
- Recurring deposits with returns ranging from 2.50% to 8%
- Public Provident Fund with a return of 7.1% for the third quarter of FY2022-23
- National Saving Certificate with a return of 6.8% for the third quarter of FY2022-23
- Kisan Vikas Patra with a return of 6.9% for the third quarter of FY2022-23
- Sukanya Samriddhi Yojana with a return of 7.6% for the third quarter of FY2022-23
- Senior Citizen Saving Scheme (especially for senior citizens) with a return of 7.4% for the third quarter of FY2022-23
The bottom line
Just like you need a balanced diet, a diversified portfolio is needed for financial health. It helps in reducing investment risks and maximizing the return potential. So, consider these alternatives to equity investment and create a diversified and balanced financial portfolio.
Related - Here's how you can diversify your equity portfolio
Equity instruments have the potential to deliver attractive returns. That is why many investors prefer the equity route of investing when building their financial portfolio. However, the associated volatility risks cannot be ignored. While equity has a high return potential, it also has high volatility risks, especially in the short term. As such, you need to add other instruments besides equity to bring a little stability to your portfolio.
Related Article - Find out if it is wise to invest all your savings in equity
Adding alternatives to equity investments also helps in risk mitigation through portfolio diversification. So, here are some alternatives that you can consider
-
Debt mutual funds
Debt mutual funds are those that invest in debt instruments like Government securities, bonds, money market instruments, etc. Debt funds, thus, have negligible exposure to the equity market and are devoid of volatility risks. You can earn stable returns from debt funds even when the equity market is volatile or falling. The approximate returns that you can earn from debt funds range from 6% to 10%, while the risks are low.
Moreover, there are different types of debt mutual funds that you can choose based on your investment horizon and strategy. Common examples include liquid funds, short-term debt funds, long-term debt funds, gilt funds, etc.
-
Gold
Gold is viewed both as an asset and an investment. You can invest in physical gold through jewellery, ornaments or bullion or buy digital gold, which is convenient and affordable. There are gold bonds and ETFs, too, that help you track gold price movements and earn returns depending on the performance of gold.
Gold, as an investment, acts as a hedge against equity market volatility. As equity markets turn volatile, gold is considered a safe haven. Moreover, gold also hedges against inflation as inflation also pushes up gold prices, thereby offering you higher returns.
Gold experiences cyclical price movements. Thus, the risks of gold investment are low, and the returns depend on your investment tenure and the price movement during the said tenure.
-
Real estate
Real estate is also a good investment avenue as you can generate regular rental income if you let out a property that you own. Moreover, real estate can appreciate in value over time, giving you capital gains when you sell the property.
Real estate can give attractive returns. However, there's a liquidity risk as you might not be able to sell off your assets immediately when you need instant funds.
-
Bonds
Bonds are debt instruments offered by Governments or companies looking to raise funds from the public. Bonds usually carry a fixed rate of return so that you can earn guaranteed income on your investment. The return starts from 6% while the risks are low.
Bonds can be traded on the stock exchange, which also makes them a liquid investment avenue. Moreover, there are capital gains bonds too that can give tax benefits on capital gains that you incur when you sell a house property.
-
Traditional investment instruments
If you are looking for fixed-income investments, you can choose from a wide variety of traditional investment avenues. These avenues deliver a guaranteed return on your investment. The investment tenure is different across different instruments, and you can even get tax benefits on some of them.
Some of the common traditional investment avenues are as follows –
- Fixed deposits with returns ranging from 2.50% to 8%
- Recurring deposits with returns ranging from 2.50% to 8%
- Public Provident Fund with a return of 7.1% for the third quarter of FY2022-23
- National Saving Certificate with a return of 6.8% for the third quarter of FY2022-23
- Kisan Vikas Patra with a return of 6.9% for the third quarter of FY2022-23
- Sukanya Samriddhi Yojana with a return of 7.6% for the third quarter of FY2022-23
- Senior Citizen Saving Scheme (especially for senior citizens) with a return of 7.4% for the third quarter of FY2022-23
The bottom line
Just like you need a balanced diet, a diversified portfolio is needed for financial health. It helps in reducing investment risks and maximizing the return potential. So, consider these alternatives to equity investment and create a diversified and balanced financial portfolio.
Related - Here's how you can diversify your equity portfolio
