Most of you would be aware of the broader investment choices between Equities, Debt, or Fixed Assets. Within these broader categories, there are some lesser-known instruments that many don’t consider actively. These lesser familiar instruments which I am going to highlight could serve different purposes depending on your investment horizon, hedging your portfolio, generating regular cash flows, or just for mere diversification. So let’s get to some of those you can educate yourself on, and make informed decisions.
Gold Mutual Funds
Gold is a hedge against the equity market typically. More the instability in the market fuelled by the global crisis, Gold becomes a haven. Since physical Gold has a ton of cons in managing and safeguarding, various forms of digital Gold serve as ideal modes of investment, namely Sovereign Gold Funds, Gold ETFs, and Gold Mutual Funds. I specifically prefer Gold Mutual Funds because of its ease of trading, low cost of transaction, and flexible investment range that it allows. Its intrinsic value is backed by physical gold reserves, hence it is secure and less prone to huge fluctuations. You can compare this with other digital gold mediums and see which suits the best for your comfort level. One should have a reasonable expectation of the CAGR appreciation of this. Hence, approach it as a hedging option with moderate long-term appreciation.
In sync with the Gold price movement, you can see a chart for gold backed mutual fund whose performance at different period back in time can be correlated to macro economic situations.
Corporate Fixed Deposits
You would be investing in Fixed deposits provided by banks. Corporate Fixed Deposits are much similar safer investments provided by corporate organizations. These are also offered through Banks or NBFCs (Non-Banking Financial Companies). You would get a marginally high rate of interest compared to regular FDs. The tax implications remain the same and the gains are taxed in the income tax slab.
Bonds
These are debt lending instruments that are provided by Govt, Banks, and NBFCs. Bond yield varies with the ongoing macro interest rates. In recent times, various channels have made the bond purchase simple. I have been using Goldenpi for bond investments. Bonds vary with coupon rate (essentially the lending rate) and tenure. You would get interest on your investment at regular intervals till the time of maturity when finally the principal is repaid. One extremely important point to consider is the rating of the bonds. Try your best to opt for Secured bonds with high ratings which have a lower risk of defaults. Since risk and reward go hand in hand, these would have comparatively lesser interest rates, but the point of investment here is not to look for high comparable returns to equities but to diversify and generate a regular cash flow.
Real Estate Investment Trusts (REITs)
In case you are looking to invest in commercial real estate, REITs provide just that option to do it. Moreover, it gives you the much-needed flexibility to invest in smaller amounts. REITs trade just like stocks in Stock changes. So you can buy and sell them in amounts of your choice through your brokerage house. REITs essentially are a pool of investment that is used to purchase actual real estate and lease it to corporates. The rents from these leases are disbursed to the REIT shareholders through a certain calculation. So this is another medium of investment to look for regular cash flows, while expecting capital appreciation (though do not expect a whole lot) as the underlying investments appreciate. There is of course market risk associated with it, similar to equities investment.
Arbitrage Funds
This is an interesting category of Mutual Funds which I learned about not so long back. Arbitrage means buying and selling the security in different channels where there is (slight) difference in the pricing, and pocketing the profit. These channels could be different exchanges or something like different types of markets such as futures. Since the price difference isn’t significant, a large frequency of trades needed to be done to accumulate substantial gains. You as an investor do not need to understand these complexities! The Arbitrage Mutual Fund managers do it for you. You simply invest in these mutual funds just like any other fund. The best part of this investment is the tax liability. Arbitrage Mutual Funds come under the category of Equity Funds, and are hence taxed at 10% LTCG (> 1 year holding), and 15% STCG (< 1 year holding). The funds here would typically generate anything similar to Liquid Funds, in between 5-7% returns, and are best suited to short-duration investments to park your idle cash. Here you can see some return charts for the fund category.
There would be many more forms of flexible investments to explore, but the above-mentioned ones are where I have done past research on, understand the risks and rewards and other pros/cons, and put some bets for diversification and cash flows. The post was mentioned to just generate awareness without going into the nitty-gritty of each of them. So do further research them and invest sensibly.
