- Fixed Deposit & Provident Fund Rates have come down - Shall you invest in Equity Funds?
- As equity funds can post good returns over time, you can tide over the contingencies that can strike you in the future
The contemporary times do not augur well for depositors wanting to earn on the money they keep in savings account & other deposit accounts. Banks are increasingly reducing the rates of saving accounts, fixed deposits, recurring deposits and alike. While savings accounts range from 3%-6% per annum, fixed deposits & recurring deposits range around 4%-7%. Banks are cutting the deposit rates to safeguard their margins that have come under pressure because of the falling loan rates.
If that was not enough, the Employees Provident Fund Organization (EPFO) has slashed the interest rate on provident fund contributions by as much as 15 basis points to 8.50% per annum (100 basis points = 1%), the lowest ever rate in the last 5 years. This is quite a blow to around 6 crore subscribers of EPFO.
All that has only made depositors worrying about their future. So, if you have put a heavy chunk in such deposits, you must be pondering about your next course of action, right? Maybe there’s a way out for you in the form of equity investments. How should you go about it? The article will tell you every bit of that. So, read on and improve your earnings!
Table of Contents
- 1 Why Should You Consider Investing in Equities?
- 2 How Much Should You Invest in Equities?
- 3 Shall You Invest in Equities Directly?
- 4 Don’t Just Rest on the Fund Manager’s Expertise – Choose Mutual Funds After Doing Your Due Diligence
Why Should You Consider Investing in Equities?
Equities will be vital to your cause because of the following attributes –
Greater Scope for Returns
The returns can be unprecedented if your money goes into the right stocks at the right time. As the returns are dictated greatly by the market movements, they don’t remain fixed as that of deposit products.
Arguably the Best Tool to Build Retirement Corpus
Every deposit or investment has a certain purpose behind it. Some go for the short term, while many keep an eye on the long term. If you belong to the latter category of people, equity can be of big help to you. The compounding returns on equity investments can go on to generate a whopping sum, helping you live your retirement days comfortably.
The value of money will only depreciate with time. The reason being the inflation will keep notching high and make fixed returns of deposits redundant years down the line. This is where equity can be handy by generating inflation-adjusted returns.
How Much Should You Invest in Equities?
Much will depend on your risk appetite, which can be high, medium or low. If you can take high risks and are in your early 30s, your investment portfolio should have around 75%-80% in equities. People with medium risk-taking capabilities should have around 50%-60% of their portfolio in equities. Market experts don’t often suggest more than 10%-20% of equity portfolios for people with a low-risk appetite. But given that inflation is likely to make returns from fixed income instruments largely redundant over time, an exposure to 30%-35% can still be recommended for them.
Shall You Invest in Equities Directly?
Go ahead if you understand the nerves of the market and can take the right actions to maneuver the portfolio to your advantage. If you don’t have that understanding, it will be better to invest in equity mutual funds. The money you invest in these funds is under the supervision of fund managers who buy and sell stocks according to the market situation. Their years of experience and the ability to decipher market charts & graphs give your equity portfolio the push it needs to withstand the challenging times.
Don’t Just Rest on the Fund Manager’s Expertise – Choose Mutual Funds After Doing Your Due Diligence
Yes, fund managers take stock of your mutual fund investments. But your job doesn’t end here at all. You also need to evaluate the performance of different equity funds and see which has sailed through amid different market scenarios. Invest in equity funds that stay true to the said attributes. And when you are choosing equity funds, check the performance right through from 1-2 years to 5-10 years. That will give you the right clue.