Category: Investment

“Aaj mere paas paisa hai, bangla hai, gaadi hai, naukar hai, bank balance hai, aur tumhare paas kya hai?”

“Mere pass sahi investments hai…”

We have all enacted and placed our favorite Bollywood characters’ most iconic scenes and dialogues. But have you ever wondered what they would be like as investors? Take a peek:

1. Bunny (Yeh Jawani Hai Deewani) – The Aggressive Investor

“Main udna chahta hun, daudna chahta hun, girna bhi chahta hun, par rukna nahi chahta…”

Who wouldn’t want to see every corner of the world? Bunny’s globe-trotting skills must have ignited a spark in you as well. Kabir, aka Bunny, lives his life on his terms and conditions. His hunger for adventure and relentless pursuit of life’s thrills make him a classic aggressive investor. Bunny’s character craves speed, momentum, dynamism, and the adrenaline rush of big wins. Expect him to dive headfirst into high-risk, high-reward stocks because he knows volatility is part of the game.

A portfolio structured for aggressive investing heavily tilts towards equities and F&O trading, with minimal allocation to fixed-income assets. While aggressive investments prioritize capital appreciation, it requires high-risk tolerance, discipline, balance, and a long-term vision.

2. Rancho (3 Idiots) – The Growth Investor

“All is well” when you have a forward-thinking investor’s personality like Rancho. His relentless pursuit of knowledge and ability to get to the heart of every research make him a curious investor. Instead of unthinkingly piggybacking on market trends or getting influenced by the hype, Rancho studies, analyzes and invests in what he truly understands.

Rancho’s optimistic attitude towards discovering and learning would make him a growth investor – someone focusing on the future prospects of investments and not just the current financials.

3. Shashi (English Vinglish) – The Conservative Investor

Just as Shashi gradually discovers her confidence in the English-speaking course, the same would translate into her financial life as well. She reflects the qualities of an investor who grows with time and experience and someone who considers investing as a lifelong learning journey. Her character would be more inclined towards investing cautiously with Systematic Investment Plans (SIPs) in balanced mutual funds or blue-chip stocks. 

From compounding and diversification to equity and expense ratio, she slowly and gradually builds her investment knowledge, one financial concept at a time. Shashi’s calm and patient demeanor also aligns with long-term investments, making her a conservative investor – someone who values small but consistent investments to achieve financial freedom. 

4. Piku (Piku) – The Balanced Investor 

As Bashkor Banerjee said, “Aadmi ka emotion uska motion ke saath juda hua hai.” We’d go a step ahead and say that a man’s emotion is also associated with the market’s motion – right from price fluctuations and trading volume to the movement of stocks and other assets. And for those aiming to strike a balance between growth and defensive assets, Piku’s character embodies this persona the best. 

A fiercely independent and profoundly caring daughter, Piku juggles her career and family commitments. She ensures her father’s well-being and manages her aspirations, just like balanced investors who spread their investments across high-risk and low-risk assets. This portfolio is most suitable for investors who prefer capital stability with investments in index funds, government funds, and blue-chip stocks. However, it is also suitable for those willing to accept moderate investment value volatility with investments in equities and mid-cap stocks.

5. Mohan Bhargava (Swades) – Index Investor

A NASA scientist who returns to India to uplift his hometown, Mohan resembles an optimistic index investor who believes in the collective power of progress. For someone so deeply invested in data and research, Mohan would tilt towards index funds involving a buy-and-hold strategy for the long term. 

Meaningful change takes time. So, despite having a high-paying job or facing market downturns, a patient investor like Mohan would adapt and push forward, knowing that dips are temporary and growth is enduring.

Much like these iconic Bollywood characters, investors and their investing strategies are also unique. The key lies in understanding your financial personality based on your risk appetite and financial goals. Stay in the investing game for the long haul and start investing with Stack’D to build a robust portfolio, because picture abhi baaki hai, mere dost!

“One should not put all their eggs in one basket” – this common saying serves as a valuable rule of thumb in the investment world. No single asset class has consistently been a winner for investors. Hence, for those looking for a middle ground to diversify their portfolios, hybrid funds are an ideal solution.

Investing can feel like walking a tightrope, where balancing risks and rewards is essential for achieving your financial goals. Based on your risk appetite, investments can be broadly classified into three types – equity (or high-risk) investments, debt (low-risk) investments, and hybrid mutual funds (a combination of equity and debt investment).

 

Hybrid Funds: A Mixed Bag Of Investments

Hybrid funds are versatile investment vehicles that allocate assets across asset classes, primarily providing exposure to equities (stocks) and debt funds (bonds and fixed-income securities). The goal is to harness the high-return potential of equities while mitigating volatility through the relative stability of debt instruments. This balanced approach gives them an edge compared to other funds that focus solely on single assets.

Further, hybrid mutual funds may also invest in other assets, including real estate, gold, IT, pharmaceuticals, and international equities. Fund managers actively dabble between different assets based on market conditions, economic trends, and the fund’s investment strategy. This dynamic mix offers potential for growth through market upswings or acts as a cushion, protecting investors from severe downturns.

Classifications of Hybrid Funds

Even under the broad umbrella of hybrid funds, investors can choose various sub-categories depending on the targeted asset allocation. 

• Equity-Oriented Hybrid Funds: These funds allocate at least 65% of their total assets to equity and equity-related instruments. Also termed Aggressive Hybrid Funds, they are tailored for investors with a higher risk appetite seeking long-term growth.

• Debt-Oriented Hybrid Funds: These funds allocate at least 60% of their total assets to fixed-income securities, such as bonds, debentures, and government securities. Hence, they are more suitable for conservative investors looking for stable returns with limited market exposure. These open-ended mutual funds are also known as Conservative Hybrid Funds.

• Balanced Advantage Funds: Renowned as Dynamic Asset Allocation Funds, these actively shift the allocation between equity and debt based on market conditions. These funds are ideal for investors who want to automate their asset allocation, as they reduce exposure during high market valuations and increase it during lows.

• Arbitrage Funds: These funds buy stocks at a lower price in one market and sell them at a higher price in another market, generating debt-like low-risk returns through the price difference. Since there is simultaneous buying and selling, the fund does not carry the volatility of the equity asset class.

• Multi-Asset Allocation Fund: Such funds invest in at least three different asset classes with a minimum of 10% allocation to each, offering greater diversification.

Benefits of Hybrid Funds

Hybrid funds offer several key benefits, making them an attractive option for many investors.

• Diversified Asset Allocation: They diversify the portfolio across multiple asset classes and sub-classes.

• Active Risk Management: Hybrid mutual funds spread investments across multiple asset classes, wherein the equity component can offer capital appreciation, and the debt component acts as a buffer against market downturns.

• Tailored For Various Risk Profiles: There is no one-size-fits-all approach to hybrid funds. They offer varying risk tolerance levels, suitable for new investors, risk-takers, or goal-oriented investors.

• Automatic Rebalancing: Fund managers combine the high-return nature of equity and low-risk characteristics of debt to rebalance your portfolio whenever required.

Drawbacks Of Hybrid Funds

They are not without their disadvantages.

• Market Volatility: They are subject to market risks. Market fluctuations can lead to a decrease in the fund’s overall value.

• Interest Rate Sensitivity: Bonds under debt funds face interest rate risk. As bond prices move inversely to interest rates, the increased rates can depreciate the fund’s value.

• Lack Of Direct Control: Investors can analyze a hybrid fund’s portfolio, but they do not have direct or indirect control over the specific instruments. Therefore, they must have faith in their fund manager’s judgement and expertise.

Components To Consider Before Investing In Hybrid Funds

Mixed feelings about hybrid funds? Here’s what you should consider before zeroing in on one:

• Assess Risk: The risk in a hybrid fund depends on the proportion of equity in the portfolio. The higher the equity, the higher the risk. Make that risk-return evaluation before investing. For instance, a fund that earns most of its returns from interest on debt securities tends to be less risky than relying on stock price appreciation.

• Investment Timeline: Hybrid funds can cater to your medium to long-term goals. The longer the time horizon, the better chance of yielding stable, higher returns.

• Expense Ratio: Check the fund’s expense ratio, as higher costs can eat into your returns. Ensure you opt for cost-effective funds.

• Fund Manager’s Track Record: Analyze your fund manager’s investment approach and expertise in gauging the fund’s historical performance.

If you want the best of both worlds – growth potential with a safety net, hybrid mutual funds are your answer. These funds also serve as a reassuring entry point for investors who want to test the waters and slowly acclimatize to equity exposure. Think of it from a strategic standpoint – you can capitalize upon equity opportunities while mitigating market turbulence. 

Frequently Asked Questions –

• How do you invest in a hybrid mutual fund?

You can either directly invest in a hybrid mutual fund through an Asset Management Company (AMC) or investment platforms like Stack’D. You will have to complete your KYC (Know Your Customer) process in both methods to initiate investing.

• What are the tax implications on hybrid funds?

Hybrid funds contain a combination of equity and debt instruments. Therefore, the tax implication hinges on which asset class dominates the fund.

Equity Taxation: 

• • Long-term Capital Gains: Gains above Rs. 1.25 lakh are taxed at 12.5% without indexation

• Short-term Capital Gains: Taxed at 20% if units are sold within one year

Debt Taxation:

• • Long-term Capital Gains: Previously taxed at 20% with indexation, now considered short-term gains and are taxed at slab rates

• Short-term Capital Gains: Taxed as per an investor’s income tax slab

 

Investing is like a Robert Frost poem – “Two roads diverged in a wood…”, and reaching a financially informed decision can make “...all the difference.”

The two metaphorical roads here are short-term and long-term investments. 

Your pocket doesn’t feel the pinch when you go cafe-hopping or spend on movies, but investments can be overwhelming, especially while deciding where to put your money. Are you looking for quick gains or want to build your wealth over time? Your financial goals and objectives determine whether you should invest for the short-term or the long-term.

All About Short-Term Investments

As the name suggests, short-term investments involve holding an asset for less than three years. Many investors hold short-term investment plans for several months at most, looking to profit from volatility and near-term gains. A short-term investing period indicates that the trader might look for investment types with relatively low market risk.

However, seeking lower market risk does not guarantee gains or a sustained principal value.

This kind of investment is most suitable for individuals with immediate financial goals or those seeking optimal use of market opportunities. Investors who explore short-term investment strategies save for:

• Vacations: Planning to go on a family or solo trip? You can fund it with your invested money instead of using your credit card and accruing debt. 
• Home Renovations: Rather than breaking your FD or taking money out of home equity, short-term investment strategies can help you fund home improvement projects.
• Wedding expenses: If there is a wedding in the family in the near future, you can direct your investments to manage expenses. 

Types Of Short-Term Investments

If you want to convert your financial assets into cash within a short period, short-term investments are for you. The following options are some of the best short-term investments ideal for you:

• Savings account: A savings account is one of the most preferred choices, as it offers maximum liquidity, and you can withdraw the funds without any hassle.
• Recurring deposits: If you want your investments to be more flexible, like monthly instead of a lump sum amount, you can opt for recurring deposits. However, the interest earned on them is taxable. 
• Liquid funds: These are mutual funds that invest your money in short-term government certificates or securities. Investors can withdraw money from these funds at any time. These offer a high rate of returns ranging from 6%-7% per annum. Since these funds are invested in money market instruments, they are highly secure.
• Treasury bills: T-Bills are government securities issued by the Reserve Bank Of India on behalf of the government. They are highly secure short-term investments, making them an excellent option for risk-averse investors.

All About Long-Term Investments

Long-term investments concentrate on growth over an extended period. Long-term investors invest with the hope that their investments will appreciate in value over time. With more time at your disposal, you can take higher investment-related risks, as longer durations can enable investments to potentially recover from periodic declines in value.

However, such a recovery is not always guaranteed. Any investment can gain or lose value over time, including the possible loss of the principal investment value. 

Long-term investment plans might be suitable for investors who to save for:

• Retirement: If you want the second innings of your life to be comfortable, you can build a corpus that financially secures your future. 
• College: The cost of living is on the rise, and higher education is getting more expensive day by day. So, long-term investments in financial instruments are the best choice to invest in your child’s future growth.
• Build wealth: If you start investing on Stack’D, you let your money compound and grow over time. 

Types Of Long-Term Investments

Long-term investments give you leeway to analyze markets and make sound financial decisions. If you want to invest in long-term plans with higher returns, the following are some of the best options:

• Public Provident Funds (PPF): One of the most popular government-backed saving schemes in India, a PPF is a highly regarded long-term investment strategy. PPF is an ideal option if you are looking for safety, guaranteed returns, and tax benefits in your retirement.
• Mutual Funds: Mutual funds are the best option for investors with a long-term investment horizon, who can take high risks to receive good dividends. A long-duration mutual fund requires an active and thorough review of the fund’s performance on a regular basis. When you invest for the long-term in mutual funds, your portfolio is diverse in various asset classes, geographies, and sectors.
• National Pension Scheme (NPS): A government-backed retirement savings scheme, the NPS is an excellent option for long-term wealth creation. NPS offers a range of investment options across asset classes, government securities, corporate bonds, or equities. So, you can tailor your investment based on your risk tolerance. With NPS’ low maintenance cost, you are also eligible for tax benefits.

Short-Term And Long-Term Investments: Things To Consider Before Investing

Here are a few things you need to consider before forming your investment strategy:

• Timeline to invest: Consider the time between now and the day you start making withdrawals from your investment account. This timeline is a determining factor in opting for a suitable investment strategy.
• Risk appetite: The degree to which you can financially afford to see short-term declines in your investment value determines your risk appetite.
• Income tax rate: If you are looking to avoid or minimise taxes, you have to strategically invest accordingly. For instance, if you want to invest for your retirement, an individual retirement account (IRA) can be your best bet. Here, you can defer paying taxes on your investments until you withdraw the funds.
• The desired rate of return: Investment risks and returns are directly proportional to each other. If you seek high returns, you might expose yourself to higher market risks.

The Long And Short Of It

So, what is the best strategy, you wonder? A mix of both! There is no one-size-fits-all when it comes to investing in financial instruments. Investing in short-term and long-term strategies helps maintain a balance and diversifies your portfolio. No matter the financial vehicle, the key is to align your investments with your financial goals.

Frequently Asked Questions –

1. What are the benefits and drawbacks of short-term investments?

Short-term investments offer the following benefits:

• Liquidity: You get easy access to funds whenever the need arises.
• Quick returns: You don’t have to wait forever to see the results.
• Flexibility: Adjust your portfolio based on market trends.

However, these investments have a few drawbacks as well.

• Lower returns: There is no interest compounded since your money doesn’t get any time to grow.
• Limited growth: Since these are for a short duration, there is limited room for growth. 
• Restricted investment options: Options to distribute risk among other assets are unavailable in short-term investment plans.

2. What are the benefits and drawbacks of long-term investments?

Some benefits of long-term investments include:

• Maximum returns: The long duration of these plans enables maximum returns with compounding interest, allowing exponential growth of your wealth.
• Reduced risk: Long-term investments are less risky as you have more time to overcome market fluctuations, which can make up for any potential loss.

Long-term investment plans also have their disadvantages:

• Liquidity constraints: Once you have invested for the long term, it is difficult to access your funds in unexpected circumstances.
• Uncertain returns: While gaining substantial returns is a possibility, it is not guaranteed as you are exposed to market fluctuations or potential economic downturns. 

3. Where should I invest my money for good returns?

Diversification is key to yielding profitable returns. You can consider investing in  National Pension Scheme (NPS), Debt Mutual Funds, Unit-Linked Insurance Plans (ULIP), Equity Mutual Funds, and Public Provident Funds (PPF).