Simplify your Investments

Asset Classes

There are four major asset classes; Real Estate & Gold under physical assets and Equity & Debt under financial assets. The trend of physical assets providing higher return is now reversing.

Real Estate: Real estate investment is indivisible and illiquid. It carries liquidity risk. It may take longer time to find a buyer for selling the property and hence one must invest in real estate only if one wants to remain invested for longer period. Further real estate prices are correcting and may not provide the higher return it has generated in the past.

Gold: Investing in physical gold and ornaments depresses return due to making charges. It is advisable to invest in Gold ETF of the Mutual Funds. But over last two/three years, gold has not provided return to beat inflation. Sovereign gold Bonds are the flavor of the season. It provides interest of 2.75% besides benefit of capital gain tax. Gold should not be more than 5-10% of your portfolio.

 Equity (Shares and Mutual Funds): It carries volatility risk due to fluctuations of prices in share market. But the volatility gets normalized over a longer period. Hence it is advisable to invest in equity for longer period and not to invest for short term goals.

Debt: Debt exposures can be taken through mutual funds (Debt schemes), corporate bonds or Bank deposits. Corporate bonds offer higher return due to default risk. If the corporate makes losses, the interest payment becomes uncertain and even the refund of principal may be doubtful. But the return of principal and payment of periodic interest is certain in case of Bank deposits and so risk free. But the post tax return may be lower than inflation and will provide negative real rate of return. It carries inflation risk. Liquid Funds are better than Bank deposits. It is advisable to invest in Debt for short term goals.

Asset allocation

The return on investment of each of the asset class may not move in same direction and hence it is advisable to remain diversified. If you face negative return in one asset class, it may get compensated by positive return in another asset class. The greatest investor Warren Buffet says: “Do not put all your eggs in one basket”

Risk Profiling

The willingness of each individual to take risk varies. All most everyone wants to gain in the market but many have aversion for loss. The market is uncertain and one can aim to gain only when one is willing to take risk. Further there is another dimension to risk .i.e. ability to take risk. Someone starting his career and without dependents can take higher risk but one who has retired and have limited corpus cannot take risk since in the event of market going down, the hard earned money will be lost.

Need to take risk

The financial planners take the considered view on risk taking by judging whether there is a need to take risk. If the financial goals can be achieved without taking any risk, the planner may recommend higher debt allocation. But if the goals can be achieved only with higher return, the planners consider exposures to equity having consideration to goal horizon.


If you want to walk 5 kms in the morning, go by foot or cycle; if you want to travel 100 kms, use car or bus; If you want to travel 500 kms, use train, if you want to travel 1000km;use aeroplane. Similarly for emergency, use liquid mutual fund; for one year, use debt, for 3-5 year use balanced fund and for more than 5 years use diversified equity fund.


three comments
  • Santosh Acharya /


  • Useful one

  • Very useful

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