Ask Us: On investments

Given the impact that COVID-19 second wave has had on banks, NBFCs and firms, any entity that sources deposits at high rates would be quite risky.

Q. My dad’s post office senior citizens savings scheme deposit will be maturing. Please suggest an investment option that gives better rates without risks.

Srinivasan

A. The post office Senior Citizens Savings Scheme, being government-backed, is one of the safest options one can think of in the current environment, protecting principal.

Its interest rates have also been consistently higher than those on options like bank and NBFC deposits. It is best that your father renews his investment for 5 more years in this scheme. While deposits with top banks today offer rates of just 5-5.5%, SCSS rates are currently at 7.4% per annum. In debt investments, any option that offers much higher rates than government bonds usually carries risk to principal. Today, the 5-year government bond offers an interest of about 5.7%. You should therefore be wary of any instrument, that isn’t government backed and yet offers much higher rates.

Given the impact that COVID-19 second wave has had on banks, NBFCs and firms, any entity that sources deposits at high rates would be quite risky.

Q. I am a 25-year-old student with a science background. I want to invest ₹500 a month in MF SIPs for good returns over 1-3 years.

Bastabik Das

A. Most people think of stock markets when referring to MFs. However, there are also MFs that invest in government securities, company bonds, money-market instruments, gold and stocks listed overseas, apart from combinations of these. If you would like to invest in stock or equity MFs, which can deliver high returns, you need to be prepared to risk capital losses and also for a long waiting period of 7 years or more to make good returns. This is because stock markets move in cycles and may fall sharply after delivering bumper performance in some years. As we have seen stock markets rise steadily in recent years, a correction may be in the offing. In that case, you may make low or even negative returns with holding periods such as 1-3 years. The category of MFs that best fits a 1-3 year holding period is debt funds which invest in bonds, with a fixed interest rate. You can consider ultra-short term or short-term bonds funds for SIPs, after checking if their portfolios are invested in sovereign bonds and highly rated corporate bonds. However, all MFs are market-linked, where you can lose capital to market swings. As you’re just starting on your investing journey and may not have a high risk appetite, consider investments such as Post Office or bank recurring deposits to build savings.

Q. I hail from a lower middle-class family. I want to start investing ₹1,000 a month in stocks. I am interested in learning both fundamentals and technical analysis. Please suggest the best, inexpensive resources.

Shanmuganathan

A. It is quite usual for investors to develop a sudden passion for stocks, believing that it’s an easy road to riches. When a correction unfolds and stock prices tumble, the real risks of stock market investing hit home! We suggest you make a start by investing in index MFs that passively mimic the movement of indices like the Nifty50, Sensex30, Nifty100 and Nifty Next 50 as this is a low-cost route to getting a feel of the market. Before you look at fundamental or technical analysis, it is essential to understand the foundations and concepts of equity investing. To make a beginning, you can read a combination of global and India-specific books on the subject. Peter Lynch’s One Up on Wall Street and Beating the Street, Stocks to Riches and Value Investing by Parag Parikh, A.K. Narayan’s How to Invest Right and Prosper, Monika Halan’s Let’s Talk Money and Warren Buffett’s annual newsletters at Berkshire Hathaway are some easy-to-understand books that can set you on the right path. You can also follow blogs like FundooProfessor Dr. Vijay Malik who deals with fundamental analysis. You can attend free investor awareness events conducted by MFs, SEBI and the bourses.

Q. My parents, aged 56 and 51, are Haryana government staff. Will they get any health insurance cover?

RACHIT GOEL

K. Nitya Kalyani answers

A. Most State government health insurance schemes are quite comprehensive. Please go through the prospectus or similar documentation to learn their scope and also see if optional extra covers are available on payment of extra premium. This information, should be readily available with the relevant personnel and human resources departments of your parents’ service.

If you find the scope of their coverage lacking, you can enhance coverage by buying an additional hospitalisation policy or a top-up policy. If the government scheme has no viable option for retirees, then a commercial policy will serve the purpose. Buying it now when your parents are in their early and mid-fifties is a lot easier and they would have worked off the initial waiting period for coverage of pre-existing conditions well-before they retire.

Regarding health insurance for senior citizens, many companies now offer options, but you will find them dwindling as age advances. Taking a supplementary independent policy a few years before retirement appears to be a prudent idea.

(K. Nitya Kalyani is a business journalist specialising in insurance & corporate history)

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