5 financial instruments to secure your sister’s future

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One does not always need investments with ultra-high returns to be wealthy. The key is to be disciplined and consistent. By starting early and investing regularly, the aim is to earn market returns or a little over broad market returns in the long run.

On the occasion of Rakhi, gift your sister the below pack of financial instruments –

Multicap mutual fund Generally, equity is the only asset class running a high probability to beat inflation, and tends to offer higher inflation adjusted returns than other asset classes in the long term. A multicap fund offers access to minimum 25% allocation to each of the marketcaps (large, mid and small) by mandate. Greater largecap liquidity ensures portfolio stability, and lower liquidity in mid and smallcaps offers alpha opportunities. Value and growth potential exists in all marketcaps, with mid and smallcaps offering unique segments. Funds with consistently higher mid and smallcap exposure could optimize returns by capturing growth in these unique areas.

Money market mutual fund This is a debt mutual fund which endeavours to clock stable positive returns by running a largely accrual strategy for major chunk of the portfolio. It invests into money market instruments, having maturities upto 1 year like CDs, CPs, T-Bills, etc.

Index fund / ETF Index funds/ ETFs track market indices and tries to mirror the market Index. It is a low cost manner of capturing broad equity market returns. In an active portfolio, the fund manager’s decisions vary based on different stocks. In a passive portfolio, the top two or three rules are rigid, allowing flexibility for the rest. This simplicity ensures consistency and discipline, removing any judgement. For example, Nifty 50 Index Fund, S&P BSE Sensex Index Fund, Niche index funds focus on specific market pockets, aiming to create alpha over broad market returns, like Digital ETF, Midcap 150 Momentum 50.

Gold ETF Gold is an asset against inflation and has low correlation with other assets. Gold ETFs represent physical gold, backed by high-purity gold. One unit equals 1 gram of gold. They combine the flexibility of stock investment and the simplicity of gold investments. Holding Gold ETFs for 36+ months gives tax-efficient long-term capital gains.

NPS This scheme lets you build pension wealth with expert management at a low cost. It offers tax benefits during contribution and withdrawal. Under the old tax regime, one gets tax benefits for contributions of about Rs. 1.5 lakhs under Section 80C and Rs. 50,000 under Section 80CCD(1B). For salaried individuals under the corporate model, an extra 10% benefit (up to Rs 7.5 lakhs) applies on the old and new tax regime. A withdrawal of 60% of the amount is tax-free while 40% investment in annuity is tax exempted. Annuity pension is treated as income and taxed accordingly.

The author is Head – Products, Tata Asset Management. Views are personal.