When you invest your hard-earned money, you do it with the hope of growing your wealth. The bitter truth is that it does not always come without risk.
Market fluctuations and the erratic cycles of the economy add an element of risk to your investments.
The good news is that the risk is not the same across different investment categories. A few asset classes are a lot safer if you are looking for the safety of your savings and peace of your mind.
However, this safety comes at a cost. Low-risk and safe investment options rarely give high returns. Finding high-yield, low-risk investments is a tall order.
No matter where you decide to park your money, it is advisable to ensure that your portfolio is diversified enough to minimize your overall risk.
What are Some Safe Investment Options?
Here are your options if you are looking for low-risk investment opportunities.
High-yield Savings Account
Opening a savings account is one of the easiest and safest ways to earn returns on your income. A few banks in India are known for offering the best returns across the globe.
While anything above 6% is considered a high-yield account, you may also find a few banks offer 7%.
The best part is that savings accounts are investment opportunities that are not subject to market fluctuations. In other words, your returns are guaranteed.
You can explore this option if you want to stockpile your money in the absence of better opportunities. As your money stays liquid in your savings account, you can also create an emergency fund through these high-yield savings accounts.
Certificates of Deposit (CDs)
In India, you can buy CDs or Certificates of Deposit from any lender. As you do so, you agree to deposit a sum at a pre-determined rate of interest and for a particular tenure.
The time frame can range from one month to up to five years.
CDs generally yield higher returns than most savings accounts. On the flip side, they offer lesser flexibility. Any attempt to withdraw your money before this tenure comes with a penalty.
It is the reason why you may want to consider CDs only for long-term investments.
High-Yield Money Market Funds
A money market fund is essentially a short-term debt mutual fund investment opportunity. It is a lot like a savings account and is one of the safer ways to invest. These funds include items like certificates of deposit, treasury bills, and other short-term debt funds.
Since money market funds invest your money in market instruments, they are ideal for those who possess a lower risk tolerance and have an investment horizon of up to a year.
In such scenarios, these investment options can help you earn better returns as compared to letting your money sit idle in your savings account.
However, these funds are recommended if you have a surplus of short-term cash that you will not need urgently in the next couple of months. Here are a few other types of high-yield money market funds.
- Commercial Paper or CP: CP is issued by companies and financial institutions that have a high credit rating. They do that through a short-term promissory note.
- CP allows such entities to diversify their shorter-term borrowing sources. While usually issued at a discounted rate, CPs offer redemption at face value, where the investor earns the difference.
- Treasury Bills or T-Bills: To raise funds for one year, the Indian government issues treasury bills. As these are government-sanctioned, these are considered very safe investment options.
- However, the lower risk offered by T-bills can also translate into lower returns. T-bills generally offer returns that are lower than most other money market funds.
Short-Term Corporate Bond Funds
Similar to the government, corporations can also raise money by issuing bonds to investors. If you are looking for a low-risk investment option, you can opt for such shares from short-term bond funds.
They have an average maturity ranging from one to five years with a fixed, pre-determined interest rate.
Short-term corporate bond funds are considered safe investment opportunities and are ideal if you want to diversify your portfolio at the cost of a bit more risk. Corporate bonds behave quite similarly to municipal bonds but are slightly riskier and can earn more interest.
You may want to note that there are many options to invest in corporations that are considered financially solid. In addition, corporate bonds can be purchased as well as sold on the same business day, making them even more of a liquid investment.
When one purchases stocks from individual companies with a view of trading, the associated risk is generally high. However, investing in stocks is believed to give higher returns in the long term.
For instance, dividend-paying stocks can help you in generating regular income, irrespective of market highs and lows. Dividends are consistent cash payments given to shareholders of any corporation.
Such stocks are ideal for individuals who seek passive and long-term income from their investments.
This investment opportunity is perfect if you plan to reinvest the money you earn from their dividends into growing your portfolio. When you own individual stocks in a company, you increase your risk as your entire investment relies on the company’s success or failure.
However, you can play it safe by actively choosing to invest in companies that have a history of financial security, stability, and success. Investing with these “top tier” corporations who offer their investors consistent cash payments is likely to be your safest bet.
Growth Stock Funds
Funds that are classified as ‘growth stock funds’ invest in a wide range of growth stocks instead of only a single stock. Hence, by adding diversity, these stocks reduce the risk of a single stock dropping and hurting your entire portfolio.
While any type of stock market investment carries risk, you can significantly reduce it by using the help of a professional in addition to doing your own research.
It is advisable to invest in these funds if you are looking to add diversity to your existing portfolio. It doesn’t matter if you are inexperienced. All you need is the willingness to take on more risk than average at the prospect of earning more returns.
Growth stock funds are investment opportunities that have been shown to perform well in the long run. Many nascent tech companies that are on the rise offer investors growth stock options.
However, unlike dividend stocks, growth stocks rarely distribute their cash to investors. Instead, these companies choose to reinvest their cash back into their business to secure continued growth.
Hence, growth stock funds remove the need to select and evaluate individual growth stocks. Instead, they actively manage the fund with the help of expert managers.
The managers choose a diversified set of growth stocks for you to invest their money into. These types of stocks are also incredibly liquid and offer you the flexibility to move your money in and out.
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts are companies that not only own but also manage their own real estate. They are perfect for those investors who would like to own real estate but do not have to deal with the hassle of managing the property.
It is ideal for those looking for passive income with cash flow or those who are a retiree. Keep in mind that the REIT market has many sub-sectors from which investors get their pick.
A few popular ones among these are commercial REITs, hotel REITs, housing REITs, and retail REITs.
You can reduce your risk when you choose to invest in a REIT by opting for one that is traded publicly on significant stock exchanges instead of opting for a private fund.
To do this, you may want to look for REITs that have a history of continually rising dividends instead of going ahead with the ones that currently offer the best returns.
The best part is that cash from REITs can be extracted at any point when the stock market is open.
With safe investment options, you can grow your money at a decent rate and ensure that your life’s savings remain intact.
Fortunately, in India, there are many such investment opportunities that can guarantee assured returns while keeping your money safe.