Investing in financial instruments carries a certain amount of risk. Each instrument has different levels of risk, and not all investors are comfortable with taking on higher levels of risk.
For risk-averse investors, it is crucial to find investment options that prioritize capital preservation and provide stability.
More often than not, risk-averse investors are stuck with a limited set of investment options. This gave rise to the need for new-age financial instruments that assure the safety of capital and generate better returns on investment. This is where smart deposits come into the picture.
Let’s discuss what smart deposits are and how they are an ideal choice for risk-averse investors. However, before that, let’s explore what risk-averse means and what the ideal investment strategy for risk-averse investors should be, with Koshex.
What Does Risk-Averse Mean?
Risk-averse investors prioritize capital preservation and are reluctant to take on excessive risk. They seek investment options that provide stability, minimize potential losses, and prioritize capital preservation over aggressive growth strategies.
Risk-averse investors are often more concerned about the safety of their investment than the return on their investment.
Which Strategy Should Risk-Averse Investors Use?
For risk-averse investors, a conservative investment strategy is most suitable. This strategy focuses on minimizing risk and preserving capital through investments in low-risk financial instruments. The goal is to balance generating modest returns and minimizing potential losses.
In this strategy, the concentration on volatile instruments is low, and investors focus on fixed-income generating instruments. The primary reason is that they are not affected by the market.
What are Smart Deposits?
Smart deposits are an ideal investment avenue for investors with low-risk appetites. They are liquid mutual funds that allow investors to park their idle funds securely. The returns generated by smart deposits are higher than other secure investment avenues.
The funds you park in smart deposits are invested in fixed-income generating instruments with a low maturity period. These include treasury bills, commercial papers, certificates of deposits, etc.
Being a liquid fund, the tenure of smart deposits is much smaller. Thus, smart deposits have a very low-interest rate risk. You can invest in smart deposits through the lump sum or the SIP mode.
Why Smart Deposits Are a Perfect Choice for Risk-Averse Investors
Smart deposits align perfectly with the investment objectives of risk-averse investors. Here are the key reasons why risk-averse investors should consider smart deposits:
- Highly Liquid: Smart deposits offer high liquidity, meaning investors can easily access their funds whenever needed. This feature provides peace of mind to risk-averse investors. They can quickly and conveniently withdraw their funds in case of unforeseen financial emergencies.
- Lowest Interest Rate Risk (Compared with Bonds): Smart deposits offer lower interest rate risk than fixed-income investments such as bonds. The funds invested in smart deposits are further reinvested in short-term fixed-income instruments.
As the investments are short-term, the interest rate risk is low. Risk-averse investors can be confident about the stability of their returns even in a fluctuating interest rate environment.
- Better Returns than Savings Accounts: Smart deposits provide higher interest rates than traditional savings accounts. This allows risk-averse investors to achieve better returns while maintaining a low-risk profile.
Smart deposits strike a balance between stability and growth. This makes them an attractive choice for risk-averse individuals seeking steady returns.
- No Lock-in Period: Unlike certain investment options with a lock-in period, smart deposits offer the flexibility to access your funds without any restrictions or penalties.
Smart deposits allow investors to withdraw their investments at any time. This enables them to make financial decisions according to their needs and circumstances.
- Low Initial Investment Required: Smart deposits often have a low initial investment requirement, making them accessible to all kinds of investors.
Risk-averse individuals can start investing in smart deposits with just Rs. 100, allowing them to diversify their portfolios and benefit from these investments’ stability and growth potential.
- No Exit Load After 7 Days: Smart deposits are highly liquid. There is no exit load involved in smart deposits if the investments are redeemed after seven days. Furthermore, the annual fees for smart deposits are also low, around 0.30% to 0.70% per annum.
The expense ratio in liquid mutual funds is also low, making them a secure and low-cost investment option.
Taxation Of Smart Deposits
Smart deposits follow debt taxation rules, which provide tax benefits for risk-averse investors. The funds invested in smart deposits are reinvested in fixed-income generating instruments that carry a maturity period of 91 days.
The gains earned on smart deposits are typically taxed at the individual’s income tax rate in the case of Short Term Capital Gains. In the case of Long Term Capital Gains, the tax rate applicable is 20%
In a Nutshell
Finding investment options for risk-averse investors that prioritize capital preservation and provide stability is crucial. Smart deposits offer an ideal solution for risk-averse investors seeking a low-risk investment option because they provide the perfect balance between stability and growth.
But where can you find smart deposits?
Koshex provides investors with an option to invest in hundreds of different smart deposit schemes. This allows investors to invest in the schemes that best suit their investment needs. Further, parking your ideal funds is a wise choice as the returns provided are higher than the savings account. Sign up with Koshex and explore smart deposits today!
Q: Are smart deposits completely risk-free?
A: While smart deposits are generally considered low-risk investments, they are not entirely risk-free. There is always the possibility of changes in market conditions that could impact the returns. However, compared to other investment options for risk-averse investors, smart deposits offer a relatively lower level of risk.
Q: How are smart deposits better than other secure investments?
A: Smart deposits are better than secure investment avenues like savings accounts or fixed deposits as there is no lock-in period in the case of smart deposits. This provides an added advantage to smart deposits as you can withdraw the funds at any time as per your needs.