We make investment to earn profits on them and they are rewarding when they are able to give a value enough to beat the current rate of inflation. It is in this situation that the real return from the investment vehicle is said to be positive or else it is a negative return.
Now amid such a situation the best escape can be equities either through the direct route or via mutual funds.
1. Liquid funds:
This can suit those investors who want to invest for a short term. Generally, investors are asked their savings accounts funds to this category of fund as this offers liquidity at par with savings accounts.
Further, the mutual fund category is considered suitable for building emergency corpus or contingency funds.
In this liquid mutual fund category of debt funds, investors' corpus is parked in money market instruments of a shorter maturity. On an average investors can earn anyway between 4-6 percent return. But of late the returns on liquid funds have retreated lower. Also, the cost for an investor is nil here as these even don't entail any exit load charges.
2. Equity mutual funds:
For timing the market and to offset the volatility, investors for better return for a longer investment horizon of say 5 years or more can even park their funds in equity funds. Amid a boom in the equities, the space in a year's time have yielded returns of over 100% i.e. have doubled investors' money in just a year. Also, a more disciplined investment route can be opted by investing via SIPs. This will not only provide the benefit of rupee cost averaging but will also lessen the impact of market volatility.
This is another safe haven that from time immemorial apart from the store of value is considered as an inflation hedge. Amid resilience in the US dollar and the benchmark US yield, gold has retreated lower and so the lower rates can be capitalized on currently. Investors are advised to have a maximum of 10-15% allocation in gold. So, the best way to tap the route can be SGBs or gold ETFs.
This is true for in the long term, in the last 10 years gold has yielded an annualised return of 11 percent in comparison to average inflation of 6.35, thus proving to be an inflation hedge.
Also in times of economic turmoil or global geopolitical crisis, gold tends to give a higher CAGR and indeed serves as a safe haven at a time when all other assets come crashing down in value. Thus gold should be a part of your investment portfolio as a strategic holding.