Investments where returns don’t matter

NEW DELHI: Emergency fund is a corpus kept aside to meet unforeseen expenses. The emphasis is on keeping the money secure rather than making it grow. “If you invest this money to earn returns, you will compromise its safety by exposing it to volatility,” says Amit Suri, CEO and chief financial planner, Aum Wealth Management. A savings account in a bank or liquid funds are the best places to park an emergency fund. The yield is low, but the aim is not to generate an income or get a good rate of return. “A liquid fund or low duration fund is better than a savings account,” says Sanjiv Singhal, founder and COO, Scripbox. Liquid funds allow instant withdrawal of up to ₹50,000 or 90% of the folio, whichever is lesser.

Life insurance: A term plan will pay your family a predetermined amount of money in the event of your death. If you survive the term, you don’t get anything. That’s the gist of insurance. However, in an attempt to gain something out of the money people pay to the insurance companies as premium, many buy a traditional plan instead. By mixing insurance with investment, they defeat the purpose of both. The returns on an endowment policy are less than 6%, which is meagre for a goal with a time horizon of 20 years. More importantly, you end up paying hefty premiums for a small cover. If a 30-year-old male buys LIC’s New Endowment Policy for a ₹20 lakh cover over 25 years, he will pay an annual premium of ₹77,200. If you want to pay a lower premium, you will be left with an even smaller cover. Insurance should be linked only to the goal of providing financial protection to the family in the case of one’s untimely death.

Gold jewellery: While gold in itself is not a bad investment, taking the jewellery route is not a good idea. First, in buying gold jewellery you have to shell out 10-35% extra as making and wastage charges. Second, selling gold is tough. Most jewellers exchange jewellery for other ornaments instead of paying cash. The jeweller from whom you bought the jewellery in the first place may pay you in cash, but only after deducting the making and wastage charge. Finally, we buy jewellery for wearing it and not as an investment. Jewellery is only a symbol of wealth, which does not generate any profits. Gold ETFs are a much better way of investing in gold.

House: The house you live in is a possession you consume. You are unlikely to sell your house to meet a future goal. Even if you sell your house, another house will have to be bought with that money or rent will have to be paid if you don’t choose to buy. So, even if your home depreciates in value, you should not get worried. However, a second property will be a part of your personal wealth as it may generate an income and the change in its price will affect your overall net worth.