Warren Buffet suggests four M’s of investing—meaning, moat, management, and margin of safety.
By Ashima Agarwal
Creation of wealth is the prime motive of any investment decision. In simple terms, an investment is an asset or item acquired with the goal of generating income or appreciation. Warren Buffet suggests four M’s of investing—meaning, moat, management, and margin of safety. He says finding the right investment always begins with meaning, and sometimes, this can take time.
We have witnessed a great 2021 with respect to share markets/mutual funds. As the share market has already scaled to a new high and with rising Covid cases, performance of the equity market may be muted this year. Individuals have to consider all avenues to invest their money in order to fetch decent returns.
The various alternative investment avenues can be a certain percentage mix of mutual funds, equity market, IPOs, Gold ETFs, VPF, PPF, NPS, buying house/land so as to achieve the desired goal of maximisation of return for an individual with low/moderate risk. Investors can benefit from potential wealth building through mutual funds via both systematic investment plan (SIP) and lump-sum contributions. SIPs can begin with an investment as low as just Rs 500.
Investing in ETFs
Investing in Exchange Traded Funds (ETFs) can help diversify and create optimal portfolios to yield maximum returns. ETFs provide a method-driven and transparent approach to mitigate exposure in markets as they are driven by an underlying asset. Investors can take a technology based or sector specific exposure via different ETF products which increases the versatility of the investment in terms of instability.
Gold, the yellow precious metal, is another popular asset among investors wishing to hedge against risks such as inflation, market turbulence, and political unrest.
Aside from buying gold bullion directly, another way to gain exposure to gold is by investing in exchange-traded funds (ETFs) that hold gold as their underlying asset or invest in gold futures contracts. ETFs are relatively liquid and low-cost options for investing in gold compared to alternatives such as gold futures or shares of gold-mining companies.
Voluntary Provident Fund (VPF) is again a promising option. You can put in more than the mandatory 12% of the basic pay and still earn tax-free returns of 8.5%. Remember, as per latest income tax policy, any investment in VPF (employee’s contribution) of greater than Rs 2.5 lakh is taxable.
Public Provident Fund (PPF) is a retirement savings scheme offered by the government of India. PPF offers the best tax benefits as it falls under the Exempt-Exempt-Exempt (EEE) category coupled with a lock-in period of 15 years. You can invest up to Rs 1.5 lakh in PPF annually.
National Pension Scheme (NPS) is another investment option that can get an individual additional tax deduction and earn higher returns. The tax benefits offered by the NPS over and above Section 80C can boost the returns for investors.
Property/land is also a lucrative investment opportunity. However, property prices in general have not increased much in the last one decade. Many builders are offering lucrative construction linked schemes on residential and commercial properties which can give good returns in a few years.
Last, but not the least, we should consider some investment in the stock markets also. The markets by the end of 2021 indicated that the large-cap indices have risen about 20-22 % during the year, while mid and small-cap stocks rose even more. We should consider investing in large cap stocks with good dividend yield, low P/E and good future prospects.
The writer is assistant professor, Amity Business School, Amity University
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