This week, Srikanth Meenakshi shares his views on some of the investment mistakes that many people that he interacted with tend to make.
Gold jewellery as investment
Gold is a useful hedge against inflation. Buying gold jewellery for investment, as many are wont to do, is not the ideal way.
Making charges in gold jewellery and wastage are 10% or more, both when buying and selling.
You never get the equivalent gold for your investment in jewellery. Selling is not easy as jewellers hesitate to buy ornaments manufactured by another.
Bank locker charges to store jewellery add to cost of investment.
Plus, you are never certain of the gold’s purity.
Instead of jewellery, invest in gold via exchange traded funds (ETFs) or gold bonds.
They are low-cost, highly liquid, represent 99.55 purity, and you are able to invest or sell at market price.
Sovereign gold bonds issued by the Reserve Bank of India (RBI) are also great investments.
Though they are not as liquid as ETFs, you get an additional return of 2.75% per annum. Capital gains at the time of maturity of these are tax-free.
Buying a house to save taxes
Tax woes disturb us no end and we are willing to do anything to save on taxes and that includes buying a house.
When you buy a house merely for the sake of saving taxes, you end up with large equated monthly instalments (EMIs), which you may not be able to handle.
Starting EMIs early on in your career may leave you with little savings, at a time when you are supposed to save and invest at a high rate.
There are plenty of tax-saving investment products that allow you to invest, save taxes and which do not require recurring long-term commitment like EMIs.
Buying a house should ideally happen after you have progressed in your career and income ladder, and know your family budget and goals and also know where you want to settle down.
Until then, paying rent and claiming house rent allowance (HRA) together with tax-saving investment products are wiser options.
Srikanth Meenakshi is co-founder of Fundsindia.com