I am a 31-year-old salaried individual. I have savings of around 5 lakh, which I want to invest for the long term. Should I invest in sovereign gold schemes of the Reserve Bank of India (RBI) or mutual funds?

—Abhishek H .

Mutual fund is an investment gateway which lets you invest in an asset class of your choice. It is not an asset class of its own. You can invest in any asset class—be it debt, equity or gold—through a mutual fund. The asset class to be picked is subject to your risk appetite and investment horizon. Your investment horizon is long term and, hence, the risk profile is important to determine your equity exposure. If you are considering gold as an investment option, then surely sovereign gold bond scheme is the best way to invest in gold, subject to a lock-in. However, the return on these bonds are subject to how the gold performs and, typically, the returns of gold are matched with inflation. In case you are targeting returns higher than inflation, consider equity as an asset class. You can consider investing in equity-based mutual funds to be invested via systematic transfer plans (STP), wherein you first invest in debt ultra short-term funds and then the investment in equity is staggered over a period of time for a fixed amount. This enables rupee-cost averaging—we buy more units when markets are low and vice-versa.

Can my daughter, who is a non-resident Indian (NRI green card holder) invest in fixed deposits using funds (US dollars) transferred by her to her NRO account?

—Anil Shah

NRIs can transfer funds and even do a fixed deposit (FD) using an NRO account. However, the deposit will be in Indian currency and not US dollars or any other foreign currency. In case she wishes to open a foreign currency FD, then she needs to open an FCNR (foreign currency non-resident) deposit account where she can open an FD in foreign currency, including US dollars. The rate of interest payable on these deposits is lower than that of domestic deposits. The deposit term has to be more than one year but less than five years.

Surya Bhatia is managing partner of Asset Managers. Queries and views at mintmoney@livemint.com

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