When you stay invested for a long period, investments in the stock market yield higher returns than other avenues. Hence, salaried individuals look to invest in the stock market in a greater capacity. However, along with better returns investing in the stock market also carries high risk.
In the eventuality of a market crash, you can lose the entire amount that you have invested as there is no assurance of returns. As a salaried individual you have a fixed income to use towards everyday expenses, unexpected expenses, as well as investments. This means that there is no room to take great risks.
If the stock market crashes, you must be prepared with an alternate investment plan to mitigate your losses. For example, one option is to shift investments to safer instruments like FDs. Read on for more on why FDs are a safe bet and other options you should consider in such a situation.
Fixed deposits offer guaranteed returns and aren’t linked to the market. This makes them an ideal investment option when the stock market crashes. When you invest in FDs your capital is preserved and earns a fixed FD interest rate for the tenor that you lock your money for. As per your financial needs, you can invest in cumulative or non-cumulative FDs.
Cumulative FDs compound interest wherein your interest is re-invested and you earn a lump sum at maturity. In non-cumulative FDs, you can choose your own interest payout period (monthly, quarterly, bi-annually or annually) and get income regularly.
You can choose either option when you invest in a Fixed Deposit. Here you can enjoy high FD interest rates of up to 8.75% when you start a cumulative FD for at least 36 months and up to 9.10% if you take a senior citizen cumulative FD for at least 36 months. In addition, you can invest as little as Rs.25,000, choose a flexible tenor and use an FD calculator to view the exact amount that you will receive upon maturity.
Systematic Investment Plans (SIPS)
You can also invest in funds via SIPs to enjoy substantial returns and financial security, and tackle fluctuations in the market far more easily. By contributing a fixed amount every month, even if the market crashes you can continue your SIP. Because of rupee cost averaging, the risk is levelled out and market fluctuations don’t impact your investment as much. Besides, you can invest as little as Rs.500.
Public Provident Fund (PPF)
As a salaried employee an easy way to invest is through PPF. Since it is a government scheme, there is absolutely no doubt about the fact that you will receive the amount due to you. You can invest a minimum of Rs.500, up to Rs.1.5 lakh in 12 or less contributions through the year. It also offers tax benefits making it a lucrative element of your portfolio. Currently, PPF earns 8% as interest.
You can also invest in real estate to generate supplementary income in due course of time or to add to your asset portfolio. Additionally, you can use your property to avail a reverse mortgage in once you retire. If possible, you should also look into buying commercial property as it has higher rental, and resale value, thus making your investment stronger.
National Savings Certificate (NSC)
You may also consider investing in National Savings Certificate (NSC) offered by post offices. It is another government scheme that yields fixed income. Currently, these certificates give you returns of 8% p.a. for a tenor of 5 years and are also available for a tenor of 10 years. You can start investing in NSC with a minimum of Rs.100 and in multiples of this denomination. As per Section 80C of the Income Tax Act, they also offer a tax break of up to Rs.1.5 lakh. More importantly, in certain cases you can also use NSC as collateral and take a loan against it.
So if you’re looking to cushion the blow of a market crash, make sure you add these instruments to your investment mix at the earliest.