What to do with your money right now?

If you are just retired and with plenty of cash, retirement benefits, naturally you will have a dilemma what do with the money safely with maximum returns, liquidity and with minimum income tax liability. While equities and mutual funds seems to get you good returns, never go by television recommendations unless you have in depth knowledge of what you are set up to do.

• Never lose money. Focus on capital preservation strategies.
• Remember, risk exists every where. 
• Spread your money across asset classes; debts, equities, mutual funds, real estate and gold. 
• Retain certain amount of cash both at home and in bank to manage unforeseen situations.
• Make sure to have enough life, accident and health insurance cover for you & family.
• Stay away from hyped markets. That would be the right time to exit.
• Avoid cryptocurrencies unless you are tech savvy, prepared to gamble and lose.
• Don't lend money to friends & relatives. You may end up losing money and also relationships.

INSURANCE

• Insurance is not investment. It is the price you pay for some kind of protection of your family against contingencies of unforeseen events like death / accidental death / hospitalisation shocks. 
• Do take appropriate life, personal accident and mediclaim policies for self and family.
• Don't buy equity-linked insurance plans (ULIPs). Your money goes to the agent and the insurer and not into your investments. They are losing propositions.
• Buy either term policies (these are the cheapest) or buy money-back schemes, which are also cheap but you get your money back. Read the fine print carefully rather than trust an agent's verbal assurances.

80C INVESTMENTS

• Investments in PPF, NSCs, 5 year Bank deposits, NPS etc. may save you on income tax liabilities, But be aware of 5+ year lock in periods.

EQUITIES

• The last two years equities have seen terrific returns from the stock market. Is the economy booming? No, but a lot of investors hope that it will start growing faster. 
• The World Bank and other institutions forecast that growth should accelerate in 2018-19. Many savvy investors have already entered the stock market on that expectation. 
• As more money has come into the market, it has boosted share prices and created a positive feedback loop where investors have pumped even more money into stocks.
• Despite forecasts, markets could go in either direction.
• Unless you are an active watchful person, on daily basis, with propensity to exit as per strategy, risks are high.
• Index funds have shown persistent growth over years with lower risks. Invest in less risky index funds rather than in risky equities.
• Equities may not get you periodical returns but in long term they are sure get you impressive gains.
• Good to be a equities trader rather than and equities investor.
• Those who have time and inclination to do their own research may invest directly in stocks or via equity mutual funds. The second route is fire-and-forget. Both methods can fetch great returns. Both methods also carry the risk of capital loss.
• May be it is good to stick to mutual funds and commit to systematic investment plans (SIPs) for three years, or longer. These are likely to fetch excellent returns.
• The economy may recover. But uncertainty exists.
• Series of assembly elections and a general election scheduled in the next 15 months. Political uncertainty might cloud short-term returns. What happens if there are apprehensions that the Narendra Modi government will not return?

DEBTS

• Debt comes in many shapes and sizes. Bank fixed deposits are the default option. You can also buy mutual funds dealing in different types of debt. In addition, you can buy corporate debentures, or subscribe to corporate fixed deposits.
• Interest rates rise when inflation rises. If inflation rises, the value of money erodes faster. If interest rates rise, any portfolio of previous debt instruments loses value because that same money invested now could be earning more interest.
• Bank deposits are safest, highly liquid but with low returns. The new FRDI Bill highlights the fact that bank deposits are not guaranteed beyond the limit of Rs 1 lakh. That limit was set in 1993. The limit might get raised to Rs.5 lakhs, prior to the passing of Act. Be informed of this.
• Avoid PSU banks with huge NPA's. Also avoid private banks with low equity, lower reserves and higher NPAs. Any government would be reluctant to take this step, fearing a political backlash. Since many PSU banks are struggling to cope with bad debts bail-ins are now neither impossible, nor illegal.
• Mutual funds exploit changes in interest rates. Safety varies. Mutual funds that focus on corporate debt give much higher returns but take larger risks. It's important to understand that you can lose capital in a debt fund. So understand safety, risks and returns before investing.

REAL ESTATE

• Real estate is entirely local market. The investment is illiquid. Selling may take several months. But returns are impressive. 
• This segment has huge percentage of 'black money' intertwined with 'white money'. 60:40 is the default ratio. Even 80:20 is not uncommon. 
• Booms and busts are cyclical and occur side by side too.
• Sometime legal complications might get your investment locked for several years.
• Apart from politicians, corrupt bureaucrats and unethical businessmen, you may get entangled with mafia and local goons.
• So invest only in legally clear properties. Obtain the help of known advocates and chartered accountants. Remember brokers are not your friends.
• Stay away from hypes.

GOLD

• Gold and precious metals are the age-old hedge against inflation and uncertainty.
• But gold yields no interest and capital appreciation is uncertain.
• Making charges for jewellery add considerably to cost. It's still worth investing as security. 

Neither a borrower nor a lender be ... William Shakespeare

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