4 Investment Avenues Where Returns Don’t Matter

When you start investing, you should be clear that not all your investments will produce returns. While this may sound counterintuitive, it holds a valid truth. Investments in certain avenues are made to achieve goals like stability, security, or indulgence. For these investment avenues, returns take a back seat. In this article, we examine four investment avenues where returns don’t matter.

• Investing in an emergency fund helps you prioritise liquidity in unforeseen situations rather than generating returns.
• Life insurance policies help secure the future of your family in your absence, while a house property ensures freedom from rent and a sense of stability.
• Gold is often purchased for cultural and sentimental reasons and has little bearing on associated returns.

Here’s a list of 4 key investment avenues where returns don’t matter:

1. Emergency fund

As the name suggests, an emergency fund is designed to cater to unforeseen emergencies. Emergency situations can pop up at any moment, and it’s almost impossible to predict them. That’s why experts suggest putting aside a rainy day fund that can cover unexpected emergencies. Ideally, your emergency fund corpus should be stored in an easily accessible and liquid instrument like FDs or liquid mutual fund and should increase with age. If you withdraw funds from your emergency corpus to meet urgent requirements, replace the sum promptly to ensure you have enough for future emergencies. In essence, your emergency fund acts as a cash buffer and cannot be expected to provide significant returns.

Let’s take an example to understand this better. A 58-year-old investor holds a Rs. 25 lakh fixed deposit and renews the same annually. Although there are various higher-yield-generating investment instruments, he prefers an FD because he has ailing parents with medical expenses. The one-year FD allows him to fund any urgent care expenses easily. The rationale here is not generating returns but rather easy liquidity.

2. Life Insurance

Life insurance policies are one investment avenue where returns don’t matter because you are focused on the life cover aspect. With pure life plans, you pay a monthly premium in exchange for a sum assured, which is paid out as a death benefit to your nominee upon your untimely demise. The goal with life insurance plans is to secure the financial future of your family and loved ones in your absence. Returns, in this case, don’t matter because the focus is not on growing your corpus.

Many policyholders conflate the sum assured coverage with returns on the life insurance policy. If you own a pure term plan, this is incorrect. Most term plans pay nothing if the policyholder survives the policy term. Returns are what you earn on your investment, regardless of whether you are alive or deceased. Let’s say you bought a term plan with a cover of Rs. 1 crore when you were 30 and paid a monthly premium of Rs. 1,500. The term plan offered coverage until 75 years of age. However, you outlive the plan, meaning no payout will be made since term plans only offer death benefits if the policyholder passes away during the policy period. This also means no returns on the premiums paid. That said, life insurance companies offer the return on premium option as an add-on. In fact, you can even opt for insurance plans with an investment component like ULIPs and endowment plans for added returns.

3. Gold

Gold is the most beloved yellow metal in Indian households. Equated to prosperity, gold is given an auspicious status in most Indian homes. Annual celebrations like Diwali and the wedding season witness a surge in gold prices due to heightened demand. In fact, gold jewellery is often thought to be a good investment avenue. In reality, it is not a recommended method of investment. When you sell your gold jewellery, you lose out on the making charges paid to the initial jeweller. Moreover, jewellers only compensate for the pure gold content, excluding impurities and alloys present in the ornament. Since gold prices are based on the weight of the jewellery, subtracting impurities and alloys automatically lowers its weight and, therefore, your returns. Additionally, stores often collect a margin amount to buffer the sale. Such poor returns make gold jewellery an imprudent investment avenue. If you do wish to invest in gold, opt for gold ETFs and sovereign gold bonds instead.

However, in reality, gold is an investment avenue where returns don’t matter. Most Indians, even today, purchase gold for weddings and other auspicious events with little or no intention of sale. For them, gold jewellery is a status symbol, a family heirloom, or simply an ornament for special occasions. This makes returns on gold irrelevant.

4. House property

It’s often said that buying a home is more of an emotional decision than a financial one. For many Indians, buying a home is a top priority. It is a long-term investment where returns do not take centre stage. Owning a home helps offer you a sense of stability, security, and freedom.

When you purchase a home, the primary focus is finding one in a good location with adequate amenities, optimum ventilation, etc. The aspects of appreciating property costs and resale prices don’t bother most home buyers when they are out selecting properties. While prices may appreciate over time, it is not an immediate priority since buying a house is an investment avenue where returns don’t matter. It is more about having a tangible asset that allows you to live without restrictions. It also makes sense to invest in a house to reduce rental expenses.

In life, you have to make certain investments without solely prioritising returns. The above-mentioned list of 4 investment avenues where returns don’t matter signify the same. Investing in an emergency fund, life insurance cover, gold, and house property helps you earn a sense of protection. If your goals are high returns, you should consider high-yield options like stocks, mutual funds, and ETFs. Remember, combining investment avenues where returns don’t matter with high-yield instruments can actually help you secure a well-rounded portfolio.