Where do I invest my savings? [Part 2]

This is continuation of my earlier blog post on investment avenues for retail investor. You can read Part 1 of this post here.
  
7. Exchange Traded Funds or popularly known as ETFs are funds which invest in benchmark index in the same proportion as its constituents. Their performance is similar to the benchmark they track. Since the composition of ETF is similar to the benchmark, they have low tracking error (the difference between ETF’s return and the benchmark’s return) as compared to equity mutual funds and also have low operating cost. It is good investment alternative for those who are not able to choose between various mutual funds or who do not want to bear the risk of fund manager’s performance.

8. Mutual Funds: Whenever any financial advisor approaches retail investor to invest in mutual fund, the investors assumes it to be an equity investment. However, there are mutual funds which invest in debts, mutual fund which invest in equities and also mutual fund which invest in both debt and equity. The debt funds are further divided into short term, medium term or long term depending on their time horizon. Similarly, equity funds can be sector specific or index funds. Thus within mutual fund there are various alternatives available to suit the investment and risk profile of the investor. Moreover, due to various regulatory changes carried out in last one year, mutual funds are now more transparent and cheaper with elimination of loads and curtailment of asset management fees which can be charged by fund houses. An investment in mutual fund which is more than a year old also gets preferential tax treatment. They are easy to invest and liquidity is not a problem.

9. Gold: One should view investment in Gold as a hedge against inflation rather than as wealth-creation investment. It is a type of insurance which will protect you in case the entire financial market crashes. Hence it should form small part of one’s portfolio. 

Real estate (other than the home where ones resides) should also form part of investment avenues but at a later stage of life, once a fair amount of financial corpus gets accumulated. Equity investments should ideally be in the form of mutual funds or ETFs investments, unless one is expert in individual stock picking.

Your suggestions are welcome.