Utilizing your savings in line with your expectations and by using the correct methods is essential for a secure future. You can use your savings to buy a home or a piece of land, make capital investments by building your own business or purchasing equipment, or make financial investments in various instruments.
Utilizing your savings in line with your expectations and by using the correct methods is essential for a secure future. You can use your savings to buy a home or a piece of land, make capital investments by building your own business or purchasing equipment, or make financial investments in various instruments. Today, we have an increasingly diverse range of investment instruments available to us, such as precious metals, government bonds, foreign exchange, commercial bills, treasury bills, lease certificates, participation accounts, PPS funds, exchange traded funds and derivative instruments, So, how does one weigh the risks correctly and manage their savings more effectively when faced with so many options? What are the best investment instruments for an investor with little to no risk appetite?
Things to Take Into Account When Choosing Investment Instruments
Things to Take Into Account When Choosing Investment Instruments
- Is the financial instrument backed by a reliable authority?
- Should I go for high-risk or no-risk instruments?
- How long will I hold my investment?
- Is the financial instrument a liquid asset?
- What is my expected return on investment?
- How much of a loss can I take?
How to Differentiate Between High-Risk and Low-Risk Investments
In general, the term risk has a broad definition, as it involves any event that can lead to a loss. Basically, risks are categorized into three groups: market risk, credit risk and operational risk, the latter including every other risk not included in the first two.
Market risk involves price changes, credit risk involves a default by the counterparty, and operational risk stems from inadequate or failed internal processes, people and systems or from external events.
Financial instruments may differ in terms of associated risks. Instruments subject to drastic fluctuations in price are considered high-risk, whereas low-risk instruments experience less volatility. As a result, high-risk financial instruments can lead to significant losses by also offer the promise of high reward, while both the potential loss and return will be more meager in low-risk instruments.
Low-risk instruments include treasury bills, government bonds, which are fixed income securities, as well as deposits, stocks and derivatives are considered moderate and high-risk investments, respectively.
Yield for Investment Instruments in 2020
It is a good idea to take a look at the 2020 data before planning your investments for 2021. In 2020, when the global economy came to a screeching halt due to COVID-19, the highest-yield investment instrument in Turkey was gold gram with 55.9%. Yields for other instruments were as follows: Borsa Istanbul 29.1%, Euro/TL 36.5%, Dollar/TL 24.9%, pension funds 35.3%, mutual funds 18.3%, two-year government bond indicative interest rate 11.8% and TRY deposits 9.9%. In 2020, CPI increased by 12.3% on average.
Best Low-Risk and No-Risk Investment Instruments for 2021
Participation Accounts
One of the best low-risk investment instruments, participation accounts have a maturity of one month, at the end of which the yield is distributed in accordance with a profit-loss partnership scheme. Participation accounts comply with the rules of Islamic financing thanks to this profit-loss partnership model, and your deposits are utilized for financing trade and industry, with some of the revenue from these investments shared with the account holders.
Deposits of up to TRY 150,000 are also under state guarantee, which helps to minimize risk. There are a number of different participation account types that you can select from, based on your expectations. Türkiye Finans’ range of participation accounts includes the Bol Kepçe Account, which allows you to invest your savings in both participation accounts and lease certificates.
Lease Certificates
Lease Certificate is a type of security issued by asset leasing companies and enables its holders to get a proportionate share from the revenues derived out of such assets and rights. Lease Certificates are backed by liquid assets, and as a result, offer higher protection against potential risks. For this reason, this fixed-yield, medium- to long-term investment instrument is a particularly good option for Participation Banking customer in particular. Click here to find out more about lease certificates in general and to view the lease certificates issued by Türkiye Finans Varlık Kiralama A.Ş.
Mutual Funds
Managed by authorized institutions, Mutual Funds invest the funds they pool from investors in diversified portfolios that include capital market tools such as stocks, bills/bonds, private sector debt instruments and reverse repo and precious metals like gold. This distribution allows Mutual Funds to decrease their risks and maximize yields.
PPS Funds
PPS Funds pool the contributions paid by individuals participating in the Private Pension System, and utilize this pool make long-term investments. You have to be participating in the Private Pension System to invest in PPS Funds. One advantage of these funds is the fact that no withholding tax is levied on the returns of such funds.
Türkiye Finans offers three PPS Fund products, namely the moderate-risk “Participation Variable Pension Fund”, low-risk “Participation Standard Pension Fund” and “Gold Pension Mutual Fund”.
Government Bonds
A Government Bond is an instrument of indebtedness issued by a government to finance government spending. Government bonds are usually considered a no-risk instrument as the debtor is a government and the amount to be repaid is fixed. In Turkey, government bonds as issued by the Ministry of Finance, and have a maturity of one to ten years.
Treasury Bills
Treasury bills are government-issued debt instruments with maturities of less than a year. They can be liquidated before maturity, but as in the case with government bonds, holding on to the treasury bills until the end of maturity helps secure the return and minimize risk.
Revenue Sharing Certificate
Another low-risk instrument, Revenue Sharing Certificates involves investing in public companies that provide transportation, energy distribution and telecommunication services for a share of their revenues. A Revenue Sharing Certificates are not a form of stock; they do not represent ownership in the company, but a fixed portion of its revenue.
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