This is one of the articles published in Economic Times. The reason why I m putting it here is coz not only the article is interesting and relevant. In order to understand the views of Analyst and Advisors, one needs to understand the product. I can proudly say that my blog has explained majority of the financial products in laymen language.
Where to invest in times of inflation?
In a period of high inflation the big question is: Where could you park your funds, which are both safe and offer productive returns? With the two popular avenues of investment usually used to beat inflation - equity and realty - not doing well, it's no wonder then if the retail investor is at a loss as to where to park his/her funds.
While the Indian stock markets are plummeting, there is a lull in the real estate market too. Obviously, anyone with a little market sense would advice against real estate at the moment. Moreover, it also calls for huge sums. So, where should you invest?
Experts also aver that the stock markets also may not give positive returns in the next 12-15 months owing to two factors. One, the current political situation and two, the high oil prices.
"As long as the oil price does not stabilise, the markets cannot give much positive returns," points out Kancheti Surendra, director, SK Wealth Creators Pvt Ltd, a wealth management advisory.
"Don’t put all your assets in any one basket, as none is the best in these times. Spread your assets," is the advice most experts gave.
Investing in systematic investment plans (SIPs) of mutual funds, whereby you invest a certain quantum every month, is a good idea, according to many investment counsellors. "The SIP products help you average your investment against the vagaries of the market conditions and inflation," says C Parthasarathy, chairman of Karvy Stock broking Ltd.
If you have Rs 100 to invest, put in Rs 70 in balance fund schemes of mutual funds, which balance investments in equity and debt, through the SIP route. The rest, divide Rs 15 each in gold and realty, he advises. Concurs Surendra. "Actually, SIPs of mutual funds are diversified largecap funds and according to me this is the best instrument in an uncertain market," he adds.
"Buy Gold" or gold funds is the advice most investment counsellors are giving their clients, to protect the value of their hard-earned money, though one has been witnessing some dip in gold prices recently after an earlier rise.
According to Quantum Asset Management Company Private Limited, gold has historically been a good hedge against both falling stock markets and rising inflation and continues to give that “double hedge advantage” even today.
"Equity is still the best instrument to tackle inflation and saving the value of your money from depreciating," said a senior official of a leading private bank’s investment advisory division. However, you have to stay invested in stock markets or buy fresh equity with a longterm view, at least for two years, to get good returns, he said. According to him, your Rs 100 should be allocated 40 per cent to debt instruments with fixed maturity plans (FMPs), 30 per cent in equity, 20 per cent to real estate and 10 per cent to gold.
While it may be a good idea to increase allocation to real assets like gold and commodities, as against financial assets, it must be remembered that it is still a speculative activity and may fall with inflation, said Parthasarathy. Interestingly, this is also a good time to pick up stocks.
But the caveat according to Surendra is, "Only when one is well educated. That is, when they understand the underlying risk, this period of one year will give an opportunity to pick up quality stocks. So identify some quality stocks and buy them on panic days when the markets fall by 500-600 points."
According to Renu Challu, managing director of State Bank of Hyderabad (SBH), it still makes sense to spread part of the investment to fixed deposits, in the interest of easy liquidity and guaranteed returns. “We are also examining increasing our interest rates on fixed deposits by 25-50 basis points shortly,” she said.
While real estate market is not inching up, one may buy if the prices soften as it is likely to yield good returns in the future, said a personal finance expert.
Structured Products
In case you have surplus funds above Rs 25 lakh, structured products in equity-linked debentures make sense, as you get your capital back even when the markets go down and when they go up, you get multiplied returns, said a financial advisor.
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