A story of three asset classes – The New Indian Express
Express news service
With recent news feeds accurately reflecting the turbulence related to the second wave of Covid now prevalent across India, it is hardly surprising that a sense of panic seems to have gripped the minds of investors and that many actually bail out carefully constructed investment portfolios. It is at such times that a guide could tell the difference between an investor engaging in a financial hara-kiri or staying the course with the required rebalancing of investments between traditional asset classes.
Gold is a popular asset class in India, although it is more focused on consumption than investment. The optimal avenues for investors looking for liquidity here are exchange traded funds listed on exchange and the fund of funds option offered by mutual funds. An additional SIP in the latter could serve the dual purpose of potential capital appreciation as well as a hedge against any vertical drop in equity markets of the type last seen in March 2020. While in the short term, additional exposure to gold in the form of a Tactical Allocation may be considered, I would tend to be reluctant to cross the upper limit I have set for this subclass of assets in my portfolio.
Fixed bank deposits still hold a place in investors’ minds, although relentless RBI and bank rate cuts have left investors less enticed by this option than they were about 18 months ago. . With debt mutual funds viewed with some element of suspicion after an unsavory fiasco last year, investors without immediate liquidity issues began to seek refuge in innovative insurance products that guarantee higher returns than fixed deposits with the added benefits of being tax exempt and providing additional insurance coverage.
And this is how we move to the higher Risk Equities asset class and start by raising the million dollar question – why Indian stock markets are resisting even in the face of a raging pandemic, likely contraction. economy and a cycle of economic recovery that can be stretched further.
Well, the stock markets generally thrive on hope and ignore the current gloom, but the prospect of a brighter future in six to nine months. Although the vaccination policy in India has so far encountered more bottlenecks than success, the market seems to believe that several states are ready to import directly.
Vaccines and embark on an aggressive vaccination campaign, there might still be light at the end of the tunnel. However, with stocks at this point, using the SIP and STP path through mutual funds might be optimal. Remember, however, that you will need to be patient and disciplined because it does not take much for the stock market to turn hope into despair and vice versa.
A well-calibrated approach is therefore the need of the moment. Participating blindfolded at this point could rattle his wallet. Those without the required experience and expertise would do well to seek professional advice.
Responsible for LKW-India. He can be contacted at [email protected]