Analyze asset classes to find a solution – The New Indian Express


Express news service

As the stock markets rise as if inflated by steroids, there seems to be a feeling of dizziness among many market participants, similar to that experienced when riding on a roller coaster. While the climb is exhilarating, it appears to be the fear of the vertical drop that might follow that is causing the discomfort. Are there alternative routes to soften the landing? To address these concerns, let’s shine the spotlight on the current state of some of the traditional and most popular asset classes.

The most popular asset class in India is still debt today. With the rapid decline in interest rates over the past few years, the traditional avenue of fixed bank deposits has taken a bit of trouble and seniors in particular have borne the brunt of the low fixed deposit rates on offer. With rising inflation estimates and an inevitable hike in interest rates even if postponed, this traditional investment avenue remains a troubled bastion.

After a series of incidents culminating in a large and messy one, debt offerings from mutual fund companies have yet to regain full investor confidence, despite some late risk mitigation measures initiated by the regulator. Some of the money that might otherwise have gone into these mutual funds ended up in some of the guaranteed return offers from insurance companies whose tax exemption and additional insurance coverage make them more attractive to investors. Then, of course, there is a plethora of traditional government savings offerings, albeit with investment caps that remain popular among investors.

Gold is another popular sub-asset class in India in particular. With gold prices falling to their lowest, following the resurgence of stocks and oil prices, there is smart money accumulating the yellow metal in its most liquid forms of investment via funds. exchange traded (ETFs) as well as the mutual fund route. There remains hedge alongside large equity holdings to cushion portfolios in the event of a vertical drop in stocks.

The highest profile, although the asset class with little investment in India remains Equity. The general consensus, or shall we say apprehension, is that a correction is around the corner. This may be the case and those who think it would be good to look to move either to safer debt securities or to lower risk equity offerings using a built-in hedging mechanism. One can, of course, still consider that historically most corrections have been almost inevitably followed by a rebound and therefore, if one does not have a pressing short-term need for invested funds, to remain invested.

While not traditional, one emerging asset class that many young people gravitate towards is cryptocurrencies. While I do not claim expertise in cryptocurrencies, its acceptance as legal tender in some parts of the world suggests that the concept could develop, subject to regulatory approval. Given its extreme volatility, be careful until then.

Ashok Kumar
Head of LKW-India. He can be reached at [email protected]


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