With recent news flows accurately reflecting the second Covid wave related turmoil nowv prevalent across India, it is hardly surprising that a sense of panic seems to have seized the minds of investors and many are actually bailing out of carefully constructed investment portfolios. It is in such times that a guiding hand could be the difference between an investor committing financial hara-kiri or staying the course with the requisite re-balancing of investments across traditional asset-classes.
Gold is a popular asset class in India, albeit more consumption than investment driven. The optimal routes for investors seeking liquidity here are the Exchange Traded Funds listed at the bourses 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 fall in the equity markets of the kind last witnessed in March 2020. While in the near term, an additional exposure to Gold in the form of a Tactical Allocation can be considered, I would tend to hesitate to cross the upper boundary I have set for this sub-asset class in my portfolio.
Bank Fixed Deposits still have a space in the minds of investors, though relentless rate cuts by the RBI and the banks have left investors less enamored about this option than they were about 18 months ago. With debt mutual funds being viewed with a fair element of suspicion post an unsavory fiasco last year, investors without immediate liquidity concerns have begun seeking safe haven in innovative Insurance products that guarantee better than fixed deposit returns with the additional benefits of being tax free and providing additional insurance cover.
And it is thus that we move to the higher risk Equity asset class and start by raising the million dollar question — why the Indian equity markets are holding up even in the face of a raging pandemic, likely shrinking of the economy and an economic revival cycle that may be further stretched.
Well, equity markets usually thrive on hope and discount not the present gloom but the prospect of a better future six to nine months down the line. Although the Vaccine policy in India has thus far faced more bottlenecks than success, there seems to be belief in the market that with several States set to directly import.
Vaccines and embark on an aggressive Vaccination drive, there could still be light at the end of the tunnel. However, with Equities at this stage, using the SIP and STP route via mutual funds could be optimal. Remember though, one will need to be patient and disciplined as it does not take much at the bourses for hope to turn to despair and vice-versa.
A well calibrated approach is thus the need of the hour. Participating blindfolded at this stage could dent one’s portfolio. Those lacking the requisite experience and expertise would do well to seek professional guidance.
Ashok Kumar
Head of LKW-India. He can be reached at ceolotus@hotmail.com