It is not as much the stocks or mutual fund schemes one selects as much as it is the right asset allocation for a given period that contributes to wealth creation for an investor. In the light of this market belief, let us proceed to cast a glance across asset classes as they stand at this point in time.
A popular sub-asset class in India is Gold. With gold prices rising to new highs, there are concerns of it entering a price bubble territory. However, the ongoing hostilities in some parts of the world as well as aggressive posturing by nations with powerful armies, ensures that gold as the asset class of last recourse remains in demand.
There is still some smart money accumulating the yellow metal in its more liquid investment forms via Exchange Traded Funds (ETFs) as well as the Mutual Fund route. It continues to remain a hedge alongside large equity holdings to cushion portfolios in the event of a vertical fall in equities. At the moment, Silver too has emerged as an attractive option owing to an anticipated increase in demand for this precious metal, going forward.
The most popular asset class in India, even today remains debt. With the increase in bank interest rates in recent times, the traditional avenue of Bank Fixed Deposits has witnessed a revival of sorts and fixed income investors have rushed in to lock in high interest yielding deposits for longer tenures. That bank interest rates are a function of the inflation rate and it is important always to look at interest rates as net of inflation is often missed by investors.
Debt mutual funds whose USP was its tax arbitrage over its alternatives has taken some hard blows over in the last couple of Union Budgets which withdrew most of its tax advantages. Simply put, the mutual fund industry will need to re-calibrate to make their debt mutual fund holdings more palatable to investors. There is also a plethora of traditional savings offerings from the government, albeit with investment caps which still remain popular among investors.
Though non-traditional, an emerging asset class that many young people are gravitating towards is Crypto-currencies. While I don’t claim expertise in Crypto-currencies, its acceptance as legal tender in some parts of the world suggests that the concept could grow, subject to regulatory approval. Given its extreme volatility though, one needs to tread carefully though.
A high profile, even if somewhat minimally invested traditional asset class in India remains Equity. The general apprehension usually is that a deeper correction is round the corner. Those that believe it would do well to seek a switch to either safer debt instruments or equity offerings carrying lower risk by employing an inbuilt hedge mechanism. One can of course, also always take the view that historically most corrections have almost inevitably been followed by a rebound and hence, if one has no pressing near term need for the invested funds, stay invested.
Asset allocation and re-balancing require expertise and discipline. Seeking professional guidance might be prudent.
Ashok Kumar
Head of LKW-India.
He can be reached at ceolotus@hotmail.com
(Views expressed here are personal