It is important to manage it well to keep all in the family.
Asset class diversification is the most common answer to this question. But how do you diversify your asset class?
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12 SEPTEMBER, 2017
India is a booming economy. You, as an investor, are a strong support for this new economy, your well sought investment decisions can in addition to raising your own wealth quotient, help take the country to its next golden era. Investors today are increasingly becoming risk-seeking, and are ready to take the plunge into lucrative high-risk investment options.
There is a huge variety of investment options available in the market today, from which you can pick and choose depending on your investment needs. Be it quick growth or assured returns or requirement for liquidity, your needs will help you decide on the investment tools to pick. For those of you with abundant funds, high-return-high-risk spaces could be what you seek. But if you are looking forward to assured returns, you may want to allocate more funds into Risk-free assets. Therefore, the best way to go about is to first identify your Risk/Return parameters and then allocate your assets based on the same.
Let’s look into some of the most sought-after growth oriented assets: -
Mutual Funds: This is one of the most preferred investment tool for the well-heeled investors and the average Joe alike. The assets under management (AUM) of the mutual fund industry touched an all-time high of Rs 16.46 trillion in December 2016, according to the data from the Association of Mutual Funds in India (AMFI), with a compounded annualized growth rate of 18% according to ICRA. Depending upon the risk profile and longevity of holding period, you can choose the fund that best suits your time-frame and risk appetite. Mutual funds are also tax friendly. If you stay invested for over a year, your tax liability is zero. Also ELSS (Equity linked Savings scheme) options are available, wherein you can avail tax exemption for small savings/schemes. Net inflows in the liquid, income and equity saw fresh investment of Rs 1.2 trillion, Rs 96,000 Crore and Rs 70,000 Crore respectively, as per ICRA. Kotak Select Focus Fund is one of the most popular mutual funds of 2017.
Equities: With an increase in investment by Foreign Institutional Investors, the Indian markets are recording higher growth in the equity category. As per ICRA, with steady inflows in the year 2016-17, fund houses have seen a net inflow of Rs. 10,923 crore into equities in December 2016, of which Rs 10,103 Crore were in equity funds.
Various sectors like the Auto and its ancillary sectors, Private Sector Banks, Infrastructure, Pharmaceuticals and Consumer Durables have seen high growth rates in 2016. The roll-out of GST is expected to have a positive outcome as the uniform tax rate will benefit these organized sectors and the blue-chip companies as well.
The Financial Budget, focused on the growth of rural India, has plans to double farmers’ income in the next 5 years. This will help boost rural demand for Autos and Two wheelers, which had experienced a setback post demonetization. Auto ancillary companies like Hero MotoCorp, Automotive Axles, Federal Mogul, Steel Strips have increased their concentration on exports which contribute 15-20% of their total income, thus making auto and its ancillary sectors a favorite among long-term investors.
A strong positive trend was seen in retail consumer lending in the last quarter, making banks and NBFC stocks lucrative to invest in. HFCs/NBFCs like LIC Housing Finance, Dewan Housing, Can Fin Homes, GIC Housing Finance have recorded a steady stream of profits on a QoQ basis, and indicates promising growth in the future.
Although equities are subject to market risks, historically, the average return earned from Equities has proven to been higher than any other financial asset class. Nevertheless, if you are looking for assured returns or have an predictable liquidity requirement, there are other risk-free or low-risk investments that give you a lower return with far lesser risk.
- Bonds: Bonds are commonly referred to as fixed-income securities and are one of the three main generic asset classes, along with equities and cash equivalents. You can find these corporate and government bonds being either publicly traded on exchanges or available over-the-counter (OTC).
- Fixed Deposits: This is the most conventional method of saving with money parked in Bank's Fixed Deposit for a specific tenure at agreed interest rates. In the Indian scenario, despite the modest interest rates, this option is still a preferred one for many who wish to balance off their portfolio risk with assured returns.
- Liquid fund: This is usually used to park funds for Short term (in many cases, even for a day) for modestly high returns.
- Insurance: One of the most systematic and disciplined investments, insurance offers you plans that are designed with a dual objective of accumulating wealth as well as providing the much needed life cover. Various investment oriented unit linked life insurance plans are available in the market today, which you can invest in based on your risk appetite and returns expected.
- Investment in Alternate Asset Class: Alternative investments include investment instruments like private equity, hedge funds, managed futures, real estate, commodities and derivatives contracts. Moreover, investments can be done in physical assets like real-estate, gold, and other gems and jewelry. Investing in artifacts and paintings are some other promising and popular options.
With so many investment instruments available in the market, it may become very tedious and time-consuming for you to choose the best investment options for your wealth. Channelizing your funds and getting optimum returns without hampering your core income generating work is the key. So, it is best to leave the hard work of evaluating and identifying investment options to experts who have their best interest in your growth.
For any kind of investment assistance that you may need, give us a call.
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