The one-year performance of several diversified equity schemes hardly provides an encouraging picture in the current volatile market condition. In a situation where all major bellwether indices recorded negative returns we look at the ability of fund managers to contain declines better major indices.
A fund at the top of performance chart at any point in time need not necessarily have beaten its benchmark. There could also be funds that beat their benchmark during rallies but hugely under-perform them during downturns.
While selecting a fund, it is, therefore, imperative for investors to not only look at the top funds, but also the ones among them that have consistently beat their respective benchmarks.
Beating major indices
We analysed about 150 diversified equity funds to see how many of them had beat major indices at the BSE and NSE. The S&P CNX Nifty with a one-year return of -44.6 per cent (as of January 22) was the toughest benchmark for the year. Two out of every five funds, or 40 per cent of the 150 funds, beat this index. A good number of dividend yield funds and others such as UTI Contra, IDFC Imperial Equity and DSPBR Top 100 appeared in this list. However, about 58 per cent, or 88 funds, beat the Sensex return of -47.3 per cent. As the Sensex and the Nifty were the least declined diversified indices, the diversified equity funds which beat these indices would have beat their individual benchmarks as well.
For the bottom list, we took BSE-500, one of the worst performing indices over the year, as a benchmark. About 32 funds, or 20 per cent of the universe, fell more than the BSE 500 return of -51.5 per cent. Funds from the JM house and Taurus Discovery fell over 70 per cent.
However, funds that contained losses over this year were not necessarily the top performers during bull markets. For instance, dividend yield schemes typically find it difficult to achieve high returns during bull markets but in a bear market they outpace other diversified peers as a result of their stock selection.
Birla Sun Life Dividend Yield, Fortis Dividend Yield, ING Dividend yield contained losses better than major indices over a one-year period but underperformed in the bull phase and did not record healthy returns over a three-year period.
Tuesday, January 27, 2009
MUMBAI REAL ESTATE SCENARIO: REALTY IN DOLDRUMS
Despite an average drop of about 20 per cent in property prices in far-flung Mumbai suburbs, especially in the affordable segment, buyers still appear reluctant to take the plunge.
The 600-member builder fraternity of the Maharashtra Chamber of Housing Industry, more known for exhibiting the best of luxury in Mumbai, sidestepped for once to showcase affordable housing stock on the western suburb here last week.
While it looked like the developers had succeeded in rekindling buyer interest, by bringing prices down in some peripheral areas, many buyers were little enthused when it came to the location.
Price correction
Centrum researchers said the average price correction in some areas such as Vasai/Virar was 30 per cent at Rs 2,000 a sq.ft, Thane 18 per cent at Rs 3,300, Dahisar/Mira Road 18 per cent at Rs 3,900, and Kandivali/ Borivali 22 per cent at Rs 5,300. They said it should be understood that besides the pricing, genuine home seekers weigh issues such as transportation, infrastructure, water and power supply.
Merely building smaller flats at distant locations at Rs 20 lakh could not create demand. It is expected that a further price drop of 15 per cent is likely in the coming months.
The Maharashtra Chamber had specifically ensured that the top end of the price range was Rs 49 lakh and the lower end Rs 6 lakh. Interestingly, the expo also marked the re-entry of the one bedroom-hall-kitchen units in builder portfolios. However, many home seekers, while being attracted by the appearance and design of the properties, wanted to know how one could commute to the city from there on a daily basis.
“We witnessed keen buying interest from home aspirants, who came in large numbers to see the exhibition exclusively for the budget properties. We are sure that the exhibition will certainly result in good bookings in the days ahead,” said Mr Harish Patel, Convenor-Exhibitions, MCHI.
Huge demand
In contrast, the Maharashtra Housing and Area Development Authority, in less than a fortnight was able to mop up over four lakh applications for 3,863 houses it has put up for sale in upcountry city locales. The sq.ft rate of the MHADA properties spread across various locations is almost half the existing market rates.
The General Secretary of the Builders Association of India, Mr Anand Gupta, felt ‘affordable’ had become a relative term in Mumbai housing, as people were comparing MHADA prices with those of the private sector. The land MHADA had was allocated to the agency decades ago by the Government.
Mr Gupta said the private sector could match the MHADA offer only if the government decided to make MHADA a nodal authority and award time-bound fixed-price contracts to builders to develop the land the agency had. Earlier this week, BAI submitted a petition to the Government in this regard.
Further, the association had told the Government that 99 per cent of the five lakh home buyers would return disappointed, as only 3,863 units were on sale and hence the government should consider awarding builders contracts to develop properties on the lines of MHADA.
The 600-member builder fraternity of the Maharashtra Chamber of Housing Industry, more known for exhibiting the best of luxury in Mumbai, sidestepped for once to showcase affordable housing stock on the western suburb here last week.
While it looked like the developers had succeeded in rekindling buyer interest, by bringing prices down in some peripheral areas, many buyers were little enthused when it came to the location.
Price correction
Centrum researchers said the average price correction in some areas such as Vasai/Virar was 30 per cent at Rs 2,000 a sq.ft, Thane 18 per cent at Rs 3,300, Dahisar/Mira Road 18 per cent at Rs 3,900, and Kandivali/ Borivali 22 per cent at Rs 5,300. They said it should be understood that besides the pricing, genuine home seekers weigh issues such as transportation, infrastructure, water and power supply.
Merely building smaller flats at distant locations at Rs 20 lakh could not create demand. It is expected that a further price drop of 15 per cent is likely in the coming months.
The Maharashtra Chamber had specifically ensured that the top end of the price range was Rs 49 lakh and the lower end Rs 6 lakh. Interestingly, the expo also marked the re-entry of the one bedroom-hall-kitchen units in builder portfolios. However, many home seekers, while being attracted by the appearance and design of the properties, wanted to know how one could commute to the city from there on a daily basis.
“We witnessed keen buying interest from home aspirants, who came in large numbers to see the exhibition exclusively for the budget properties. We are sure that the exhibition will certainly result in good bookings in the days ahead,” said Mr Harish Patel, Convenor-Exhibitions, MCHI.
Huge demand
In contrast, the Maharashtra Housing and Area Development Authority, in less than a fortnight was able to mop up over four lakh applications for 3,863 houses it has put up for sale in upcountry city locales. The sq.ft rate of the MHADA properties spread across various locations is almost half the existing market rates.
The General Secretary of the Builders Association of India, Mr Anand Gupta, felt ‘affordable’ had become a relative term in Mumbai housing, as people were comparing MHADA prices with those of the private sector. The land MHADA had was allocated to the agency decades ago by the Government.
Mr Gupta said the private sector could match the MHADA offer only if the government decided to make MHADA a nodal authority and award time-bound fixed-price contracts to builders to develop the land the agency had. Earlier this week, BAI submitted a petition to the Government in this regard.
Further, the association had told the Government that 99 per cent of the five lakh home buyers would return disappointed, as only 3,863 units were on sale and hence the government should consider awarding builders contracts to develop properties on the lines of MHADA.
Saturday, January 3, 2009
GILT FUNDS - HOW DID THEY PERFORM IN 2008
The year that has passed may have been a painful one for investors who didn’t follow any specific asset allocation pattern. If you moved a major portion of your investments into equity funds, in the chase for returns, your investment value would have been severely eroded. It may take a few years for your portfolio to recoup its original value.
But if you are a savvy investor and had spread your investments between debt and equity options, the damage to your wealth would have been only moderate. Over the past one year, diversified equity funds have fallen by between 25 and 80 per cent. But, investors who did invest in debt options such as Gilt and Income funds would have harvested a good return.
The one-year average return for gilt funds stood at 18 per cent. Within the category, the divergence between best and the worst funds was huge, at 42.2 per cent and minus 7.7 per cent. Similarly, income funds, on an average, generated 12.4 per cent. The best fund generated a return of 29.6 per cent and the worst lost 15.6 per cent. But the returns on the debt schemes, across the board, have surged in the past quarter on the back of a series of cuts in interest rates, steep fall in inflation numbers, which led to lower rate expectations.
However, returns of the order of the past quarter may not be sustained next year, as market rates already factor in further rate cuts. However, with the interest rate environment turning more benign, a 9-10 per cent return may not be difficult for the next 12-18 months. The average annualised return from debt funds over a five-year period is 6 per cent.
Equity funds: Diversified funds are usually considered to be safer than theme funds in a falling market and that’s borne out by the returns on infrastructure or realty theme funds in the 2008 market fall.
But which sector you invested in, would have determined returns. While bellwether indices BSE Sensex and Nifty have shed over 50 per cent, sector funds focussed on pharma and FMCG contained losses better than the diversified funds.
In the large cap space, funds that held stocks from banking, IT, petroleum and telecom and those that moved to cash in the early part of the correction were the ones that contained losses well. Those that had high exposure to capital goods — power, metals, construction and realty — were the worst sufferers.
The most vulnerable mid and small cap funds went down along with infrastructure. The unexpected bout of correction in October caused extensive damage to equity fund returns, leaving about a third of the NAVs below Rs 10.
Gilt Funds: Gilt funds had a relatively lacklustre year until September but then went on to top the charts. Gilt funds predominantly invest in sovereign securities, offering liquidity along with safety. Gilt funds can be categorised as long-term and short-term funds.
Long-term funds reaped greater gains from falling rates in the last quarter. Out of the 87 gilt funds, leaving out the recent launches, only three schemes failed to register positive returns this year. One-fifth of the funds generated a single-digit return and all the rest beat the average return of 18 per cent.
Gilt funds went through a similar phase during 2000-2003 when interest rates were heading steadily southward. This was followed by the period 2004-2008 (first half), when returns slumped to low single digits or to negative territory. That’s a lesson that gilt funds are only for investors who have the risk appetite to take a call on the interest rate cycle.
Income Funds: Income funds or debt funds too closed the year on a bright note, with an average return of 12.4 per cent for the year. These invest both in short- and long-term debt securities of the government and corporate bonds. Government securities provide safety and liquidity, while corporate securities are held to earn better yields.
The risk profile of the income funds is relatively higher compared to gilt funds, given the prospect of credit risk. The funds holding securities of higher average maturity (especially in the last few months) generated better returns in 2008 compared to those with a short-term bias.
But if you are a savvy investor and had spread your investments between debt and equity options, the damage to your wealth would have been only moderate. Over the past one year, diversified equity funds have fallen by between 25 and 80 per cent. But, investors who did invest in debt options such as Gilt and Income funds would have harvested a good return.
The one-year average return for gilt funds stood at 18 per cent. Within the category, the divergence between best and the worst funds was huge, at 42.2 per cent and minus 7.7 per cent. Similarly, income funds, on an average, generated 12.4 per cent. The best fund generated a return of 29.6 per cent and the worst lost 15.6 per cent. But the returns on the debt schemes, across the board, have surged in the past quarter on the back of a series of cuts in interest rates, steep fall in inflation numbers, which led to lower rate expectations.
However, returns of the order of the past quarter may not be sustained next year, as market rates already factor in further rate cuts. However, with the interest rate environment turning more benign, a 9-10 per cent return may not be difficult for the next 12-18 months. The average annualised return from debt funds over a five-year period is 6 per cent.
Equity funds: Diversified funds are usually considered to be safer than theme funds in a falling market and that’s borne out by the returns on infrastructure or realty theme funds in the 2008 market fall.
But which sector you invested in, would have determined returns. While bellwether indices BSE Sensex and Nifty have shed over 50 per cent, sector funds focussed on pharma and FMCG contained losses better than the diversified funds.
In the large cap space, funds that held stocks from banking, IT, petroleum and telecom and those that moved to cash in the early part of the correction were the ones that contained losses well. Those that had high exposure to capital goods — power, metals, construction and realty — were the worst sufferers.
The most vulnerable mid and small cap funds went down along with infrastructure. The unexpected bout of correction in October caused extensive damage to equity fund returns, leaving about a third of the NAVs below Rs 10.
Gilt Funds: Gilt funds had a relatively lacklustre year until September but then went on to top the charts. Gilt funds predominantly invest in sovereign securities, offering liquidity along with safety. Gilt funds can be categorised as long-term and short-term funds.
Long-term funds reaped greater gains from falling rates in the last quarter. Out of the 87 gilt funds, leaving out the recent launches, only three schemes failed to register positive returns this year. One-fifth of the funds generated a single-digit return and all the rest beat the average return of 18 per cent.
Gilt funds went through a similar phase during 2000-2003 when interest rates were heading steadily southward. This was followed by the period 2004-2008 (first half), when returns slumped to low single digits or to negative territory. That’s a lesson that gilt funds are only for investors who have the risk appetite to take a call on the interest rate cycle.
Income Funds: Income funds or debt funds too closed the year on a bright note, with an average return of 12.4 per cent for the year. These invest both in short- and long-term debt securities of the government and corporate bonds. Government securities provide safety and liquidity, while corporate securities are held to earn better yields.
The risk profile of the income funds is relatively higher compared to gilt funds, given the prospect of credit risk. The funds holding securities of higher average maturity (especially in the last few months) generated better returns in 2008 compared to those with a short-term bias.
BANK FDS IN THE CURRENT SCENARIO
For those of you who have been stashing away your savings in the safe haven of fixed or bank term deposits, the good times are coming to an end. Interest rates being offered by banks on their term deposits are tumbling and tumbling rapidly, in response to rate cuts unleashed by the RBI over the past two months. Company FDs are very likely to follow suit.
Most large banks have slashed their term deposit rates by anywhere between 0.25 and 1 per cent at the turn of the New Year. They aren’t done with the pruning yet!
The second round of “stimulus” measures announced last week, suggests that further cuts in term and fixed deposit rates are round the corner. That makes this an opportune time to lock into deposit options that still offer attractive rates for a 2-3 year tenure. If you have surplus cash idling in your savings account, we flag a few options, depending on how long you can stay invested.
2-3 years
If you can stay invested for a 2-3-year timeframe, the Sundaram Finance FD remains an attractive option, offering an interest rate of 11 per cent per annum for both two and three year terms. Bank term deposits (even safer, as up to Rs 1 lakh is protected by deposit insurance), offer 10.5-11.30 per cent for similar terms. Here, while PSU banks led by SBI have brought down their interest rates to 9 per cent (for the 1000-day window), select smaller banks offer higher rates.
The City Union Bank 1000-day deposit (current rate 11.30 per cent, set to come down to 10.80 per cent) is an attractive option. Lakshmi Vilas Bank currently offers 11 per cent (expect a revision!) for this window, while Karur Vysya Bank offers 10.5 per cent.
1-2 years
For the 1-2 year deposits, interest rates range from 8.5 per cent (SBI) to 10.75 per cent (offered by DBS Bank). ING Vysya Bank offers 10.5 per cent and ICICI Bank now offers a maximum interest rate of 9.75 per cent for specific terms of 390 and 590 days.
Short-term deposits
Interest rates for periods less than a year have fallen quite sharply and now hover in the 7.25-8.5 per cent range. In fact, given the fairly wide gap between interest rates for less than one year and one year-plus deposits, investors should consider staying for one year-plus terms as they may fetch substantial incremental returns.
For the less than a year category, ING Vysya’s 111-day deposit offering 10 per cent and ICICI Bank’s special 190-day deposit offering 9.75 per cent are the high yielding options.
Finally, a few caveats:
Given that the interest received on FDs or bank deposits are taxable, investors in the 20 or 30 per cent tax brackets should factor in the lower post-tax yield while making the decision to invest.
Do keep some portion of your savings liquid (say, 3-6 months requirements), to tide over difficult times on the employment front.
Don’t sweep all your savings into fixed deposits in a fit of risk aversion, as that would deprive you of all other investment opportunities over the next 2-3 years.
If you are young, you do need to have an equity portion to your portfolio, to meet your long-term goals.
Most large banks have slashed their term deposit rates by anywhere between 0.25 and 1 per cent at the turn of the New Year. They aren’t done with the pruning yet!
The second round of “stimulus” measures announced last week, suggests that further cuts in term and fixed deposit rates are round the corner. That makes this an opportune time to lock into deposit options that still offer attractive rates for a 2-3 year tenure. If you have surplus cash idling in your savings account, we flag a few options, depending on how long you can stay invested.
2-3 years
If you can stay invested for a 2-3-year timeframe, the Sundaram Finance FD remains an attractive option, offering an interest rate of 11 per cent per annum for both two and three year terms. Bank term deposits (even safer, as up to Rs 1 lakh is protected by deposit insurance), offer 10.5-11.30 per cent for similar terms. Here, while PSU banks led by SBI have brought down their interest rates to 9 per cent (for the 1000-day window), select smaller banks offer higher rates.
The City Union Bank 1000-day deposit (current rate 11.30 per cent, set to come down to 10.80 per cent) is an attractive option. Lakshmi Vilas Bank currently offers 11 per cent (expect a revision!) for this window, while Karur Vysya Bank offers 10.5 per cent.
1-2 years
For the 1-2 year deposits, interest rates range from 8.5 per cent (SBI) to 10.75 per cent (offered by DBS Bank). ING Vysya Bank offers 10.5 per cent and ICICI Bank now offers a maximum interest rate of 9.75 per cent for specific terms of 390 and 590 days.
Short-term deposits
Interest rates for periods less than a year have fallen quite sharply and now hover in the 7.25-8.5 per cent range. In fact, given the fairly wide gap between interest rates for less than one year and one year-plus deposits, investors should consider staying for one year-plus terms as they may fetch substantial incremental returns.
For the less than a year category, ING Vysya’s 111-day deposit offering 10 per cent and ICICI Bank’s special 190-day deposit offering 9.75 per cent are the high yielding options.
Finally, a few caveats:
Given that the interest received on FDs or bank deposits are taxable, investors in the 20 or 30 per cent tax brackets should factor in the lower post-tax yield while making the decision to invest.
Do keep some portion of your savings liquid (say, 3-6 months requirements), to tide over difficult times on the employment front.
Don’t sweep all your savings into fixed deposits in a fit of risk aversion, as that would deprive you of all other investment opportunities over the next 2-3 years.
If you are young, you do need to have an equity portion to your portfolio, to meet your long-term goals.
WHAT HAPPENED TO INVESTMENT LOSSES IN 2008
A leading website on finance says that "2009 is a year of sowing"
The question asked by many investors who had put their money into equity in late 2007 and the whole of 2008 have had their money gone for ever. The gullible middle class investor lured by the surging Sensex and Nifty and totally unaware of the gyronomics of the Indian Stock Market are today stuck with losses of nearly 50-75% . The friendly neighbourhood advisor seem to have vanished .
Sowing at the expense of those investors who have had their investments vanish. The equity savvy investors are now seen running towards banks a once forgotten and mocked upon entity.
The stock market prophets professed in early 2008 that the Sensex would touch 25000 towards the end of 2008 but what we saw is that the Market touched nearly 8000 levels.
It is highly unfair to misguide investors by these highly acclaimed websites who seem to be a front for all investment related companies.
Another, so called research website speaks of such terms which I doubt even the CEO of the website might not understand.
There is a general tendency of all these so called Financial related website to promote private Asset Management Companies rather than State run companies and their schemes like UTI , LIc etc.
What qualification do these so called pundits possess regarding the Analysis of investments .
A friend of mine tells me that many stock brokers who even now cannot converse in English properly have set up plush offices on Dalal Street and have given anglicised names to their companies thereby misleading the general public.
The question asked by many investors who had put their money into equity in late 2007 and the whole of 2008 have had their money gone for ever. The gullible middle class investor lured by the surging Sensex and Nifty and totally unaware of the gyronomics of the Indian Stock Market are today stuck with losses of nearly 50-75% . The friendly neighbourhood advisor seem to have vanished .
Sowing at the expense of those investors who have had their investments vanish. The equity savvy investors are now seen running towards banks a once forgotten and mocked upon entity.
The stock market prophets professed in early 2008 that the Sensex would touch 25000 towards the end of 2008 but what we saw is that the Market touched nearly 8000 levels.
It is highly unfair to misguide investors by these highly acclaimed websites who seem to be a front for all investment related companies.
Another, so called research website speaks of such terms which I doubt even the CEO of the website might not understand.
There is a general tendency of all these so called Financial related website to promote private Asset Management Companies rather than State run companies and their schemes like UTI , LIc etc.
What qualification do these so called pundits possess regarding the Analysis of investments .
A friend of mine tells me that many stock brokers who even now cannot converse in English properly have set up plush offices on Dalal Street and have given anglicised names to their companies thereby misleading the general public.
SAVINGS IN 2009 - INVESTMENT IN SAFE MODE
“I began my career two years ago but started saving for a rainy day only recently, thinking I still had plenty of time. But to my horror, I got a mail from HR saying my increments and promotion may be put on hold. Thank god I got into the saving groove at least now!” says Preeti Gopinath, process associate in a software company. Just as last week we tried to capture how the spending habits of youngsters have changed due to India Inc’s slowdown, we’ve talked to them to find out how they intend to save and invest for 2009.
100 per cent equity
Vishnu Sharma was, till recently, an obsessive equity investor. “All my family put their saving into the equity markets. So I started putting money into it ever since I started earning. In 2007, I earned a good profit. This tempted me to continue with the investments in 2008. The attraction was so much that I failed to take lessons from the January and July cues. Now I am left with a bundle of losses, wiping out close to 80 per cent of my capital. I am wondering if it’s better to put my money in some investment scheme or just hold it as cash.” Same is the case with Baidik who works in a venture capital firm. “I used to be a solid propagator of equities — I have done a 100 per cent course correction now,” he says.
Lesson 1: Go for a balanced asset allocation. A 100 per cent equity portfolio can suffer vicious swings, but a 100 per cent debt portfolio may not deliver enough returns.
Locked in!
If you thought only investors who took a direct plunge into stocks are bruised, those who relied on mutual funds aren’t feeling any better. Vishwesh, an IT professional, preferred MFs as an investment option until recent times.
“My financial position was hugely affected this year mainly because returns from mutual funds kept plunging. I am not sure how it’s going to be for the months to come, as most of my money is locked into closed-end schemes.”
Lesson 2: With mutual fund investments, take higher exposure to open end schemes that give you the flexibility to exit if the performance sours.
What are the options now?
With stocks markets crashing and returns on equity funds reduced, almost eight out of ten young salary earners say they are now afraid to go anywhere near equities. A vast majority say they prefer bank fixed deposits or government bonds even if the yield is much lower. “It is fine even if I don’t get good returns on my savings. I just need my money to be safe,” says Krishna, who until recent times placed much faith in equity mutual funds.
“Over the past three months I have not taken any fresh exposure to equities — rather I have gone back to good old banks. Going forward, I wish to maintain my savings in low-risk bank instruments. I feel that taking on equity risks for a wind-fall isn’t worth it unless you have money to burn or have not felt the pinch yet!” adds Baidik.
Lesson 3: Make stock market investments only from the surplus you can afford to lose, that too after setting aside money in safe options.
Traditional investments back
Interestingly, many young people feel it is best to go back to traditional investments such as gold and property. Arun Mohan is a young, practising lawyer. “Equity markets have been my favourite investment choice for a long time. But after losing more than 50 per cent of my capital, I am getting back to my father’s technique of saving for future. Secure bank deposits apart, gold and real-estate still remain my favourites. The probability of their appreciating is definitely high.”
Property in vogue
Noticeably, the property option finds more takers among the newly wedded and the DINK (Double Income No Kids) couples.
“I’ve always had this fancy for land. Now that lending rates have come down I am considering buying a house,” says Suchitra Ramadorai, a popular radio jockey.
“We are looking for a second-hand flat located in the heart of the city rather than a newly constructed one in the outskirts for two reasons.
One, it is easy to maintain and two, in case servicing the EMIs becomes difficult, saleability is high if the property is within the city,” says Preeti.
Raghav Sridharan, manager in consultancy firm has a different view. “Correction is evident in property prices. But that may happen only in those areas where prices went soaring due to IT boom.
I am looking to buying a house within the city and it’s still untouchable for me. So for the year ahead I’ll go in for 75:25 mix of bank deposits and equity scheme. Lesson 4: With interest rates sinking and a correction imminent in property prices, a short wait may allow you to obtain better bargains on your property purchases.
What happens to equity?
But do equity investments really deserve this harsh treatment? “If what goes up comes down, then what comes down must go up too.” says Ram Gopalan. “I’ve witnessed this downswing in 2004 and I’m seeing it again now. Yes there is a little difference. It is slowdown time in India and recession all over. Maybe an upswing will take more time, but I am sure I will see stunning rewards if I wait. I’ve not lost faith in equity yet.”
Lesson 5: A rock bottom equity market is the best time to invest; sticking only to safe investments may prevent you from reaping great returns that can help you with your long-term goals.
Don’t look to stocks for quick money; but invest in them if you have a five-to-ten-year horizon
100 per cent equity
Vishnu Sharma was, till recently, an obsessive equity investor. “All my family put their saving into the equity markets. So I started putting money into it ever since I started earning. In 2007, I earned a good profit. This tempted me to continue with the investments in 2008. The attraction was so much that I failed to take lessons from the January and July cues. Now I am left with a bundle of losses, wiping out close to 80 per cent of my capital. I am wondering if it’s better to put my money in some investment scheme or just hold it as cash.” Same is the case with Baidik who works in a venture capital firm. “I used to be a solid propagator of equities — I have done a 100 per cent course correction now,” he says.
Lesson 1: Go for a balanced asset allocation. A 100 per cent equity portfolio can suffer vicious swings, but a 100 per cent debt portfolio may not deliver enough returns.
Locked in!
If you thought only investors who took a direct plunge into stocks are bruised, those who relied on mutual funds aren’t feeling any better. Vishwesh, an IT professional, preferred MFs as an investment option until recent times.
“My financial position was hugely affected this year mainly because returns from mutual funds kept plunging. I am not sure how it’s going to be for the months to come, as most of my money is locked into closed-end schemes.”
Lesson 2: With mutual fund investments, take higher exposure to open end schemes that give you the flexibility to exit if the performance sours.
What are the options now?
With stocks markets crashing and returns on equity funds reduced, almost eight out of ten young salary earners say they are now afraid to go anywhere near equities. A vast majority say they prefer bank fixed deposits or government bonds even if the yield is much lower. “It is fine even if I don’t get good returns on my savings. I just need my money to be safe,” says Krishna, who until recent times placed much faith in equity mutual funds.
“Over the past three months I have not taken any fresh exposure to equities — rather I have gone back to good old banks. Going forward, I wish to maintain my savings in low-risk bank instruments. I feel that taking on equity risks for a wind-fall isn’t worth it unless you have money to burn or have not felt the pinch yet!” adds Baidik.
Lesson 3: Make stock market investments only from the surplus you can afford to lose, that too after setting aside money in safe options.
Traditional investments back
Interestingly, many young people feel it is best to go back to traditional investments such as gold and property. Arun Mohan is a young, practising lawyer. “Equity markets have been my favourite investment choice for a long time. But after losing more than 50 per cent of my capital, I am getting back to my father’s technique of saving for future. Secure bank deposits apart, gold and real-estate still remain my favourites. The probability of their appreciating is definitely high.”
Property in vogue
Noticeably, the property option finds more takers among the newly wedded and the DINK (Double Income No Kids) couples.
“I’ve always had this fancy for land. Now that lending rates have come down I am considering buying a house,” says Suchitra Ramadorai, a popular radio jockey.
“We are looking for a second-hand flat located in the heart of the city rather than a newly constructed one in the outskirts for two reasons.
One, it is easy to maintain and two, in case servicing the EMIs becomes difficult, saleability is high if the property is within the city,” says Preeti.
Raghav Sridharan, manager in consultancy firm has a different view. “Correction is evident in property prices. But that may happen only in those areas where prices went soaring due to IT boom.
I am looking to buying a house within the city and it’s still untouchable for me. So for the year ahead I’ll go in for 75:25 mix of bank deposits and equity scheme. Lesson 4: With interest rates sinking and a correction imminent in property prices, a short wait may allow you to obtain better bargains on your property purchases.
What happens to equity?
But do equity investments really deserve this harsh treatment? “If what goes up comes down, then what comes down must go up too.” says Ram Gopalan. “I’ve witnessed this downswing in 2004 and I’m seeing it again now. Yes there is a little difference. It is slowdown time in India and recession all over. Maybe an upswing will take more time, but I am sure I will see stunning rewards if I wait. I’ve not lost faith in equity yet.”
Lesson 5: A rock bottom equity market is the best time to invest; sticking only to safe investments may prevent you from reaping great returns that can help you with your long-term goals.
Don’t look to stocks for quick money; but invest in them if you have a five-to-ten-year horizon
Subscribe to:
Posts (Atom)
