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