Skip to main content

Is equity the best asset class to beat inflation?

Invest Mutual Funds Online

Call 0 94 8300 8300 (India) 

Depending on the risk profile and time horizon of an investor, asset allocation within equities across market caps can be done to generate alpha

INTEREST rates are fabulously up. From a meagre 3.5 per cent in my savings account I can manage to garner 10 per cent gross in an ultra short-term fund and 11 per cent pretax in a bank fixed deposit. Even marquee banks are stepping up and offering 10 per cent for a long period of time.

So why should an investor even look at equity markets? Well, if you compare these debt returns with the inflation, it is largely negative. So most of the real interest rates offered by the market are negative even now and may not stave off inflation, barring the recent domestic liquidity crunch, which has led to higher interest rate offerings. So for investors with financial goals in future, the cost of acquisition of these will go up, thanks to inflation.

Consider this: domestic equity markets have given 16 per cent average re turns in the past decade with average inflation being 7 per cent. Thus, stock markets have consistently kept pace and beat inflation. And this is just with the benchmark market returns.

Depending on the risk profile and time horizon of the investor, asset allocation within equities across market caps can be done to generate alpha, which may exceed the aforementioned returns.

This is not to deny the advantage of debt funds in any investor's portfolio.

Far from it, it is our belief that a sensible portfolio would be like a "thaali", wherein you have a mix of equity, debt, commodities, insurance and real estate.

What I am underlining here is the fact that an equity flavour would infuse an added push to overall portfolio returns, which may exceed inflation.

Let's look at it from another angle.

When an investor is investing in equity market, what he/she is doing is buying a part share in the business of that company. So if I am buying one share of Infosys, it means I am a part owner, however small that might be! When people do business, they invest in projects or work with a target of making returns which should sizeable be in excess of their invested capital cost, in other words, the IRR (internal rate of return) should exceed cost of capital, which is nothing capital, which is nothing but a weighted average of debt cost and cost of equity.

So, a good company would earn IRRs in excess of cost of capital on a fairly consistent basis. This, in a way, beats inflation. We as investors are investing in such companies to garner growth and beat inflation.

To sum it up, depending on the risk profile of the average investor, the overall portfolio should be carved into debt, equity and other asset classes.

This allocation can also change in the interim depending on market conditions.

With regards to equity, the best vehicle to own the market for the uninitiated investor is investing through the mutual fund route with index funds, which can provide him/her market returns, thereby reducing dissonance.

If the investor is reasonably savvy and aware of risk return implications, he/she can venture into other mutual fund products and also invest directly in equity.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

 

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver Mutual  Funds  Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

 

Popular posts from this blog

Mirae Asset Healthcare Fund

Best SIP Funds to Invest Online   Mirae Asset Global Investments (India) has launched Mirae Asset Healthcare Fund. The NFO of the fund will be open from June 11, 2018 to June 25, 2018. Mirae Asset Healthcare Fund is an open-ended equity scheme investing in healthcare and allied sectors. The scheme will invest in Indian equities and equity related securities of companies that are likely to benefit either directly or indirectly from healthcare and allied sectors. The investment strategy of this scheme aims to maintain a concentrated portfolio of 30-40 stocks. Healthcare is a broad secular theme that includes pharma, hospitals, diagnostics, insurance and other allied sectors. The fund will have the flexibility to invest across markets capitalization and style in selecting investment opportunities within this theme. Neelesh Surana and Vrijesh Kasera will manage this fund. In a press release, Swarup Mohanty, CEO, Mirae Asset Global Inves...
Read more

How to Decide your asset allocation with Mutual Funds?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) How to Decide your asset allocation ? The funds that base their equity allocation on market valuation have given stable returns in the past. Pick these if you are a buy-and-forget investor. Small investors are often victims of greed and fear. When markets are rising, greed makes the small investor increase his exposure to stocks. And when stocks crash to low levels, fear makes him redeem his investments. But there are a few funds that avoid this risk by continuously changing the asset mix of their portfolios. Their allocation to equity is not based on the fund manager's outlook for the market, but on its valuations. Our top pick is the Franklin Templeton Dynamic PE Ratio Fund, a fund of funds that divides its corpus between two schemes from the same fund house-the...
Read more

GOLD ETFs

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   GOLD ETFs       Gold funds and ETFs have also lost the tax advantage they enjoyed over physical gold after the Budget changed the rules for long-term capital gains from non-equity funds.   Last year, gold exchange traded funds ( ETFs ) had gained a great deal from the depreciation in the rupee and the UPA government's move to impose additional levy on gold imports, making it an attractive option for investors. The landed price of the yellow metal had surged, pushing up the net asset value ( NAV ) of gold ETFs. However, the recent budget proposal by Finance Minister Arun Jaitley has thrown a spanner in the works for gold fund investors. The revised tax structure for all non-equity funds, includi...
Read more

IIFL NCDs

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India) IIFL NCDs IIF's six-year unsecured NCD 2012 Risk-wary investors should stay away from this issue, and even, risk-taking ones should think twice It is a public issue of unsecured redeemable non-convertible debentures ( NCDs ) by India Infoline Finance ( IIF ), an unlisted company, which is a 98.9 per cent subsidiary of India Infoline, a listed company. The issue seeks to raise Rs 250 crore with an option to retain over-subscription up to Rs 250 crore taking the total potential issue amount to Rs 500 crore. It will be open for public subscription from September 5 to September 18 with a minimum application size of Rs 5,000 in the form of five NCDs of face value Rs 1,000, TENURE & RATES: IIF will redeem the NCDs at the end of six years, and investors wanting out before six years will be able to sell the...
Read more

Tax saving tools to maximise returns

  An Individual can claim a deduction up to Rs 1 lakh U/S 80C of the Income-Tax Act, 1961 ('Act') by incurring a certain expenditure or making specified investments. Few of the popular schemes which are generally availed of by the individuals, inter-alia, include the following: Expenditure-Related Deductions Broadly, the expenditure-related deductions include tuition fees and home loan payments.    Tuition fees for full-time education in any Indian university, college, school, and educational institution, for any two children is eligible for deduction. However, development fees or donations are not considered.    The principal amount re-paid against a home loan to banks or certain category of employers is also eligible for deduction. Stamp duty, registration fees and other expenses incurred for the purpose of acquisition of such a house property are also eligible for deduction.    It should, however, be noted that the cost of renovation/house repairs after the completio...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now