Some strategies to book profits in equity and invest them in debt instruments
Stock markets are consolidating at all-time high levels and analysts believe a break-out from current range can be expected next month. The market movement henceforth will largely depend on global developments. Investors are advised to review their portfolio and do some fine-tuning in terms of profit booking, part-profit booking, cut loss, shifting equity positions or re-balancing from equity to debt instruments.
Domestic economic growth is healthy and the long term markets outlook remains positive. Foreign institutional investors (FIIs) are also positive on emerging markets in general. However, the markets are already trading at quite high levels and investment in equities is high risk due to global uncertainties. Following the monetary policy tightening from RBI, interest rates have gone up and debt-based investment instruments is quite attractive for capital preservation, low investment risk, good interest returns and capital appreciation if interest rates go down in future. Investors with low risk profile can reduce exposure in equities and re-balance by investing in debt-based instruments and commodities. Here are some options to diversify your investment portfolio:
Bank deposit
The basic feature of bank deposits is safety of principal amount, easy liquidation of deposits and accumulation of regular interest. Interest rates on bank fixed deposits are on a rise after the RBI's decision to tighten the monetary policy. People should look for bank deposits for their short-term investment requirements.
Debt fund
These instruments are very good options for risk averse investors. These funds invest in debt-based funds and government bonds and therefore provide principal protection with decent return. These funds come without any lock-in period, provide quick liquidation and are handy for people looking to invest with short- to medium-term perspective without any risk.
Liquid fund
Liquid funds are good for investors to park their funds for the short term. Liquid funds invest the corpus mainly in money market instruments, short-term corporate deposits and treasury. Liquid funds are quite useful in terms of funds withdrawal and usually liquidate the funds on very short notice.
Returns from bank fixed deposits are taxable depending on the tax bracket of the investor, which considerably pulls down the actual returns, whereas, dividends from liquid funds are tax free in the hands of investor.
Gold and silver
The investment outlook of the overall commodities looks quite good due to uncertainty at global level. However, small investors should concentrate their commodities exposure to precious metals like gold and silver. Both of them have given very good returns in the recent past and their outlook for short- to medium-term is quite good.
You can invest in gold or silver through ETF or purchase of physical gold/silver coins from reliable shops and outlets. Exchange-traded funds (ETFs) are much like mutual funds with gold/silver as the underlying asset. Various well-known mutual fund houses manage gold and silver-based funds. The units of these funds are very easily tradable in the market, making it quite easy to invest, track and liquidate the investments.
