INFLATION is a much-feared monster today. It has busted budgets of many households and has pushed people to cut corners to trade down on what they buy or even stop some of the things they used to indulge in. This was even more of a problem for those who depend on interest income like senior citizens, who actually saw their money de-growing. That was a double whammy for them.
Inflation has moderated a bit and interest rates have started climbing up. This will come as a bit of relief to them. Banks have been raising rates, following the RBI, which seem to be raising rates these days with metronomic regularity. For sometime now, senior citizens have been able to get over 10 per cent on FDs. Yields are expected to climb further as rates are being increased. The expectation is that rates will continue to rise. What should one do or not do during this period?
Things to do:
Continue the systematic investment plans (SIPs) you have: The dumbest thing to do now would be to stop the SIPs that are going on. Apart from impacting future goals, you will also lose chance to invest at lower levels of market. Over time, these investments done at lower levels would contribute to better returns.
Put more in equity/equity assets: Since markets are at a lower level, as per asset allocation principle, you could allocate more to equities or equity-oriented assets to maintain the same allocation levels.
Again, investments at this point would give better returns when the markets go up.
Invest in debt instruments: If you would like to invest in debt instruments, there could not have been a better time. FDs, non-convertible debentures (NCDs) and fixed maturity plans (FMPs) are offering excellent returns. Especially, FMPs are offering returns in the region of 8.5-9 per cent after tax. It's time to lock in on good interest rates.
Property investments: Property prices have run up quite high. Though sales have slowed down, there are no let-up in prices.
Unless one finds a good property at attractive prices, one should wait and take a decision when property prices fall to more realistic levels.
Commodities: If you do not have exposure to precious metals like gold and silver, you could take an exposure to it to the extent of 5-10 per cent through exchange traded funds (ETFs). Similarly, one can take exposure to commodities through schemes investing in equities dealing in commodities. It is a roundabout way of participating in commodities but safer.
Things to avoid:
Going headlong into gold and silver is one of the things to avoid: These are going up primarily on the basis of speculation across the world. Huge amount of money is going into ETFs, which is driving demand. Due to uncertainty across the globe, there is support for gold at other levels. But that does not mean you need to invest more than 5-10 per cent of your portfolio in precious metals.
Not investing and keeping surplus in bank: Looking for the right time or opportunity to invest and keeping money in a bank are not great ideas at all. Savings accounts give low interest rates and low returns. Evaluate options and commit to proper investments.
Churning the portfolio: This may not be the time to churn the portfolio because of low or negative returns. You might have made some investments in some high-risk instruments as well. It might have been done with a particular outlook for the portfolio in line with the time horizon and goals. Suddenly exiting them, after the first whiff of underperformance, is not the best thing to do. Portfolios should be re done only if some assets are not performing as intended (and is not an aberration) and do not hold chance in future too. Following fads: We had talked about investing in gold, which is a fad at this point.
There were fads like investing in teak plantations and goat farming at various points in time. Following fads do not help in achieving goals.
Chasing returns: Getting into schemes or out of schemes primarily because returns have gone up or down is not a strategy. This does not make sense as the schemes that are not performing well today may fire up later. We need to look at overall performance over the tenure of the investment rather than short-term performances.
So, it's simple after all, isn't it? Most times, common sense is what is required to do well with one's finances.
-----------------------------------------------------------------
Also, know how to buy mutual funds online:
Invest in DSP BlackRock Mutual Funds Online
Invest in Reliance Mutual Funds Online
Invest in HDFC Mutual Funds Online
Invest in Sundaram Mutual Funds Online
Invest in Birla Sunlife Mutual Funds Online
Invest in UTI Mutual Funds Online
Invest in SBI Mutual Funds Online
Invest in Edelweiss Mutual Funds Online
