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

JP Morgan launches Emerging Markets Opportunities Equity Offshore Fund

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 JP Morgan launches Emerging Markets Opportunities Equity Offshore Fund    The new fund offer opens for subscription on 16 th June and closes on 30 th June. JP Morgan Mutual Fund today announced the launch of its open end fund of fund called Emerging Markets Opportunities Equity Offshore Fund. The fund will invest in an aggressively managed portfolio of emerging market companies in the underlying fund - JPMorgan Funds - Emerging Markets Opportunities Fund, says a JP Morgan press release. Noriko Kuroki, Client Portfolio Manager, Global Emerging Markets Team (Singapore), JPMAM said, "Emerging markets have been out of favour for several years, as growth decelerated and earnings struggled. However, in a world of globalisation, we believe that EM will eventually re-couple with DM, leading to the long-aw...
Read more

Nifty F&O

  1. What is a straddle? A strategy using Nifty options usually before a major event or when one is uncertain of market direction. Comprises purchase of a Nifty call and put option of the same strike price. Usually strikes are purchased closer to the level of the underlying index. 2. What is better ­ buying or selling a straddle? It depends.Implied volatili ty of options, or near-term expectations of price swings in an un derlier like Nifty , usually peaks before an event and falls when the outcome plays out ­ like Infy re sults in past years. However, once the event plays out, a sharp rise or fall in Nifty could result in price of the straddle rising ­ benefiting buy ers. But, normally , those who sell or write options charge hefty premiums from buyers in the hope that fall in volatility would ensure the options end out-of-the-money, hurting buyers. 3. So, do straddle sellers end up winning most of the time? Yes. That's invariably the case when market volatility is trending on the...
Read more

L&T Long Term Infrastructure Bond 2012 Tranche 2 Application Forms

Application form for Tax Saving Long Term Infrastructure Bond     L&T Long Term Infra Bond Application form     Submit filled up application     Collection canter near you     --------------------------------------------- Invest Tax Saving Mutual Funds Online Mutual Funds Online   Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications   ---------------------------------------------   How to apply to PFC Bonds? Apply for PFC Tax Free Bonds forms below Download PFC TAX Free Bond Application Forms Submit the filled up form to Collection canter near you How to apply to NHAI Bonds? You can download the NHAI Tax Free Bonds forms below Download NHAI Tax Free bond Application Forms Submit the filled up form to Collection canter near you        
Read more

Changing the scheme preference in NPS

The NPS allows subscribers to choose the pension fund schemes in which they would like their contributions to be invested, as well as the pension fund manager who will manage their money. Subscribers can indicate their preference by mentioning the ratio in which their contribution will be invested in equity, corporate bonds and government bonds. They can also change this preference if they wish to do so. Here's how to go about it. Active vs auto As an alternative to choosing fund schemes, the NPS offers an auto choice where the proportions are pre-decided based on the age of the subscriber. The ratios cannot be modified in the auto choice, without changing the mode to active. Corporate If the subscriber is investing in the NPS through his corporate employer, the employer should offer all the options that the subscribers can choose from to change their preference. Physical form A form, UOS-S3CS-S3, has to be filled in and submitted to the PoP-SP through which the NPS account was ope...
Read more

UTI Equity Fund Invest Online

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   UTI Equity Fund   Invest Online UTI Equity is a large cap-oriented fund with assets under management worth Rs. 2,269 crore (as on June 30, 2013). The fund was originally launched in May 1992 as UTI Mastergain and is benchmarked against S&P BSE 100. A couple of years back the name of the fund was changed to UTI Equity Fund and many of the smaller funds of UTI were merged into this fund. Performance The fund has outperformed its benchmark as well as the equity diversified category average in the last one-, three- and five-year periods. It has repeated the same in 2013 (as on May 31). Since its inception the fund has delivered an impressive 26 per cent compounded annual growth rate which is superior to its benchmark performance in the same period. Y...
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