Investing in markets, gold and bank deposits
Indian equities have been best performing among the BRICS, boosted by a burst of economic reforms by the government, this year.
In the year to date, the Sensex index has returned 20.05 per cent for investors and the expectation is that it will do better in 2013. In a note last month, Morgan Stanley cited lower interest rates, a pick-up in infrastructure spending and stable energy prices as factors that would contribute to a likely surge in the stock market. Last week, JP Morgan analysts announced that India is their top emerging market country for next year. Sean Daykin, head of investments at Emirates NBD, also believes that India will continue to do well in 2013.
Virat Diwanji, an executive vice president and head of Branch Banking at Kotak Mahindra Bank says: “In the long term sectors like banking and infrastructure look promising. [Those who are] risk averse can consider investing in defensive sectors such as pharmaceuticals and fast moving consumer durables that may provide stable returns in long term.”
Funds focusing on some of these sectors have had high returns in 2012. Krishnan Ramachandran, chief executive of Dubai-based Barjeel Geojit Securities, which caters to more than 40,000 non- resident Indians (NRIs) , points to ICICI Prudential Banking and Financial Services Fund (year-to-date return 56%) and Reliance Banking Fund (46%), ICICI Prudential FMCG Growth (37%) and Reliance Pharma Fund (28%). “A large number of diversified and small and mid-cap (capitalization) funds have also delivered anywhere between 20 and 40 per cent during the current year,” said Ramachandran.
Given the volatility of the market and the in-depth research required to select stocks, most advisers favour investing through mutual funds. Anil Rego, chief executive of Right Horizons, a financial advisory firm, recommends using a Systematic Investment Plan (SIP) to invest in diversified funds, including large and mid-cap funds, as well as balanced funds to help manage the downside. “In the current interest rate scenario, one can also have short-term income funds to earn consistent returns,” added Rego. Large cap funds choices could include ICICI Pru Focussed Bluechip and DSP BR Top 100 and Midcap Funds like HDFC Midcap Opportunity or IDFC Premier Equity.”
Balanced funds help manage the downside. On Hybrid funds, Rego says, one can use a combination of Balanced Funds (Reliance RSF Balanced / HDFC Prudence); Balanced Dymanic PE (FT India Dynamic PE Fund); and Multiasset (Axis Triple Advantage).
An important factor in assessing funds is the return beating inflation. “Funds and equity investments judiciously made have time and again delivered returns over and above inflation. Of course there have been years when these returns do not materialize, but on a long- term basis both funds and equities have delivered superior returns,” said Ramachandran. Diwanji added: “For NRIs, [inflation] is less relevant since their expenditure and cost of living is not linked to inflation in India.”
Gold funds dedicated to the precious metal, not physical holdings, are favoured by some advisers. “Exchange traded funds (ETF) or a savings fund are better options than physical gold,” said Anil Rego, chief executive of Right Horizons. “The disadvantages of physical gold include the high transaction costs as well as storage and the possibility of theft. ETFs would be a lower cost options for a long term investor. However, if one wants to go for regular investing, gold savings funds are a good option. Regular saving is suggested since gold prices are strong.”