The government on November 8, 2016, scrapped Rs 500 and Rs 1000 notes in order to curb black money and corruption. Experts believe that it will have a short-term impact on GDP, corporate earnings, and on different asset classes.
Bank deposits have increased post demonetization as the government is encouraging people to deposit the amount in their account.
Here are few investment options after demonetization:
The stock market is falling down due to various reasons, one of them is demonetization. Equities in India take cues from corporate earnings and this time it is expected to be hit badly, on demonetization.
Many brokerages firms have cut the Sensex target prices due to lower corporate earnings.
Individuals who have been waiting for long time for stock prices to come down can buy now as they are available at a lower value and can be a good buying opportunity.
Physical gold cannot be considered as a good investment after demonetization. As the demand for gold will decrease due to cash availability. Gold will also take cues from international gold markets and the dollar.
Gold prices may come down if there are any reports of hike in interest rates by the Federal Reserve.
Individuals who are still keen on buying gold can consider other ways to invest such as Gold ETF, Sovereign Gold Bonds.
Investment in mutual funds can be one of the best options to invest after demonetization. Make sure to choose equities with strong fundamentals which can give you better returns in long run.
An investor can also choose the option to invest through Systematic Investment Plans (SIPs), where they can invest in small amounts starting from Rs 500.
Equity mutual funds tend to provide good returns when considered for the long term. Individuals can consider debt funds, liquid funds based on their need.
Investing in real estate was a popular way to stash black money through cash transactions. After the recent demonetization move, it is difficult for black money hoarders to stash their money, which is expected to hit real estate sector.
Prices in real estate are expected to drop by 20-30 per cent in next few quarters. This move will benefit individuals who are interested in buying a home, as housing will be affordable along with lower interest rates on the home loan.
Bank Fixed Deposits
Higher liquidity in banks will result in lower deposit rates as the banks will have enough liquidity to lend. Bank fixed deposit will be a bad option for individuals who are looking for decent returns as interest rates are expected to fall.
Banks such as SBI have already started to reduce their interest rate on bank deposits on various tenures.
This will badly impact on people who depend on bank interest rates as their income, while, borrowers will benefit as loan rates will come down.
Individuals falling in the highest tax bracket can consider investing tax-free bonds, which can provide you returns up to 6 per cent. Interest earned on tax-free bonds are not taxed, while, interest earned on FDs are taxed.