It is always a tricky question to answer, when it comes to investing in gold, equities or bonds. Most times, you can go by fundamentals, however, there are times, when markets defy fundamentals as well. Let's take a look at where you should be investing, say if you have a sum of Rs 1 lakh.
Debt Looks Attractive
Debt, particularly fixed deposits of NBFC and banks look as the best bet right now. A fixed deposit like Mahindra and Mahindra fetches you an interest rate of 9 per cent if you invest online. This is not bad at all, considering that interest rates in the conomy are falling. Deposits from Bajaj Finance offer you an interest rate of 8.75 per cent, again a AAA rated deposit.
Overall, it seems that these deposits look good and hence the real rate on deposits is now near 6 per cent (inflation minus interest rates). However, look for good quality debt instruments. It would not be a bad idea to invest as much as 60 per cent of your corpus, in debt and debt instruments.
Equities at the moment look inflated. The Sensex is trading at 28 times price to earnings multiples and there are only hopes of an earnings recovery. We have been listening to this "earnings recovery" story for many months now.
It does not seem to be happening at all and we are certainly left disappointed. Election uncertainty has only compounded the problem and one is not sure where the results of the elections would be headed.
It therefore makes sense to invest only 30 per cent of your corpus in equities. If you see a dramatic collapse in stock prices, probably that would be the right time to buy.
Gold has gone nowhere in the last few years. For gold to give returns, there has to be some serious geo-political tensions. At the moment that does not seem to be happening, so one is not sure if gold would give even 4-5 per cent returns every year.
The only reason one should be investing in gold, is because it is a perfect hedge against global chaos. So, it is actually a great diversification tool, more than anything else. If you are looking to buy, you should invest only in small quantities. So, it makes sense to stay invested in about 10 per cent in equities.
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