Stock markets these days seem to be nearly un impacted by the 2nd wave of coronavirus. The equity market is nearing its all-time high. Nifty is hovering near the 15,800 levels and it seems that the Covid-19 pandemic this year has not much impacted the share bazaar, contrary to what was predicted and anticipated by many stock market investors. However, the 1st wave of coronavirus had a severe impact.
When the equity market reaches nearly it's previous high or achieves a new high, it becomes a matter of concern for market investors and some of them start switching funds from equity to debt market. Not only retail clients, even FIIs and DIIs also remained concerned about the high level of market and switch some part of their portfolio towards debt.
Currently, FD is not giving very promising returns, all big banks have kept their FD interest rates to near 5.5%, which is almost near to the inflation rate, and if you are living in an urban area, the inflation rate is quite high i.e. almost 1% higher than FD. Now, investing in FD does not give protection against inflation, so what all options you as an investor have when Sensex, Nifty is nearing lifetime highs? Here are the 3 best investment bets:
Gilt funds are debt funds that invest in Government Securities. Since these schemes invest a minimum of 80% in Government Securities, so you remain free of worries about your fund security. Gilt funds can give up to 12% returns, the 5-year return average of Indian Gilt funds is nearly 9%, but there is no return guarantee on this product. You also need to consider and take into account other factors while investing in Gilt funds like the average maturity of Gilt Funds is 3-5 years, so your investment horizon should be in accordance with the tenure.
This is another good option of debt instrument, which invests a minimum of 80% of funds in the highest-rated corporates. Funds are landed to only big corporates, which are capable of repaying debt on maturity. India's corporate bonds are giving 8-9% returns, so one can also consider it to be part of their portfolio. But, all the risk factors and terms & conditions should be well taken into consideration.
The yellow metal has given almost 13% returns in 1 year and is expected to do well in near future as well. However, it is not a debt instrument and its performance completely depends on Gold returns, but one should consider Gold as part of their portfolio and should invest at least 10% of portfolio value in it, as Gold always gives protection against inflation in the long run. There are multiple choices available for investors for gold investment like Gold Mutual Funds, Sovereign Gold Bonds, and Gold ETFs. Sovereign Gold Bonds has an advantage over other investment tools that it gives an additional 2.5% as an interest to investors apart from Gold performance and it has Sovereign guarantee as well.
If an investor has fears about high market levels, then they can invest some part of the portfolio in debt instrument and Gold but I suggest, not withdrawing all funds from equity because it is hard to decide entry level once you exit from the market. Like in a recent case, after Covid-19 1st wave when Nifty approaching its previous high 12k, some investors took an exit from the market, Nifty not performed as per people's expectations and continuously made new highs, some of those investors are still not able to re-enter and has missed a big opportunity. So I suggest, one should have a minimum of 40 % of their funds in the equity market all the time because you never know what could be at the top of the equity market this year.
Ravi Singhal is Vice Chairman, GCL Securities