With corona threat in place that has not only brought with it threats to life but even global economy is likely to see a crisis that was not seen even in the last century. As per the IMF, in order to recover from the fall-out of Covid 19, governments' world over need to come out with large-scale relief packages.
And as with time at hand due to work from opportunity for nearly all folks amid the current lockdown situation and as is the need of the hour, you while rejigging your financial portfolio for safe and reasonable returns can consider some of these below mentioned financial instruments.
1. Gold ETFs:
In the previous year, gold clocked return 18.4%, its best performance since 2010 and 7% in the current year to March 27 in dollar terms. And with gold as the underlying in gold ETFs, there remains immense scope for investor community to make up for losses made in other asset class.
Why gold shall further make new highs?
- Uncertainty due to covid 19 as how long the crisis shall last and with there is economic crisis world over, that causes flight to safe and safe havens such as gold
- Low interest rate regime
- Devaluing of the currencies as governments world over are coming up with stimulus packages
Gold ETFs combine stock market flexibility with gold investment and are passive investment options based on gold prices and invest in bullion gold.
Why gold ETFs fare better in comparison to physical gold?
- Offer high liquidity as they trade on the cash market on the NSE and can be sold and bought at market prices
- Unique structure entail lower expenses in case of gold ETF
Why gold ETFs?
In general, gold shares inverse performance relationship with equities and bonds. As it is while equities are now recovering from the hard sell off witnessed due to corona, the bottom is still not reached in equities, so gold gains an edge in such times.
Also, as is the current scenario, wherein bond yields are soaring the environment is against debt instruments also.
But when it comes to gold ETFs which invest in total fund in gold bars and aim to tracking gold price, when gold price go up, the net asset value of gold ETFs climb and vice-versa.
In 2019 alone, gold ETFs posted at least 26% return and over a 10-year period has posted an annualized return of 8.62%.
Previously, US-China trade war crisis augured well for the currency and now the corona pandemic is sure to reward you for your investment in the yellow-precious metal. Further as per a World Gold Council report, the price of gold has increased by an average 14.1% per year in rupee terms since 1973.
2. Bharat Bond ETFs:
As there is preference for credit risk aversion during the current turmoil and at a time when safety has preceded return clause, investor looking at high safety can invest in Bharat Bond ETFs that invest in AAA rated debt securities of government companies. Further, these entail very low cost and have a target maturity date.
Also, if investors held them till maturity they are better placed then bank fixed deposits due to indexation benefit.
Say for instance, a fixed deposit of SBI after the recent rate cut will give 5.7% return for deposits of 1-10 year tenure. With post tax returns for people in the 30% tax bracket at about 3.9%.
In comparison, post tax return of Bharat Bond ETF maturing in April 2030 will be 6.73% while that for the one maturing in April 2023 will be 5.8%. This is assuming indexation benefit that is return higher than the inflation rate which is available for debt funds when units are retained until maturity.
Also, experts hail these Bharat Bond ETFs better than tax-free bonds that are on offer through secondary markets where yields range between 5-25-5.75%.
Further, as they are traded on the exchange, these offer paramount liquidity in the product which is another advantage.
|Bharat Bond ETf||Maturity in April 2030||Maturity in April 2023|
|Investment Amount||Rs. 1 lakh||Rs. 1 lakh|
|YTM in percentage||7.43||6.35|
|Indexation cost of investmennt||148024||112486|
|Tax (20% +10% SC+ 4% cess)||13065||1849|
|Post tax value||192062||118718|
|Post tax return||6.73||5.81|
3. 7.75% Government of India (GoI) Bonds:
Current tumultuous times, require us to place our bets on safe instrument and one such is 7.75% GoI bond with sovereign backing and hence no credit risk. Though post tax return are lower than other debt investment options, the instrument comes with pre-encashment for those in the age group over 60 years after 6 years. The tenure of the bond is 7 years.
Note interest on these bonds attract TDS and is these are taxed as per the investor's slab rate and for those in 30% tax slab returns get beaten down to 5.42% post-tax, so over the years they may not be able to level up with inflation rate.
The article is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.
About the author:
Roshni Agarwal has been covering personal finance and investment planning for close to 5 years. She has a degree in MBA, Finance and writes on personal finanace, Mutual Funds, Stock Markets and Currency markets.