Given the current economic scenario, equity as an asset class has taken a severe beating and would continue to remain weak for some time. What other options does one have to generate consistent returns?
At this point, the SIP way of investing makes perfect sense for investments in equity or equity focussed mutual funds. However, one needs to keep in mind that the returns from equity will not be immediate and will take longer to recover. Given this, one can consider churning(selling) a part of the MF/equity portfolio and investing in fixed instruments like company fixed deposits or government securities. Of the two, I would prefer company fixed deposits as these offer attractive returns on investment. On an average(at the time of writing), company FD's offer about 8-11% returns on a YOY basis. However, one should be careful in investing in company FD's and must not be lured just by returns. As a thumb rule, it is safer to look at companies offering less than 13%(looking at the current interest rate scenario). Secondly, look at the ratings and liabilities the company is sitting on. It may not be advisable to invest in companies with huge liabilities.
Recommended portfolio structure:
Fixed instruments 40%
Equity and equity related instruments 20% [Recommend phased accumulation for long term]
Liquid instruments 30%
Debt instruments 10%
I have reduced the weightage of debt instruments as I expect them to yield on par/below fixed instrument returns. At this point, I would prefer avoiding other asset classes like Gold and real estate. Its a great idea to accumulate gold systematically. However, it shouldn't be looked as a short or medium term investment. It is my view that Gold should be looked from a comsumption perspective. Buy as much as you can consume.
For more information on company fixed deposits, click here
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