Some individuals have the tendency to buy into assets during the festive season for obvious reasons. The question that you ask yourself is: should it be gold, debt or equity?
Gold is at near record highs and the Sensex is just 3 per cent away from record highs, while on the other hand as far as debt is concerned interest rates are falling. In any case, let's take a look:
24-karats gold has hit a new record of Rs 40,000 in select cities just recently. It has just about fallen 2 per cent from record highs. If you are looking to use gold for a marriage or a special occasion, you are forced to buy the same. On the other hand, if you are looking to invest in gold, the answer would be to avoid doing the same in large quantities.
If you invest at peak levels, the chances are that you will not make any money. However, you would make money, only if there are geo-political tensions, as gold is a safe haven asset. In any case, if you are planning to invest for the festive season, allocate just about 10 per cent to gold. This is largely to treat the same as a diversification measure more than anything else. One of the prime reasons not to add too much to gold is the huge upsurge in price.
We suggest that you plough about 30 per cent of your money in equities, as the benchmark indices are near record highs. In fact, after the recent rally, following a cut in corporate tax rates, the benchmark
indices have rallied almost 8 per cent.
This leaves very limited scope for making money and the risk to reward ratio is not as favorable it was a fortnight ago. One would need to buy only selectively into good quality stocks.
Select midcaps and small caps are still looking attractive for the long-term. However, the rally that many had hoped for in this space, is just not happening. Growth worries still remain for some of the companies here.
With gold and equities both rallying, it would be a good idea to park bulk of the money almost 60 per cent in high quality debt. Investors can look at look at high quality NBFC fixed deposits like Mahindra and Mahindra and Bajaj Finance where the yields can be as high as 10 per cent.
However, here again we wish to emphasize that one needs to stick to high quality debt only, and if you are looking at company deposits, look for the AAA rated deposits. There are also some small finance banks that can offer you interest rate of as much as 9 per cent. The one reason why we are also suggesting debt is because, we expect interest rates to fall at
least 0.25% to 0.75% in the next one year. It would be a good idea to hence lock money at higher rates.
You might also want to look at debt mutual funds, as they offer the opportunity to switch from one fund to another. In any case look for
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