Received a bonus recently and wondering where to invest it? You are not alone.
Many investors are facing the same dilemma as markets remain volatile amid the ongoing , making market-linked investments such as mutual funds less rewarding in the short term.
offered by PSU and private banks are currently yielding around 6% to 7.5%, which many investors may not find attractive enough. Small finance banks are offering higher returns of nearly 8.5%, but they come with relatively higher risk.
, on the other hand, looks appealing, but soaring prices provide no entry point. Adding to the confusion is the absence of Sovereign Gold Bonds (SGBs), leaving many investors uncertain about investing in digital gold due to the lack of clear regulatory safeguards.
Here’s what you should do:
In such uncertain and confusing market conditions, it is often better to stick to a simple, disciplined formula regardless of how the market moves.
Avinash Luthria, SEBI Registered Investment Adviser at Fiduciaries, suggests if you are looking to deploy a large lump-sum amount, a simple and disciplined approach may work better than trying to time the market.
“No matter what the state of the stock market is, put half of it into an Arbitrage Fund as a long-term investment and invest the other half via a new 12-month SIP, in any Nifty 50 Index Fund.”
Why this strategy works?
The Arbitrage Fund helps reduce risk and protects part of the capital during volatile phases, while the staggered SIP approach into a Nifty 50 Index Fund avoids poor market timing and allows investors to benefit from long-term equity compounding.
No matter how volatile or uncertain the market may appear in the short term, markets tend to stabilise over time and have historically delivered positive returns for investors who remain invested with a sufficiently long time horizon.
How different asset classes performed in last two decades?
A recent report by FundsIndia found that Indian equities delivered annual returns of 13.2% over 10 years, 11.3% over 15 years and 11.4% over 20 years. At that pace, investments would have multiplied roughly 3.5 times in 10 years, 5 times in 15 years and nearly 8.7 times over two decades.
US equities performed even better, delivering annualised returns of 19.4% over 10 years, 19.8% over 15 years and 15.2% over a 20-year period, with money multiplying at 5.9x, 15x and 17.01x over similar periods.
As compared to that, real estate provided a return of 5.6% and 7.9% in 15 and 20 years and debt instruments provided returns in the range to 7.5% to 7.6% over the same period.
Gold also delivered impressive long-term returns, generating 14.6% retuns over 20 years and multiplying investments by more than 15 times. However, even that strong performance could not beat returns generated by US equities over the same period.
The markets have witnessed at least two major crashes over the period that we are considering – 2008 and 2020.
During the , Indian markets plunged over 50% as the collapse of Lehman Brothers triggered panic across global economies. And, in 2020, markets crashed nearly 40% within weeks due to and lockdowns.