Investment Portfolio Assessment

The views and opinions expressed are of Mr. Arun Thukral, MD & CEO, Axis Securities.

No conversation these days is complete without a discussion on the upcoming general elections. Political parties are leaving no stone unturned to influence voters by bombarding them with information that shows them in a positive light. 

A strong leader at the Center can do wonders for the prosperity of a nation, but our individual prosperity, to a large extent, is determined by the strength of our investments. While we carefully assess political candidates to make the right choice in national interest, it is equally crucial that we vote strong instruments to our portfolio in self-interest.  

We go through political manifestos and cross-check a candidate’s performance based on available data to choose the right candidate. To help you assess popular investment options in a similar fashion, we have done some homework for you.  

Fixed Deposit

Campaign slogan: Safety is our number 1 priority

Promise: Assured returns at no risk has made FDs the most sought after option in India. Lump-sum money at the time of maturity helps to provide for planned expenses. Easy withdrawal process, choice of tenure and tax-saving option are additional benefits. You can even take a loan against your FD and the rate of interest is much less than that on traditional loans.    

Actual Facts: FDs, a good option to park money, is not viable for wealth-creation. Interest earned on FDs is taxable and is not sufficient to beat inflation. Any fluctuation in interest rate could mean that your long-term funds are tied-up at lower rates. Lump-sum nature of investment fails to bring the discipline of systematic investments and associated benefit of compounding.  

Gold

Campaign slogan: For a sparkling future 

Promise: The emotional and traditional connect of Indians with gold is well known. Gold is the best gift option for all special occasions. Since the supply is limited and demand more, gold value only appreciates. It is simple to acquire. Either by selling it or acquiring a loan against it you can tide over unforeseen situations. Fairly high liquidity and low risk add further sheen to gold investments. 

Actual Facts: Value appreciation from gold tends to fall short of expectations. The rate at the time of sale depends on the international bullion market, which may not be favorable. Storage of gold involves cost. Both purchase, as well as sale, entails taxes (GST and Capital Gains). Purchase of gold jewelry includes additional making charges. At the time of sale, however, you lose on those charges and pay extra deduction charges. Hence, the effective rate of return is much lower. 

Real Estate 

Campaign slogan: Building for the future 

Promise: Buying a place to call home is a dream of millions of Indians. Stability and a sense of security imparted by a real estate investment is quite high. Value of property in India has only seen appreciation. Attractive finance schemes have made it easier to acquire this asset. You can transfer this asset to your loved as inheritance as well. 

Facts: Value appreciation is not as hunky-dory as it seems. Effective return on a property which was worth say INR 5 crores in 2018 and was bought for INR 20 lakhs in 1988 is 11.33%. Assuming you took a loan at 10% to buy that house, you effectively earn 1.33% on your investments. Upkeep and maintenance drain resources. The asset is difficult to dispose in time of need. The Indian real estate market is currently undergoing a slowdown which might be here to stay for a while.  

Equities 

Campaign slogan: Vote for me to set you free

Promise: The best way to create wealth is to be a part of the India growth story through equity. Equity investments offers inflation-beating returns over long-term. This highly liquid asset can be easily monetized when needed. Investments through SIP route bring about the much-needed discipline and make compounding work for you. Data shows that the longer you stay invested, higher the possibility of positive returns. 

Actual Facts: The investments are subject to market risks and the volatile nature of equity markets is well known. The fortune you make in equities depends on the quality of stocks you pick. For those who lack expertise, crossing this hurdle becomes a challenge, exposing their investments to risks. The domestic index, Sensex, however, has multiplied by more than 360 times since its inception in 1979, giving a CAGR of ~16% over this period, which is much higher than any other asset class.

Voting the right assets to your portfolio is as crucial as voting the right party to power. While in general elections you select only one candidate, the ‘asset election’ allows you to pick up your whole cabinet, allocating power to each candidate as per your needs. Unlike center, a coalition works better in this case. 

Originally published in HT Mint, Feb,19.