This is a guest post by Karan Batra.Karan is a Chartered Accountant and lives in New Delhi.
When Recession came in the year 2008, many of us didn’t even know what Recession was and how it could impact the economy. Slowly and steadily everyone realised that the Recession has actually stepped in and the world won’t grow and the same pace as it did earlier.
It’s been a few years since the Recession came in 2008 and it till date the Stock Markets have not turned stable but are still volatile. Highly Volatile markets are the most risky as you never know at what stage to enter as they keep increasing and decreasing at a very rapid pace.
Despite the fact that Mutual funds are safe as compared to investing directly in Shares, but even the Mutual funds seem to have been caught in the ambit of Recession with the NAV’s decreasing constantly. In such circumstances, it is highly advisable to invest in low risk mutual funds such as debt oriented funds (e.g. Monthly Income Plans abbreviated as MIP’s and Gold Exchange Traded funds or Gold ETF’s)
As the fate of the economy still uncertain, it is highly advisable to have such Low Risk Mutual funds in your debt portfolio as Debt Oriented Mutual Funds are low on risk as compared to Equity Oriented Mutual Funds. And in the debt category, short term bonds and ultra short term bonds are even safer.
Despite the presence of such instruments in the market, many investors have either liquidated their investments or are planning to do so, in order to have a portfolio that is more of cash. Though it is not a bad strategy considering the way things have been of late, always remember that your gains would be limited to the Interest the bank can offer you in case you opt for liquid investments like Fixed Deposits. Adjusting for Inflation and taxes, it doesn’t cut a fetching picture at all with your real returns plunging into the negative territory.
Selecting the right Investment
If you are open to taking a significant amount of risk for capital appreciation, equity and equity related mutual funds are your best bet. That means if you are investing in equity MF’s through the systematic investment plan (SIP) route for your long term objectives, do not discontinue the existing SIP’s.
However, if you are conservative and think that the safety of capital is paramount, but still want returns better than what fixed deposits can offer, debt MF’s is the right fund for you. You can diversify across debt paper of varied maturity periods which will ensure safety of capital as well as optimum returns.
Selecting the right fund according to your risk appetitive is a very important aspect of investing as you yourself are going to enjoy the profits earned.
This article has been authored by CA Karan Batra who is a finance and tax blogger on http://www.charteredclub.com