A good financial plan is a mix of different asset classes to offer diversification. The asset mix is defined by the risk appetite, age and time to reach a goal. There is no one asset mix to fit all but most common asset classes in a retail investor’s portfolio will include equity, debt, gold and cash. Cash means your liquid investments for immediate use. Let’s take a look at how these four commonly used asset classes - have done in different periods.
Equity: Equities are known as a great investment to beat inflation in the long run. However the recent poor performance of the stock market has dragged down the long term returns as well. No doubt, most equity mutual fund investors want to flock away to guarantee return investments like bank FDs. But the industry experts advise investors to not let panic govern their investment decisions. They are hopeful that once the market rebounds, we will see even better returns.
Debt: For debt or fixed income, we have assumed SBI fixed deposit returns. Most HNI investors are willing to switch from equities to bank FDs. They argue that in fear of pandemic they would want to protect capital instead of chasing returns. Amount invested in bank FDs upto ₹5 lakh in a bank are insured in case of a bank failure. At present, Bank FD returns look better than most equity fund categories.
Gold: Gold is the clear winner in the last one year in terms of its performance. The yellow metal is still hovering around its lifetime highs. At present the metal is at ₹49,150 per 10 gram. However, will these returns sustain is a big question. Experts believe gold is a hedge against inflation and typically performs better than equities and debt in times of global turmoil. Small portion of your portfolio can be attributed to it to save the downfall when all other asset classes fall.
Cash: Cash is meant to take care of any emergencies. We have assumed liquid mutual fund category returns for cash.
See table below for the return comparison.
Data as on July 15. Returns over one year are annualised except for 7-days interest rate of bank FD. Cash returns are the category average returns of liquid mutual funds; Bank FD returns are SBI term deposit rates for sum upto ₹2 crore.
(Source: SBI Bank, Value Research, MCX India)
The return comparison across asset classes here is only for informational purpose. Do not make any investment decisions based on these returns. You must consult a financial planner to get a customised investment plan. Not all asset classes are meant for all kind of investors.
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