Not everyone has the appetite for equity. The senior citizens, the pensioners who are really depending on fixed income to run their households, what can they do right now?
The interest rate cycle is actually on its journey southward and in this particular instance it has got further accentuated because of the medical crisis. The answer is not a very straightforward one. There cannot be one answer for all investors.
It is clearly a function of how much of a risk appetite an investor can have — whether or not he or she is a senior citizen. Also most importantly, what is the tenure of these investments. A very strong case can be made to diversify investments from traditional mode of investments which offer the highest degree of interest and safety in terms of capital into slightly more market-linked product categories, including corporate bonds or mutual fund fixed income units. A combination of these in the right proportion is one way of getting out of the situation.
Research shows 52.6% of household financial assets go to commercial bank deposits. Beyond a very small minority which uses sophisticated instruments, most of India saves in bank deposits. Is it time to get over that mindset?
The situation is such that the safe jacketed solution or remedy to just switch from bank’s fixed deposit to any other source of revenue or interest generating avenue is not going to work out because when the interest rates are coming down, even the market linked investments tend to be delivering lower returns. But the difference is that they are market-linked. However, if we are talking about inflation, having just fixed income including fixed deposits, bank deposits as part of your portfolio can help beat inflation over the years. So, have a combination of fixed income, invest sparingly in equities and gold as part of the portfolio and that cycle will act in your favour overtime.
Today 2-3-year EFU bonds are yielding just about 5% or less and this is not only in India. The world over we are seeing such low rates because central bankers are easing interest rates.