Cash crunch amid the pandemic and low interest rates on traditional investment options like bank Fixed Deposits and small savings schemes have driven many individual investors to volatile options like equity markets. Some have even turned to unbelievably uncertain cryptocurrencies for quick returns but made heavy losses. These new-age crypto coins often witness price fluctuations in the range of 10-20 per cent or even more.
In fact, an SBI report has revealed that there has been a “significant tilt” of retail investors towards stock markets due to declining rates on traditional products and increasing global liquidity. Another big and interesting reason behind this, the SBI Report says, is that people are spending more time in their homes during Covid-induced lockdowns!
However, in the absence of a proper understanding of the highly uncertain environment, individual investors are regularly putting themselves at risk of losing money. It is therefore important to know of ways to make stable returns even if the environment remains uncertain.
Remain invested
Bhavin Patel, Co-founder & CEO, LenDenClub, says that for stability, one should remain invested during an uncertain environment and diversify his/her portfolio.
“There could be relatively low risk and less uncertain investment options like FD, but the returns are bound to be nullified by inflation over time. As mentioned earlier, the best option would be to create a diversified portfolio with a balance between high risk, high returns and more stable and lower risk avenues. With experience, people tend to learn variations in investment techniques. Diversification gives you stable and assured returns on one hand, while testing waters with high-risk investments on the other,” Patel told FE Online.
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Explore new low-risk options
Anshul Gupta, Co-Founder at WintWealth, says during times of uncertainty, most investors start looking for stable returns. Apart from Section 80C investments, Fixed deposits are considered safe by many. However, FD rates are at historical lows. Most don’t even beat inflation.
Gupta bats for covered bonds for a stable return in a highly unstable environment. He says that debt funds have a higher risk and offer better returns and taxation. These are linked to interest rates and have given low returns of late. Until interest rates recover, we are unlikely to see an improvement.
“Covered bonds are a better option because there is lower credit risk. They have an additional layer of safety which is prudent given the financial stress. These are still high risk but if you have sufficient safeguards in place, are less risky than equity. Typically, retail investors in the 30% tax bracket should primarily look at these because they stand to gain the most,” Gupta told FE Online.
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Diversify smartly
There is always a certain level of risk and uncertainty attached to any form of investment classes. However, during challenging times such as wars, recessions or pandemics, it becomes even more important to secure a stable source of income. This is where smart diversification plays a critical role.
“While one should maintain a healthy mix of equity, bonds, commodities and physical assets, availing non-traditional, new-age investment platforms can also be a good proposition as they enable one to invest smaller sums at regular intervals rather than waiting for the right market conditions. Secondly, most of these platforms offer access to asset classes that are not directly linked to traditional instruments like the stock market which offers a reasonable amount of insulation during uncertain times,” Sudarshan Lodha, Co-founder, Strata, said.
Being technology backed, these new-age platforms evade human intervention of any form. Since most of them offer investors the ability to monitor their investment and returns on a regular basis they offer them complete control of their assets. For instance, in the case of fractional investment in real estate, the investor is offered with a dashboard that keeps him informed on how the asset has fared and what returns can be expected among other data specs. This enables the investor to tweak his investment strategy in terms of timing the market so as to elude poor investment decisions. Besides diversification, it also helps to strengthen the financial immunity and minimize the losses, Lodha added.
