Sarbajeet K Sen Moneycontrol News
Equity markets have been on a roll ahead of Diwali 2017 with both Sensex and Nifty touching their all-time highs of 32,633.64 and 10,230.85 respectively this week.
The festive season is also period when a lot of investors’ put their money in gold. At a time when equities valuations have been rising, what is a good investment option? Is gold a better option than equities? Should you increase your debt holding to balance your portfolio risk?
Despite the high point that stock market has reached, most investment advisors still appear to be bullish on equities.
“Equity returns have mostly outperformed the returns on gold. Therefore we would advise to stay in equities through good quality stocks or through diversified mutual funds depending on one’s risk appetite,” Rahul Agarwal, Director, Wealth Discovery told Moneycontrol. In 2017 itself, gold has returned 6.7% whereas equity has returned 24.3% on a yearly basis, he points out.
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However, Agarwal says investors should have fixed income in their portfolio to mitigate risk. “Volatile markets are also periods where portfolios should be rebalanced to maintain the investment ratios of debt and equity among other assets. If a current investment portfolio does not have a fixed income component or the debt component is under represented it’s always advisable to get some exposure. If the risk tolerance is low we would advise to get some exposure through balanced mutual funds which have both equity and debt component,” he advises.
Vikash Agarwal, Co-founder CAGRfunds, agrees. “Equities is likely to give higher return over the long term on the back of strong economy fundamentals. Policy reforms, lower inflation, increasing consumer spending and rising importance of India on the global arena is likely to boost economic growth over the next 10 years. In such a situation, equity as an asset class performs better than most other asset classes. However, care should be taken that equity investment is done with a long-term time horizon and that funds are selected carefully,” says Agarwal.
However, Agarwal feels investors should look at the current risk levels of their portfolio balance their portfolio accordingly. “If equity proportion of investments has overshot the intended equity exposure, it is advisable to book some profit (keeping tax implications in mind) and switch some part of the investment to debt funds so that asset allocation levels can be maintained. Also, in the fixed income space investors should invest in short-term and accrual funds and avoid investing high duration funds,” he said.
Rahul Parikh, CEO, Bajaj Capital, backs equity as a preferred investment route to create wealth in the long run. “If one has an investment horizon of more than 2 years, equities still has a much better chance to beat gold in terms of returns,” Parikh says.
However, he feels for the short term gold may give better returns. “Gold and equity have very different risk-return profiles and utility in one’s investment portfolio. At this point in time, given the slow earnings growth and high valuations in equity markets and potential risk events, Gold provides a better risk reward for the short term (say 1-2 years),” he says.
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