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Your investment options in 2017 post-demonetisation

How various asset classes are expected to deliver in CY2017

Ramganesh Iyer

Now that the initial shock of the demonetisation has largely subsided, many savers and investors are wondering what this all means for their portfolio and their short-term and long-term investing options. Has anything changed?

Let’s look at the major places savers park their money in 2017, and whether the current situation warrants any shift in strategy:


Equity could be a big gainer from this exercise in the long term. Short-term concerns about impact of demonetization on GDP, and world events have taken a toll on the market since Nov 8, 2016.

However, there are sound reasons for investors to look at equity with even more interest for their long-term wealth building:

• A clean-up of the economy with demonetization and improved tax collections boost the medium to long term prospects of the Indian growth story. Sooner or later, this will reflect in the equity markets.

• Equity (including mutual funds) has a relatively strong KYC procedure and clean money trail. So investors will find it easy to move money to and from their bank accounts, compute tax liability and also provide records if there are any queries from Income Tax department.

• All records can be maintained and tracked in a digital form without the clutter of paperwork.

• The old advantages of equity providing good long term returns, and enjoying tax-free status after one year, continue. Other options do not have these advantages.

Mutual funds are good route to invest in equity, for people who do not have time and knowledge to do research themselves.


Deposit rates in the country haven’t reduced significantly yet, but this could happen soon given the spurt in bank deposits post demonetisation. If you are looking to park money for short periods of time, now is a good time to hurry and lock-in the interest rates by opening a fixed deposit. If you already have money in post office schemes or provident fund, interest rates on these could come down.

There are also several other options in debt, mainly through mutual funds. Many of them are better than fixed deposits from a tax perspective:

• Long duration gilt funds could do well if interest rates fall further.

• Corporate bond funds are another option, but you may want to stay away from funds that are exposed to low rated companies or those in sectors like real estate.

• Liquid funds and short term funds are a good alternative to fixed deposits and post office schemes.

All the debt mutual fund options above carry more flexibility and offer paperless investment and withdrawal at a day’s notice.


Gold prices have been slipping since demonetisation was announced – from Rs 31,500 per 10g on November 9 to below Rs 27,500 in mid-December. This is partly due to increased income tax lens on gold purchases and holdings.

Gold is likely to be a net loser from this exercise. It is going to be increasingly unattractive as an option for anyone trying to park unaccounted money. This will put a downward pressure on gold prices in the medium to long term.

For genuine investors looking to park accounted money in gold, we recommend the following:

• Invest through gold bonds or exchange traded funds and not in jewellery or coins. The former is cheaper, safer and easier to maintain records for. It is also easy to sell a bond or ETF when you want the money

• If purchasing jewellery or coins, maintain invoices and other records for the future You will need to pay appropriate capital gains tax as and when you sell the gold.

Real Estate

As with gold, the risk in real estate is that it slumps as an option for investing unaccounted money. Investing in real estate has been a popular way to stash unaccounted money. This could bring down prices – good if you are looking to buy a property in the future, but not if you already have an investment.
We continue to maintain that real estate is not a good investment option. This is again reinforced by the woes of this sector post demonetisation.


Demonetisation is a wake-up call to start investing or increase your exposure to capital markets compared to other investment options. It is also an encouragement to transact digitally to enable easy record keeping of your transactions and portfolio.
First Published on Jan 3, 2017 03:48 pm