Sunday, June 22, 2014

So you think Your Portfolio is Doubled ?

Your money got doubled ? 

If someone feels their money got doubled ? Again have a look at your portfolio....i mean entire portfolio, with real estate, bank fd, ppf,epf,gold, company fd, stocks, etc.,

Indian investor is having less than 3% in equity, i do not say that, actaully this is an actual figure in india.

People in india are risk averse, are you kidding ? 

Risk averse? Lots of corporates where indian retail investors are putting their money in FD's are not repaying their capital also. But as the interest rate looks attractive at 11%,12%, etc., they feel they will get more returns, but they are not ready to understand or not aware that it is a credit risk they are taking to get an extra mile of just 2%.

Now coming to the point, as our debt like PPF, FDs and other company deposits are giving 5%,6% or 7%,8% returns after tax, i am just reminding you about inflation which is around 9-10% today.

Some people feel they have 20 lacs in PPF that will take care of their retirement, is it ? 
What if government reduces PPF rates to 7% in coming future ? I am not saying it will happen soon. But gradually it may happen and it will impact the full balance on your ppf account.

Say for example if you have 20 lacs in your PPF and it adds 1.6 lacs in your ppf considering 8% annual return, now if interest rates comes down to 7%, it will add 20k less, ie. 1.4 lacs and that too every year as you can not withdraw the full amount till it gets matured, so your money gets locked up at lower percentage which you have never thought of in your life. I do not say people should avoid PPF, but they should understand interest rate risk.

The only asset class which beats the inflation is equity across the world in last 25 years.

So if you think your one lac rupees in equity is now two lac and you have 20 lacs in ppf. In this scenario i do not feel any significant impact of wealth increase happened in your portfolio.

Now imagine the reverse, twenty lac in equity portfolio and if get doubled ? The choice is entirely yours.......think it......and start understanding equity.....time in the equity market is only important.