While recession has not been confirmed, there are definitive signs that the global economy is experiencing a slowdown. Like other major economies, India is also experiencing a slump, as can be seen with GDP growth dropping to 5 percent, banking crisis led by high NPAs, failing manufacturing sector and widespread job losses. In these uncertain times, a major worry for the common man is to find a safe and secure way to invest. If you have similar concerns, here’s a quick overview of best investment options during slowdown.
SIP: People usually think that they should stop investing in SIP (Strategic Investment Plan) during slowdown. However, this may not be an appropriate move. Finance experts say that slowdown is actually the best time to invest in SIP. That’s because Net Asset Value (NAV) of funds comes down during slowdown, allowing you to buy more units with the same amount of money. Historical data also shows that people who continued to invest in SIP during lean periods were able to get optimal returns in the long term. So, if you have adequate funds and have a long-term investment goal, this would be the right time to invest in SIP.
Gold ETF or gold sovereign bonds: Investing in gold is a good option at times of slowdown. Gold prices may fluctuate, but gold will never lose its principal value. The traditional option was to buy physical gold (jewelry or bullion), but now you can choose far better options such as gold ETF or gold sovereign bonds. Buying physical gold will attract charges, which will reduce your overall returns. Moreover, investing in physical gold has other issues related to purity, safety and liquidity. In comparison, investing in gold ETF or gold sovereign bonds is a lot more easy and convenient. Most of these gold investments and redemptions can be made online. You can start with gold denominations of as small as 1 gram.
US-focused equity funds: To diversify your portfolio, you can consider investing in international equities such as US stocks. United States is also experiencing a slowdown, but its economic fundamentals are strong. So, investing in US-focused equity funds will be safe and adequately profitable. You will also be gaining from changes in valuation of currencies. Indian Rupee is expected to depreciate vis-à-vis the dollar in the long term, which will increase your overall earnings. For example, if the current rate is Rs 70 for a US dollar, this could increase to Rs 75 or Rs 80 in the long term. So, your Rs 70 originally invested will give you 5-10 bucks extra for every dollar in the long run. This will be on top of any increase in NAV.
Avoid Real Estate: If you want a home for own use, then this would be the right time to buy property. Real estate prices have bottomed out and banks are offering home loans at affordable interest rates. However, if you are planning to buy property for investment purpose, then it would be better to postpone your decision or consider other investment options. Builders currently have huge inventory across most cities, which means that property prices won’t appreciate much in the short to medium term. You should avoid property investment especially if you are planning to fund your acquisition via a home loan. Property prices are expected to appreciate only around 4-5% in the next few years. In comparison, interest on your home loan will be in the range of 8-9%. So, investing in property via a home loan will be a net loss in the short to medium term.
Other tips and suggestions to survive slowdown
Diversify your portfolio: The age-old wisdom of “don’t put all your eggs in one basket” still holds true. You need to allocate your available funds across various investment avenues such as savings account, fixed deposits, equity, SIP, gold bonds, etc. This will ensure that even if one fails, there will be others that will continue to be profitable.
Create an emergency fund: With many companies hinting at job cuts, it’s better to prepare for the worst. If you are the sole breadwinner of your family, you need to have at least 9-12 months’ worth of emergency funds. You should have enough to pay all your monthly expenses and also to meet any unforeseen expenses. You can keep your emergency fund where it can be easily accessed such as savings account, fixed deposit, short-term debt fund or liquid fund.
Make sure you have health insurance: Medical treatment costs are a heavy burden and things can become worse if you lose your job. So, make sure you have health insurance for yourself and all family members.
Avoid switching jobs in a hurry: In these times of uncertainty, you should think carefully before making career changes. If you are planning to change your job, first do a thorough research about the company and its financial position. Make your move only when you are certain that your new job will be secure and financially more rewarding.
Last but not least, try to cut down your expenses such as eating out, ordering food and shopping. You should buy things you need and not things you desire. A penny saved is a penny earned; a lesson that becomes all the more important during times of slowdown. We don’t know how things will be in the next few years, so it’s better to take proactive steps to secure our financial future.