Low interest rates, high yields impacting inflation? Here’s what investors should do
The combination of a low interest rate regime and high inflation has made term deposits (FDs) and other investments unattractive to investors. Today, bank FDs offer a meager return of 4 to 5.5%. Even small savings programs offer lower returns, which makes investors more difficult.
Under such circumstances, experts believe that now is the time for investors to look to the market, whether it is direct investment or through mutual funds.
According to Adhil Shetty, CEO of Bankbazaar, “Investing in stocks helps investors beat inflation over the long term and mutual funds are the safest and best way to invest in the market. Equity funds in India have generated almost 12-15% CAGR over the past 10 years. It’s about six to eight percent above inflation, ”says Shetty.
According to Shetty, making this worse each year would yield a significant amount of wealth over an extended period.
“Unlike before, it’s no longer difficult to invest in mutual funds or to keep track of investments. Plus, there are funds to suit all tastes, including the more risk averse, ”says Shetty.
“Mutual funds are not only for the long and medium term, but also for the short term. For short-term investments, liquid funds are a good option. Liquid funds are short-term debt mutual funds where an investor has the opportunity to park their fund for a few days or months and earn returns for the holding period at market rates. Liquid funds offer average returns of four to six percent. Liquid funds are invested in short term money market instruments such as government treasury bills, money markets, short term business deposits, commercial papers, etc. This makes them very liquid and safe. In addition, no exit charge is applicable for such a fund. Liquid funds also provide good liquidity in just one day, ”said Shetty.
Archit Gupta, Founder and CEO of ClearTax, suggests that investors who find it difficult to choose stocks for themselves, consider investing in equity mutual funds, as they will benefit from expert financial management.
“Equity investments require investors to have an investment horizon of at least five years to mitigate market volatility. Individuals can stagger their investments by choosing to invest under a systematic investment plan (SIP), which will further reduce the impact of volatility, ”Gupta advises.
“Considering that gold is not greatly affected by exchange rates – the effects of inflation on this tool are almost minimal. The price of gold is also directly proportional to the rate of inflation. Investing through the SGB / gold ETF could be a good option, ”suggests Basu.
In addition to investing in these avenues, individuals should also be careful with their investments.
“They must analyze the fundamentals of the company before investing in its shares. For all kinds of investments, you have to make sure that the investments are aligned with financial goals and risk tolerance, ”said Gupta of ClearTax.
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