6 MinsAug 05, 2022
In a world that is surrounded by geopolitical tensions, political uncertainty, a lingering COVID-19 pandemic, spiralling inflation, rate hikes by the central banks to control inflation, weakness in major currencies against the greenback and the
overall effect of all of these on the equity markets and economic growth worldwide, the spotlight is once again on gold.
Why you should invest in gold
In the first half of the calendar year (as of 30th June 2022), gold has gained nearly +6% on an absolute basis in INR terms, after falling by 4.2% in 2021. Before that, in 2020, when the COVID-19
pandemic gripped the world and brought with it economic hardships, gold had clocked 28% absolute returns in rupee terms. The important point to note here is that the precious yellow metal displays its trait of being a haven, a store of value,
a hedge and potentially an effective portfolio diversifier.
Similarly, as inflation is expected to remain at elevated levels due to the surge in prices of commodities and services, gold may do well.
In addition, the intensified volatility in the equity market along with low real returns (adjusted for inflation) on debt and fixed income instruments would encourage smart investors to approach gold strategically
Thus, it would be wise to tactically allocate around 10% to 15% of your entire investment portfolio towards gold and hold it with a long-term view (of over 5 to 10 years) by assuming moderately high risk.
When you ‘invest in gold’, consider doing it the smart way––in the form of Gold ETFs, Gold Savings Funds, and/or
Sovereign Gold Bonds––as opposed to buying bars, coins and jewellery that add to your worry about its safety and holding cost. Keep in mind that the smart
ways of investing in gold effectively benchmark against the price of gold and offer better liquidity than physical gold.
Also, since gold is symbolic of Goddess Lakshmi, invest a portion of your portfolio, say 5-10%, in gold. It can help to diversify your portfolio.
[Also Read:How Fixed Deposits help during market volatility]
How FDs can help
Similarly, a Fixed Deposit also occupies an important place in your portfolio, especially if you are averse to taking risks. It offers fixed and secured returns (unlike market-linked instruments such as
stocks and mutual funds ), helps address your short-term goals and contingency requirements and offers liquidity.
If you wish to maximise returns by investing in FDs, do the following:
- Invest today while bank FD rates are favourable. If a monthly or quarterly interest payout is not your requirement, adopt the cumulative plan (also known as the reinvestment of interest) wherever possible.
- Follow the FD laddering strategy, wherein you spread your lump sum investment across maturities paying heed to your liquidity needs. In times when interest rates in the economy are likely to move up, this will potentially help you earn better
- As much as possible, avoid premature encashment of the FD, as doing this would put the brakes on the power of compounding. Instead, when in need of money for whatever purpose, consider availing a loan against your bank FD.
- At maturity, if you don’t require the money immediately, renew the FD for the desired period. This will support the power of compounding and help you build a bigger corpus.
You could also save tax by investing in a Tax Saver FD. The investment you make in it is eligible for a deduction of up to Rs 1.50 lakh per financial year (the aggregate
limit) under Section 80C of the Income Tax Act, 1961 and is locked in for 5 years.
Like gold, FDs too occupy an important place in your portfolio. Thus, it makes sense to have both in your investment portfolio rather than choosing one over the other. You can also use Axis Bank’s FD calculator to know more.
Disclaimer: This article has been authored by PersonalFN, a Mumbai-based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.