For the past 5 years since the onset of COVID-19, I have actively invested in SIPs and have been pleased with the growth, especially in the post-Covid era. However, in recent months, the profits have shown a decline. Despite my concerns, my financial advisor reassures me that it is a favorable time to continue investing and not to worry. It seems that some investors, including High Net Worth Individuals (HNIs), have opted to halt their SIPs and redirect their funds toward fixed-income instruments such as FDs in order to realign their asset allocation.
Additionally, there is a group of investors who are steering their future SIPs toward debt and fixed-income instruments. I am currently investing 2.5 lakhs per month in SIPs. Any insights or advice on this matter would be greatly appreciated.
Advice by Chirag Muni, Executive Director, Anand Rathi Wealth Limited
The four most popular asset classes are equity, debt, gold, and real estate; now, these can be categorised into two broad headers based on their behaviour. One is growth-based assets like equity and real estate, which focus on stimulating the growth in the portfolio, and the other is conservative assets like debt and commodities, which act as a hedge against volatility and uncertainty.
Debt funds: Investing solely in debt would likely result in generating negligible real returns, as debt products will offer returns in the range of 6 to 7%, and inflation will be around 5.9%, so it will unlikely create real returns by beating inflation. Investors should explore this asset class to combine it with growth assets, as it will provide stability in the portfolio.
Gold: When it comes to gold, gold has turned into a volatile asset in recent years and has become very inconsistent in delivering stable returns. Also, if we look at the rolling returns of the gold in the last 5 years, it has delivered 12% returns with a 0.5 efficiency ratio, whereas equity in the same period has delivered 21% returns with a 0.9 efficiency ratio, considering these we don’t recommend exploring gold in the portfolio. We recommend only debt as a viable asset for the conservative asset portion of the portfolio.
A mix of assets: However, choosing the right asset mix among both depends on metrics such as investor goals, tenure, and liquidity requirements. If an investor invests for short-term goals (5 years) 80:20 asset mix is recommended.
Additionally, investing across low-corelative assets will help reduce the volatility of the portfolio in uncertain times. This strategic allocation and diversification helps to maintain growth while ensuring stability and liquidity in the portfolio.