For the past several months, the front pages across most newspapers showcased two main graphs, one depicting the progress of the pandemic and vaccines while the other tracing the journey of the equity markets as it inched higher and higher. Inbetween, the cryptocurrencies shot into limelight with their spectacular rise and subsequent fall.
India has traditionally been a stronghold of actively managed mutual funds with their benchmark beating returns and passive funds had few takers. But when you keep seeing the benchmark indices – BSE Sensex and NSE Nifty make unprecedented highs everyday, it’s difficult to keep still. Many investors as a result have switched from actively managed funds to passive funds based on the indexes or in some cases, have started investing for the first time in passively managed funds. John Bogle must be a very happy man, if he were to see this trend.
But the fact remains that we jump to buy only when we see the prices make the front page. Maybe seeing is believing 🙃
As per S&P currently in India, “the total assets under management in passive products at $24 billion and 86 passive products. Five years ago, India has a mere $2 billion in assets and 57 products. A decade back far less, with $1 billion assets and 26 products.” There is also the contribution from the government in passive investing with 15% the Employees Provident Fund being invested in ETFs based on the benchmark indices. So it’s all eyes on equity.
Moving to the next major asset category, bonds, they have done well too. Bond values are inversely related to the interest rates and in the current low interest rate regime, bonds values have increased.
Amidst this euphoria, there is one asset class that had lost some sheen – Gold.
“What’s out of sight is out of mind” goes the saying. We will probably remember gold as an asset class and it’s ability to act as a hedge against inflation only when gold prices make their way to the front pages of the dailies once again. And that will happen only during the next rally. The fact that gold prices have fallen from their previous highs is mentioned in the papers (somewhere inside). But do we consider the low prices as a reason to buy or wait till the onset of the next rally?
There are several ways to invest in gold – Gold MFs, Gold ETFs, Digital Gold and SGB – Sovereign Gold Bonds, an initiative of the GoI; all of them an alternative to buying physical gold and jewellery. It’s all digitally enabled and just a few clicks away. But please ensure to do your due diligence and see which mode and holding works best for you; more importantly only if you consider gold as an asset class.
Alternatively any broad based commodities can be a potential hedge against inflation too. For that matter even rental real estate does well during periods of high inflation.
Till next post, take care !!
Disclaimer: This is not investment advice, only an opinion piece. All investments are risky. Please ensure due diligence before making investment decisions.