Feeling Saturated with Mutual Funds? Here are #5 Asset Class that Will Help You Diversify Your Portfolio in 2019
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‘Mutual Funds Sahi Hai’
This is one of the slogans the wealth management industry is been chanting for quite some time now. And honestly, it is true as it diversifies the investor’s risk with a small capital outlay and portfolio is managed by experienced professionals.
As per media reports, the collective effort of the industry has helped them to increase the assets under management to INR 24 lakh crore by November 2018, which is up by 13 per cent as against last year.
In fact, according to the Association of Mutual Funds in India (AMFI), the trend is expected to continue in the coming years and the numbers are only set to improve.
However, if you are an individual investor and feel a bit saturated with your mutual fund's portfolio and want to try your luck in other assets class, here is a list you want to look at and yes, there no cryptocurrency in it:
Gold – India’s favourite asset class.
One of the good things about gold is that it rarely reacts to market fluctuation. Nevertheless, as the risk here is low, one should not expect mind-blowing returns from the metal.
Samant Sikka, Co-Founder Sqrrl Investments & Savings App shares, “Investments made in the yellow metal do not require much monitoring and it has been able to position itself as a good investment option for the many. The asset class also offers higher liquidity.”
However, you don’t really have to invest in physical gold or gold mutual funds. Instead, you can also eye sovereign gold bonds.
Nitin Agrawal, CEO, Orowealth says sovereign gold bonds are a better option than gold mutual funds as because of a higher yield although the underline is the same.
“This higher yield is because of the extra interest earned by investing in these gold bonds. Also, investing in these bonds give you a tax benefit,” he added.
Exotic Derivatives, as per Investopedia, is more complex than commonly traded ‘vanilla’ products.
However, considering the complexity around the product, Mohit G. Poddaar, Associate Director, Wealth Management, IndiaNivesh suggests instead of investing in your individual capacity, route your investments through vehicles as Portfolio Management Service managed by professional fund managers.
The other option one can look while diversification is through investing in bonds. It may not generate high returns for you, however, Sikka feels bonds are a very good option as it acts as a cushion to hedge exposure to more volatile asset classes.
“While bond funds do not guarantee a fixed rate of return, they are still a few notches above the traditional bank fixed deposits. These are tax efficient too and can be a good option for investors looking for slow but steady growth. Keeping their portfolios diversified can help investors with better risk-adjusted returns and bond funds can definitely play a part in widening the focus of your portfolios,” he pointed out.
Exchange traded funds (ETFs) track indices. The assets class is more or less just like stocks and based on arbitrage mechanism developed to keep it trading near to its Net Asset Value or NAV
“ETFs can be a better option in terms of investing in large-cap space as SEBI has defined top 100 companies as the large-cap companies. Thus, over time the alpha that will be generated in this space will be lower and hence low-cost ETFs will be a profitable option,” suggested Agrawal.
Alternative Invest Fund
If you want to be a part of India’s startup story and want a piece of cake for yourself, we also have an option for this.
Poddaar from IndiaNivesh says investors with a higher risk-appetite and are looking at a long-term horizon, can also consider investing in an alternative investment fund and invest in (unlisted securities) and turnaround strategies (listed and unlisted securities).
Giving an example of an in-house fund, IndiaNivesh Renaissance Fund (INRF), which primarily targets turn-around situations that are either currently underperforming or in financial stress, but are viable business propositions with significant potential for value-unlocking, he adds, “AIF’s also provide a good investment choice given its unique structure and higher potential for alpha creation over other product offerings.”
Kindly remember, these recommendations are for portfolio diversification only and should not be considered with wealth creation in mind. Nonetheless, Entrepreneur India would highly advise you to discuss your portfolio diversification with your financial advisor to understand the complexity around the asset and hedge the risk around it.