Rapid-fire question & answers

Will the global credit crisis affect my investments in:

a) Stocks?
Yes. The value of stocks will fall as FIIs are exiting and the liquidity crunch in the market continues.

b) Property?
Yes. Property prices will fall as interest rates go up further; availability of funds will dry up.

c) Government bonds and PPF?
Prices of bonds are likely to go up as banks and other institutions are parking funds in government bonds. PPF will not be affected. The rates will continue to be 8%.

Is it the right time to pick up stocks?

Better to wait awhile. There is no sign of the global crisis abating; stock prices are likely to fall further in the near future. The rebound in the stock prices will be very strong so it will be better to start investing small amounts after some time and not to wait to catch the bottom.

Should I continue with SIPs (systematic investment plans) in MFs? If yes, which sectors are safer?

If you are a long-term investor, you should continue with SIPs. The market is close to the bottom and your investments at this level will give you good returns in the medium to long term.

Will car and home loan rates rise or fall?

Interest rates will go up. Not only because of the liquidity crunch but also because of the rise in nonperforming assets, this will force banks to raise interest rates.

Should I invest in gold?

You can put a small portion of your investments in gold. In the short term, till the crisis continues, gold prices will rise. But once the crisis is over, the yellow metal will start losing its shine.

Will property prices fall this year?

Yes. Property prices will fall in the short to medium term. Following the global crisis, the India growth story is likely to take a hit — especially the IT and BPO sectors, which had been the biggest job creators so far. This will affect the demand.

What will be the effect on prices, foreign vacations, pension funds and post-retirement savings?

Prices will come down because of the global slowdown leading to easing of demand for crude oil and metals.

Foreign Vacations

As the rupee has depreciated by around 18% in the past six months, foreign vacations will become costlier. However, the slowdown will lead to lowering in hotel and airline tariffs in the medium term.

Pension Funds

Pension funds that have invested in mutual funds have lost heavily. However, in the medium term they will gain. But those who are to retire in the next three to six months will lose heavily.

Post-Retirement Savings

Most of the retired people invest in debts. The absolute returns, net of inflation, from debt instruments are in the negative. Still the losses are not as big as those from equities. However, at the present level, you can plan to put a part of your post-retirement investments in diversified mutual funds if you need the money only after five years.

Is it too early to press the panic button?

If you believe in the India growth story, there is no need to panic. The losses will be recovered in a couple of years. The growth might be affected in the short term, but in the medium to long term it will be back on the rails because of the high savings rate of about 35% of GDP.

Are there any plans that can safeguard my investments in the long run while keeping the returns in tune with inflation?

In the present situation, fixed deposits may be considered good instruments, in which public sector banks are giving 10.5% to 11% on three- to five-year terms. But at the current market level, medium-term investors can plan to invest in the equity market through diversified mutual funds. Even at this level, diversified equity funds give a compounded annual return of 25% over the last five years.






Source:
TOI


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