Happy New Year to all my readers!
Growth and inflation form a crucial part of our investment strategy. Higher growth with consistent lower inflation rates can appreciate your investments significantly every year. 2017 has been a fantastic year in terms of the growth rates from the various investment avenues and to top it up, the inflation rates have continued to be on the lower side. However, in 2018, CPI inflation rates have shown significant uptick and are expected to inch northwards amidst weak rabi & kharif output. In this blog, we are going to understand how one should churn their investment portfolios to ensure that their returns are significant and well above the inflation rates.
I would like to take my readers through the following sections:
- Current CPI & Expectations
- Effects on growth rates
- Investment Strategy
- Some common tips to note for an investment strategy
CPI Inflation & Expectations:
As indicated by the RBI in their policy review, the CPI inflation has reached to a 17 month high and expected to increase further. The CPI inflation might break the comfortable levels of 6% soon. This kind of uptick in the inflation demands a need for converting your investment from defensive to a moderately aggressive.
Effects on Growth Rates:
Here’s a depiction of what would happen if you do NOT churn your portfolio with the increasing inflation trends:
If you observe, any investment in the defensive style would earn less than 1% real returns over a period of 1 year. Hypothetically, if the inflation rates increase beyond 7%, the investment would be making -ve returns (in common terms – value of money will decrease).
Hence, one should shift to ‘Moderately Aggressive’ or ‘Aggressive’ investment type basis the risk appetite. Here’s my recommendation on how the portfolio should look for every Rs 1 lakh you invest:
The above strategy would earn you significant returns (14% average). The strategy can be modified by making it aggressive and earning greater returns of about 18% p.a.
Some common tips to note for an investment strategy:
- Avoid SIPs. Invest in regular intervals with lump sum amounts. This is to ensure that the returns are tax-free in lump sum amounts instead of small SIP amounts
- Always invest in ‘Open-Ended’ funds
- Avoid debt funds as they attract taxes in all scenarios as compared to equity funds (equity fund returns are tax-free after 1 year of investment)
- Investments in stocks should be with a minimum horizon of 5-7 years of holding
- Hybrid investments are of two types (debt and equity). Prefer equity over debt funds
- Keep your investments concentrate to a maximum of 5 mutual funds as the mutual funds are already diversified internally
While all this sounds great, some of you might have questions on where to start? A helping hand is always good to have. So here are my top picks of mutual funds and stocks for the year to get you started!!!
Liquid Mutual Funds:
- Axis Liquid Fund
- L&T Liquid Fund
- Essel Liquid Fund
Hybrid Liquid Funds:
- HDFC Balanced Fund
- ICICI Prudential Balanced Fund
- SBI Magnum Balanced Fund
Equity Oriented Funds:
- Franklin Build India Fund
- L&T Value India Fund
- Franklin High Growth Companies Fund
- ICICI Pru Value Discovery Fund
- SBI Magnum Multicap Fund
- HDFC Bank
- Maruti Suzuki
- Au Finance
- Idea Cellular
Note:- Investment is subject to market risks. Please use your own investment analysis before investment. The above mentioned funds & stocks are recommendations only and may vary basis your risk appetite.
Thank you for reading!
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