2018 was a rough year for investors in India. On one hand, those who had put money in safe bets like fixed deposits (FDs) and gold had the last laugh as they safely earned a return of upwards of 6.5% and 7.1% respectively on their capital investment. On the other hand, many who risked their investment in mutual funds and real estate, were left high and dry in the same year. Most of the high-performing mutual funds of 2017 didn’t earn even the nominal savings bank account interest.
Investors who look at the market index with hope regularly were left disappointed as Sensex gained only 5.2% and Nifty was up by only 2.2% during the same time frame. These dismal returns were in sharp contrast to the previous year when Sensex had gained 29.58% and Nifty 30.28%.
Overall, equity mutual funds were a big disappointment in 2018, as 76% of the schemes turned red last year, as reported by Economic Times. Smallcap was down by 19%. This category has given returns of 36.36% in 2017. Midcap schemes were also severely hit. This category offered -13.2% average returns, as against the positive 40% average returns in the previous year. The tax-saving funds (ELSS) were also down by 8%.
Before the start of 2018, SEBI had asked AMFI to tone down its hugely successful ad campaign that had the ‘mutual fund sahi hai’ tagline. Clearly, the former was concerned about the ad misleading investors, especially those from smaller towns and villages, into buying mutual fund products without actually understanding the risks associated with them.
The only saviour was the technology sector and some ETF Funds that delivered phenomenal returns in the year gone by, with Tata Digital India Fund topping the charts delivering as high as 26%. The worst hit was infrastructure, small and midcap funds. The lowest performer was the HSBC Infra Equity Fund that delivered -34% average returns.
The IT sector rode high on the good earnings shown by the IT giants of the country. The depreciating rupee gave a boost to the fortunes of this sector. The rupee fell from 63.68 (Jan 1st) to 69.76 (Dec 31st) per dollar, touching a low of 74.45 during the year. Infrastructure funds underperformed in tandem with the disappointing performance of the infrastructure sector that is facing a liquidity and funding crunch.
The real estate sector is under constraint since the time of demonetisation and GST implementation, with developers struggling to complete their housing projects and homebuyers refusing to be indulgent with their money in the current volatile market (though things are looking up now due to various government initiatives). Demonetisation had mixed effects – a positive effect on equity mutual funds that saw a high influx of funds, while FD interest rates were cut due to low demand of credit; yet, FD was a popular choice due to high cash pool and safety.
For new and novice investors of last year, ‘Mutual Fund Sahi Hai’ may be sounding like ‘Acche Din’. Keeping the current market volatility in mind, one may contemplate whether 2019 can be the year of return of the good old bank fixed deposit. Given that the interest rates on FDs are headed up, we could be one sharp stock market fall away from the cash flow reversing to the conservative options.
In 2019, FDs are continuing to do well by us, with interest rates going up, with most banks offering upwards of 7% even for a 1-year deposit. For senior citizens, interest rates being offered are in the range of 7.5-9.25%. Some company FDs like Mahindra Finance are even offering upto 10% interest return on cumulative deposits.
Well, at the end of it, each individual’s investment goal is to maximize his or her return with minimum amount of risk. For the many conservative investors who have no risk appetite and looking for an assured and fixed return, FDs are the safest amongst all investment products. FD investments are risk-free, reliable, liquid, and have a tax saving option as well. However, the safety of an FD may come at a cost of much lower returns which are barely able to beat inflation in certain years. It is therefore advisable to have a diversified portfolio with both FD and mutual fund investments represented adequately. However, invest in the latter only after taking cognizance of the risks involved. Don’t allow agents to push you and rip you off of your hard-earned savings.
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