Nowadays, everyone wants their wishes fulfilled right away. While we may be aware that perseverance and self-control are key to success, we often find ourselves wishing for a faster path to fulfillment. This also holds true for financial investments. Earning the most money in the least amount of time is a top priority. This is why we always searching for innovative strategies to increase our capital.
While it’s true that the right investment strategy may significantly increase your wealth, it’s not always easy to track down. Furthermore, you may have to wait longer than you anticipate for them to produce benefits. In light of this, it is essential to match the available investment plans with your investment horizon and your tolerance for risk if you hope to successfully increase your wealth.
Splitting your financial objectives into long-term, intermediate-term, and short-term categories might help you choose the most appropriate investing strategies for your portfolio. Doing so will give you an indication of how much time you have to complete the task. After that, pick an option that suits your level of risk tolerance from the accessible ones.
In this post, we’ll take a look at some of the most well-liked long-term, intermediate-term, and short-term investing alternatives in India. And we’ll show you how to put together a portfolio that’s tailor-made for you by combining several investing strategies.
How Can Indians Fight Price Increases?
One of the greatest strategies to combat inflation is to invest in products that have a better possibility of being equal to or greater than the rate of inflation tomorrow. For the best chance of outperforming inflation, investors should carefully consider their risk tolerance and long-term objectives before settling on any one investing strategy.
It might be more challenging to evaluate your own risk tolerance and financial priorities. Consulting with a Registered Investment Advisor can help you determine your risk tolerance and prioritize your financial priorities. Tavaga is one of several contemporary new-age consultants who can aid you if you don’t want to follow conventional wisdom. Tavaga’s personalized direction and high-performing portfolios help you meet your financial goals at an affordable price.
One of the most crucial things to keep in mind while investing is diversification. A few investments, especially those focused on equities, may appear to give very high returns, but they also include some degree of risk. Consider your goals, risk tolerance, and inflation predictions before deciding how much to diversify.
Let’s check whether there are any investing opportunities in India that have historically outpaced inflation. Keep in mind that results from the past are not necessarily an indicator of future success.
Equity Investments
1-Direct investment in the Stock Market
Stock returns have historically been higher than inflation rates. With inflation on the rise, firms may see increased earnings. Share prices rise as profits are increased. Even though there are exceptions, on average, stock market gains have exceeded inflation throughout time.
While stock market returns have historically exceeded inflation, short-term performance can be erratic and unpredictable. Consider the years 2021 and 2022 as a possible illustration. In October of 2021, the Sensex had risen to 61,000, from a level of roughly 25,000.
As of April 2022, the Sensex has had a compound annual growth rate (CAGR) of more than 15% during the preceding five years. However, the performance of individual stocks may vary from the performance of a benchmark index.
This proves that, in the long run, market conditions improve. The potential benefits and drawbacks are almost equal. Inflation may be outpaced by strategic and well-researched stock market investments.
2-Equity Mutual Funds
Many investors find it challenging to keep up with the daily movement of particular equities or the market as a whole. When they have decided which stock mutual fund best meets their requirements and objectives, they may make an investment. Equity funds may be broken down into several different categories to accommodate a wide range of investors. A wide variety of equity funds exist, some of which are organized according to market size, others according to sector, still others according to investing strategy, and yet others in order to minimize taxes.
Over both five and ten years, the returns of most equities funds have averaged well over 10%.
3-ETFs: Exchange-Traded Funds (ETFs)
Exchange-Traded Funds (ETFs) are a sort of mutual fund that mirror major market indices like the Nifty or Nasdaq. The expense ratios of ETFs typically fall below 0.5%, and they offer more diversification. Because large-cap companies tend to develop at a higher rate than the economy as a whole, the broad market indexes typically offer returns that exceed the rate of inflation. Exchange-traded funds are still a new concept in India, although they make up a significant component of the S&P 500 in the United States. Over the long run, ETFs have consistently outperformed the rate of inflation and generated large returns for their investors.
Gold
Gold has always been the preferred investment vehicle for Indians since it does not need any knowledge of the stock market. Gold is seen as a hedge against the unpredictable ebb and flow of financial markets. Price and return increases have kept pace with inflation, earning it a reputation as a reliable inflation hedge. When prices rise steadily, investors seek the safety of gold.
Gold is not an asset because it is a commodity. World Gold Council research indicates that for every 1% increase in inflation, gold demand increases by 2.6%.
Gold Exchange Traded Funds (Gold ETFs)
Gold exchange-traded funds (ETFs) are open-ended mutual fund schemes that track the fluctuating price of gold to offer investors with exposure to the gold market. The costs associated with producing and storing actual gold are prohibitive. If you’re looking to outpace inflation with your investments, exchange-traded gold funds (ETFs) are a great choice.
Real Estate
In India, investments in real estate have outpaced inflation, but doing so requires a sizable initial outlay of cash—often measured in thousands or crores. Investors typically have to tally up the interest they paid on mortgage loans. It is common for real estate to provide a better rate of return than inflation since its value is so tied to its location.
The House Price Index compiled by the Reserve Bank of India (RBI) from real estate prices in ten cities indicates that the average return on real estate ownership over the previous decade has been roughly 11.6%. (as of Oct 2020). It’s the national average, thus it applies to the whole country. Actually, because of the geographical diversity in property values, returns may vary from city to city.
Real estate investment trusts (REITs)
Real estate investment trusts (REITs) provide an alternative for investors who are put off by the high initial investment needed to enter the real estate market. Corporations classified as REITs own and manage real estate assets such apartment buildings, office buildings, shopping centers, and warehouses. They’re a portfolio of properties that offers returns to investors.
Housing costs and rents are both positively impacted by inflation. Due to their flexibility to increase rents and distribute the resulting money to shareholders, REITs do well during periods of inflation.
The demand for alternative high-yield assets might have a negative impact on REIT prices. When interest rates rise, demand for Treasury securities increases. This might deplete investor enthusiasm for REITs and bring down their stock values. Real estate investment trusts (REITs) incur an extra cost since they must pay property taxes.
Investments in Debt
Inflation and interest rates in an economy go hand in hand, and bonds and debt funds that invest in bonds are especially sensitive to changes in interest rates. Rates of interest tend to grow in tandem with inflation. Bond prices tend to trend in the opposite direction of interest rates. Consequently, as interest rates rise, bond prices decline. Bond money can lose purchasing power in an inflationary economy. Managing returns, preserving capital, and realizing real returns after accounting for inflation are all significantly improved by diversification.
1-Investing in Inflation-Indexed bonds
One of the safest and most efficient methods to hedge against inflation is to invest in inflation-indexed bonds. One subset of government bonds issued by the RBI is inflation-indexed bonds. Interest is calculated on an updated principle amount, making this bond one of a kind in that it automatically adapts to inflation.
A simple example will help you grasp the calculation’s subtleties. Let’s pretend that at the end of the year the inflation rate is 10%. You have invested Rs. 100 in a bond that pays interest of 8% each year. Interest accrued at the end of the year on a standard bond would be Rs.8, but in the event of an inflation-indexed bond, the principal would be updated to account for inflation, so the new value would be Rs.110, and interest of 8% would be paid on this, or Rs.8.8.
2-Debt Mutual Funds
Debt mutual funds are pools of money that are pooled together to buy bonds. They offer a stable interest rate and a high degree of liquidity. To offset the effects of inflation, the interest rate is adjusted periodically. Because of this, it represents a practical means of protecting oneself against inflation. Debt mutual funds can be further subdivided into nearly a dozen distinct categories, with returns averaging between 7% and 10% over the past five to ten years. But the sub-categories vary in their risk and reward potential. Not only should returns play a role in deciding whether or not to employ debt-based investments as a buffer against inflation, but so should your risk tolerance and your long-term objectives.
Alternative investments
An inflation hedge can be found in collectible automobiles and high-quality artwork. To the contrary, these collectibles are anticipated to appreciate in value and price over time, generating returns in excess of inflation. However, they are extremely risky, and there will be credibility problems associated with them. As another option, investing in hedge funds or new businesses through unlisted shares might help you keep up with inflation. However, these should be assessed solely in light of your tolerance for risk and your intended returns on investment.
Rebalance Your Portfolio
In order to adapt to changes in the market over the long term, it may be necessary to rebalance your holdings. Portfolio rebalancing may be required due to variables such as fluctuating inflation rates, a change in financial goals, or other events. Depending on the state of the economy and inflation by 2022, a portfolio constructed in 2012 may be ineffective. Thus, one method of protecting your savings against inflation is to review your holdings periodically and make adjustments as needed.
Highest Return Investment Stocks for India in 2022
1. DLF
Established in 1946 with its headquarters in Haryana, Delhi Land & Finance is a real estate firm. If you are looking for a property in India, go no farther than DLF, the country’s leading real estate firm. They originally gained prominence as the IPL’s Title Sponsor in the first several seasons (IPL). DLF develops properties for a variety of uses, including homes, businesses, and shops. DLF also engages in the Gurgaon road building industry. Their leadership is solid.
2. Lypsa Gems & Jewellery
Lypsa gems is an Indian jewelry manufacturer that opened its doors in 1995. They buy and sell, craft, and polish jewelry and gemstones. The firm has been consistently performing well financially, with the net profit increasing in each of the previous three quarters. The firm appears to be sound on the ground.
3. Colgate Palmolive
Established in 1937, Colgate is now one of India’s most prominent fast-moving consumer goods (FMCG) corporations. Colgate Palmolive (USA) is the company’s parent, and it is in the business of making and selling consumer goods, medical supplies, cosmetics, and animal health supplies. This company has been a mainstay in the Nifty and Sensex indices for years due to its consistent performance. Right now, you can buy a share of stock for $1478.
4. Reliance Industries
Reliance Industries is a division of the reliance group, which was established in 1973 by Dhirubhai Ambani and is now one of India’s major corporations. Energy, petrochemicals, natural gas, retail, telecommunications, mass media, and textiles are only a few of its many industries. Among its numerous affiliates are reliance digital, Reliance Petroleum, the Jio platform, and others. Reliance stock is widely considered a safe and promising investment for the future of the Indian economy. Right now, you can get one for around $2 590.
5. Godrej properties
Godrej Properties is one of the most sought-after real estate stocks after DLF, and this is because inflation has a small impact on the volatility of real estate stocks. The Godrej Group was established in 1990 by Adi Godrej in the Indian city of Mumbai, where Godrej Properties is headquartered. It operates in the building and improvement industry. As of the now, one unit of Godrej homes is worth $1184.
6. Titan
Titan is a global corporation based in India that produces fine jewelry, timepieces, and accessories. In 1984, Xerxes Desai established the company. They have their main office in Bangalore. Fastrack, Sonata, Tanishq, and Skinn are some of its well-known labels. Recently, they’ve expanded into the smartwatch industry as well.
Today, shares cost $1936.
7. Bajaj Consumer care
A substantial source of income for the Indian FMCG giant Bajaj Consumer Care comes from its haircare products. Almost a century ago, Bajaj developed this FMCG dispenser. Hair care is where they really shine, but their influence extends beyond that. Bajaj consumer care positions itself as a secure investment among small-cap funds, with an EPS above 11.7. The stock price is hovering around 131 per share right now.
8. Phoenix Mills Ltd
Located in Mumbai, Phoenix Mills was founded as a real estate firm in 1905. They’re building shopping centers, hotels, and houses. Phoenix Marketcity is the name of their shopping centers. They boast more than 17.5 million square feet of retail, residential, commercial, and hotel space. According to the BCG matrix, the firm has entered the Star phase since its performance has been so promising that mutual funds have begun to expand their holdings.
The current price is $1108.
9. Kalyan Jewellers
Kalyan jewellers was established in Thrissur, India, by TS Kalyanaraman in 1993. Since March of 2021, shares of the firm have been publicly traded. In addition to an increasing operating cash flow, the company also enjoys a growing net cash flow. Both their finances and their reputation are solid. The current price is 57.40 yen.
10. ITC
One of India’s largest fast-moving consumer goods conglomerates is the Imperial Tobacco Group. In 1910 it first opened for business. Many other types of goods and services pique their attention, including those pertaining to personal hygiene, tobacco use, office supplies, and name-brand clothing. ITC Limited’s primary competitive advantage is the steady growth of its annual revenue. Goldflake and Classic are only two of the well-known cigarette brands owned by ITC. The current price of a share of stock is $263.
What Role Your Personal Circumstances May Play In Your Inflation Investments
During periods of inflation, these inflation hedges can be helpful for certain investors, but they aren’t the best choice for everyone. Every investor should weigh their risk tolerance, time horizon, and investing objectives before making a move.
For instance, investors who are either retired or getting close to retirement are typically counseled to put the bulk of their portfolios into cash and fixed-income assets during periods of normal inflation. The fact that inflation is on the rise is no reason for these conservative investors to dump all they have into stocks, commodities, and other high-risk assets. Instead, they may stick very close to their asset allocation while shifting a small portion of their portfolio towards inflation hedges.
For certain investors, borrowing might be profitable while interest rates are still relatively low. Since the Federal Reserve is expected to increase rates to combat inflation, this is especially true. Considering this, getting a mortgage right now could be the best option. It is also important to consider refinancing any debts with excessive interest rates. The principal of a mortgage or other loan decreases as a result of inflation.
Final Remarks
Long-term inflation has far-reaching effects on people and society as a whole. Inflation is a major economic threat, but several market techniques have emerged to combat it. Price increases due to either supply constraints or increased demand are the most common sources of inflation. To achieve this goal of outperforming inflation, a portfolio should be rebalanced on a regular basis to account for changes in the rate of inflation.