As Indian stock markets zoomed to a 19-month high amid hopes of early Parliamentary approval to the government's reforms intiatives, and gold prices breaching record highs, financial advisers offered a word of caution: make informed and well-researched decisions before shuffling your savings portfolio.
The 30-scrip sensitive index of the Bombay Stock Exchange (BSE), Sensex, ended the day with a gain of 328.83 points, or 1.75%, at 19,170.91. The wider 50-scrip Nifty of the National Stock Exchange also rose 97.55 points, or 1.70%, to 5,825.
"The buoyancy in stock market does prompt people to take emotional decisions," said Lovaii Navlakhi, managing director & chief financial planner, International Money Matters. "It is okay if one misses some bit of the rally. One should always take a staggered approach in investing as well as in booking profits."
The investing habit of Indian households over the past three years has seen a shift. In 2011-12, the total financial savings by Indian households stood at Rs. 969,080 crore, partly mirroring the slowing trends in the broader economy. In the last financial years, Indians invested R981,600 crore in physical assets such as gold and real estate in 2011-12, up 22% compared to Rs. 8,035,00 crore in 2010-11.
Experts said that last year, people preferred to park more of their savings in bank deposits, reflecting the low risk appetite to invest in high-risk-high-return assets such as equities.
"What people should understand is it should go far higher than this level and should stay invested," Suresh Sadagopan, Mumbai-based financial planning expert.
Gold should not account for more than 5-10% of one's investment," he said.
Over the past three years, households have preferred to save in bank deposits ahead of small savings such as National Savings Certificates (NSCs) as banks are now offering attractive returns on both savings and fixed deposits.
Pension products have also found favour mirroring more productive use of household income for long term savings
"The ground rule is that one should invest one third of his income while his expense should never exceed one third. One third should be spent on repaying debt," said Ranjeet Mudholkar, CEO, Financial Planning Standard Board India.
"Sensex crossing 19,000 mark should not distract one from this ground rule," he said.
"Let's appreciate that equity is giving the highest long term return. If one can afford to take the risks associated with it, then equity remains attractive," he added.