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FDs are better bets

business Updated: May 23, 2013 03:17 IST
Manu P Toms

Rajat Srivastava, a young professional working with a retail giant, invested Rs. 1 lakh in mutual funds in August 2011, when the BSE Sensex was trading at about 15,800.

His money more than doubled over the last 20 months. But he's no longer confident about the direction in which the stock market is headed.

"I got good returns but am taking my money out of stocks as the Sensex is jittery at 20,000 levels. I now plan to invest these funds in bank fixed deposits. I'll return to the stock market via mutual fund investments after six-to seven months when I have a better sense of where the Sensex is going," said Srivastava. http://www.hindustantimes.com/Images/Popup/2013/5/23_05_13-biz-21b.jpg

With the Sensex showing signs of nervousness and volatility after crossing 20,000, many experts feel that putting money in equities may not offer returns that are commensurate with the risk involved, at least for the immediate future. In other words, the potential returns don’t match the high risks involved.

"The markets look very volatile. There are lots of political and economic uncertainties ahead. Those who look at one-to-two year horizons should not invest in stocks," said Raghvendra Nath, managing director, Ladderup Wealth Management, a leading financial advisory firm.

Result: for small investors like Srivastava, who don’t like taking undue risks, it makes sense to put their money into a safe option like bank fixed deposits.

“Retail investors need to preserve their capital. The markets will be in a tight range and may even enter negative territory in the short term as we seem to enter into a period of political instability,” said Nath.

But stocks are still an attractive option if you have a longer term view."In the short term, volatility is so high that stocks may not give good returns. But over the long term, no other asset class will give as much returns as equities," said Deven Choksey, managing director, KR Choksey Shares & Securities, a leading broking firm.

Nath agrees with this. “For those with large surpluses, equities will be a remain a better bet if they have a 5-10 year investment horizon in mind.”

So, you have to decide which category of investors you belong to and what is the level of risk — high, moderate or low — you are comfortable with. Once you have the two answers, go ahead and invest.