As we are about to enter 2022, the triple whammy of high inflation, balance sheet taper by the U.S. Fed and rise in Omicron cases across Europe and North America has resulted in a negative liquidity impulse and growth shock for global risk assets that were on a high from a cocktail of near-zero rates and money printing. This has led to some correction in global risk assets and EMs have been bearing the brunt of it.
At home, big, oversubscribed IPOs and relentless selling by foreign portfolio investors (FPIs) sucked liquidity from Indian equities and led to a double-digit correction in the BSE in two months, the biggest drawdown from a peak since the March 2020 bottom. The Indian rupee (INR) has weakened against the dollar and is flirting with its all-time lows of April 2020 while India's 10-year treasury yields have spiked to 6.45%, the highest since April 2020.
With the stock markets showing signs of fatigue on the back of valuations being way ahead of fundamentals, interest rates on bank FDs and bonds being subdued, and gold going nowhere, investors are confused and concerned. What investment options do they.
We have 4 investment options that can help all-time invest in 2022.
Equity as an asset class
a great year with scores of companies raising money through IPOs, giving a return of 20 percent. Equity mutual funds too did very well with small-cap companies giving a whopping 60 percent return compared to...
Since investing in equity requires a lot of time and skill and since there are concerns about Omicron impacting stock market returns in the next few months, it would be a better idea to invest in equity mutual funds either by investing a lump sum amount or through a SIP.
Debt as an asset class
2021 was not the best year for debt mutual funds with most of them delivering between 4 percent barring credit risk funds which gave a return of 8.77 percent. Credit risk funds are mutual funds that invest in bonds rated “AA” and below, carry a high degree of credit or default risk. This may not be an ideal investment option for investors with a low-risk appetite.
For investors, who cannot stomach the risks in debt mutual funds, there are many post offices saving schemes that look attractive as some schemes offer higher interest rates vis-a-vis bank deposits. Some of them also qualify for tax benefits.
Gold as an Asset Class
Gold had a forgettable year, and it was the only asset class that gave a negative return during 2021. However, gold has always been popular with Indian households as an investment option since it is used as a status symbol and normally held in the form of ornaments. Gold prices have been hovering around $1,800 per troy ounce throughout 2021 but is expected to do well in 2022
Cryptocurrency
With bitcoin catching the fancy of investors, especially the young Indians, investing in cryptos is a hot topic now. The government has also clarified that it would not ban cryptocurrency in India but would rather recognize it as an asset and not as a currency. Since there is no clarity on capital gains & the tax aspects, it would be prudent to wait & watch.
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