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Managing Money in New Year

Managing Money in New Year

The coming year will be full of uncertainties; here is some expert advice on how you can make the best of it.

Financial assets scored over physical assets in 2017. While demand for physical gold and real estate remained subdued, the concept of systematic investment plans, or SIPs, caught the fancy of investors. Indians are collectively investing more than `5,000 crore in stock markets through SIP every month.

It is a welcome move considering foreign institutional investors pulled out `33,209 between January and November 29, while domestic institutional investors put in `79,865.96 crore during the same period, fuelling the rise in stock markets.

One of the main reasons for mutual funds becoming popular is the abysmal performance of other asset classes. While debt (gilt short term) and gold funds gave returns of 5 per cent and -0.4 per cent, respectively, over the last one year, the demand in the real estate sector remained subdued due to huge unsold inventory with builders. Compared to this, the Sensex has given a return of around 26 per cent this year so far.

Apart from mutual funds, Bitcoins generated a lot of interest in 2017. The cryptocurrency jumped 10 times from $1,000 at the start of the year to $11,000 by the end of November. It is currently trading around $13,000. But you should think twice before investing your hard-earned money in Bitcoin as it is virtual cash managed by no central authority. It is highly risky compared to other asset classes.

Whats in store for 2018? While in the long term, stock markets look stable, a lot of future growth will depend on earnings revival. The revival needs to be immediate if any correction is to be avoided. Bond yields have started hardening given the rise in inflation, suggesting that bonds and bond funds might not do well in 2018.

In real estate, a turnaround doesn't look imminent. Considering the sector has been going through a transition phase after implementation of the Real Estate Regulation Act (RERA) and GST, any revival will be slow. Affordable housing is, however, one category that will continue to grow given the incentives being given by the government.

In our cover story package, we have covered all investment categories separately in detail to tell you how each asset class is expected to fare in 2018. But before investing, buy adequate health and life insurance cover, as a single mishap can wipe away your lifes savings. According to the thumb rule, your life insurance cover should be at least 10 times your annual salary. Similarly, buy adequate health insurance cover that matches with your lifestyle and the cost of healthcare in your city. Also, do not keep more than 15 per cent of your portfolio in gold. Use gold to just diversify your portfolio. Most importantly, do not invest all your money in one asset class as diversification will save your portfolio from the vagaries of markets - be it equities, gold or bond.