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Buying a house is now affordable for both middle and upper middle class section of the society, though we have seen a significant rise the prices of property. As per HDFC Ltd, one of the biggest home loan providers in the country, the average price of a house in metros is less than, five years earning of an average middle class section of the society.

As per the research conducted by Housing Finance Company, the affordability factor, which means the number of years income of a family required to purchase o house has remarkably dropped from 5.1 years in 2007-08 to 4.5,4.7 and 4.8 years for 2009,2010 and 2011 respectively.

Chart below shows the changing income of the families with changing years, property cost and finally the affordability factor.

Year Annual Income (Rs. lakh) Property cost (Rs lakh) Affordability
2011 8.3 40 4.8
2010 7.6 36 4.7
2009 6.5 29 4.5
2008 6.3 32 5.1
2007 5.3 27 5.1
2006 5 25 5
2005 3.82 18 4.7
2004 3.21 14 4.3
2003 2.72 13 4.7
2002 2.45 12 5.1
2001 2.26 12 5.3
2000 2.03 12 5.9
1999 1.82 12 6.6
1998 1.63 14 8.3
1997 1.49 17 11.1
1996 1.36 21 15.6
1995 1.2 26 22

In 1995, the affordability of the people seems to be 22 which means, 22 years income was required to purchase a house. Further after that, the property price fall and the income of people made a significant growth. This ultimately dragged down the number of years required to purchase a house. Comparing the whole data, the annual income doubled in the year 2002 at 2.45lakh in comparison to 1.2lakh in 1995 and the property price declined with the time too. Besides this, the affordability factor also improved from 22 to 5.1. This simply means, an average middle class family requiring 22 years income to purchase a house in the year 1995, just needed 5.1 years income to purchase a house in the year 2002.

Further moving up to the years when India showed a higher economic growth of above 8% the prices of property also accelerated. But the average annual income also showed a sharp rise consequently making the affordability factor almost constant for next 5 years. The affordability factor was lowest at 4.3 years in the year 2004. The affordability factor also gets influenced by the existing interest rates. Loans provided by banks are such that the EMI does not cross the half of the average income of the family. EMI is directly proportional to interest rates thus, higher the interest rates higher is the EMI. Demand for home loan changes with changes in interest rates. High interest rates as of now reveal a decline in the construction industry.

Finally, RBI should take preventive measures to bring down the interest rates. Real sector can also contribute towards the growth of the economy to a large extent.

Stocks or Mutual Funds

Investment in equity helps in creation of long-term wealth. We can invest in equity either directly or indirectly. Direct investment means purchasing of stocks directly whereas, indirect investment means, investing in equities through mutual funds. So, how investment in stocks is different from that of investment in mutual funds?

Investing means, procuring an asset with a view to generate profit and earn income. Investing is done for a long-term period whereas trading is done for short period of time. An astute investor looks at the fundamentals of the assets before employing his corpus. Well there are lot of differences between stocks and mutual funds.

Differences between stock and mutual fund

Stocks Mutual funds
Demat account is compulsory for buying and selling of shares Demat account not required with an exception to,  buying and selling of ETFs
Are tradable through broker except, IPO’s Tradable through financial broker or directly through fund houses
You become part owner of the company thus, making you eligible for bonus shares,  voting rights, etc You are not part owner of the company hence, not eligible for any rights
Right to get dividend if the company makes profit Eligible to receive dividend if you choose that option thus, enhancing the value of your investment by the dividend amount declared
Regular check on the performance of your holdings Expert fund managers look after your investments
Huge amount required for diversification Diversification possible through an amount, as low as Rs. 5000

Merits and demerits of investing in stock

Merits Demerits
You become part owner of the company Increases risk if the company closes down and ultimately you lose your money
You can generate dividend which becomes your source of income An profit generating company can even face loses thus, you end up losing dividend
Trading can be done at your favourable price using the option of stop loss It sometimes becomes very difficult to trade even with stop losses
  Apt for knowledgeable investors
  Its time consuming as it requires in-depth fundamental research of the stocks
  Diversification requires huge investment which is not feasible for every investor
  Lack of liquidity, especially if the company is small

Merits and demerits of investing in mutual funds

Merits Demerits
Managed by professionals You got to pay charges, for your fund being managed by the experts
Diversification possible through minimum amount of Rs. 5000 Your fund manager decides where your money will be invested. He may sometimes be  wrong ultimately causing you loss
Highly liquid You got to pay exit load if you redeem before specific period of time
One can purchase the same directly thus saving your entry load High fund management charges can minimize your return
Mutual funds do not close down rather get merged with another fund to become successful It may sometimes get mishandled by mutual fund advisors or even fund houses

Both stocks and mutual funds have their own pros and cons and are apt if done for longer period of time. Investors having time, knowledge and money can invest directly, others can take the help of fund managers.

The inflationary pressure seen in the economy, tumbling stock market, sub-prime mortgages, diminishing value of rupee against dollar, slower economic recovery, etc are few reasons, diverting the interest of investors towards safe heaven gold. Not only investors but also nations consider gold as a safe option to make investment in. Gold is considered the most useful instrument that can help during the period of crisis. There are various ways through which one can invest in gold through electronic mode.

  1. Gold ETF: Gold ETFs are Exchange Traded Funds, very much similar to mutual fund units. Each unit is equal to 1 gm of gold. However, some fund houses have 0.5gm of gold as 1 unit. Gold ETFs are tradable through the demat account just like mutual fund units. The NAV is disclosed periodically.

The gold has a quality of 99.9% that means, is of good quality. Gold ETFs eliminates the risk factor which is involved when purchased from outside. The main advantage is that, you do not have to worry about its storage and safety issues as that is required in physical gold. They are also very liquid as, can be easily bought and sold. Another advantage is it doesn’t require lot of investment. It’s highly tax efficient in comparison to physical gold. You have to keep physical gold for 3 years to claim long-term tax benefits whereas, in case of gold ETFs its just 1 year.  Kotak Gold ETF, UTI Gold ETF, and Reliance Gold ETF are few examples of gold ETF.

  1. E-Gold: National Spot Exchange Limited (NSEL) allows trading in gold, silver and copper in electronic form known as, e-gold, e-silver and e-copper. More metals is expected to be introduced in future.

This allows investors to buy gold in dematerialized form and the trading hour being 10 A.M- 11.30 P.M. It allows investor to buy 1 unit of e-gold which is parallel to 1 gm of gold and the purity is 995. You have to open your own demat account from the list of depositories. The list is available at NSEL website. One may sell the e-gold and get the cash back or take physical delivery from NSEL de- materialization centres. Right now the centres are in Mumbai, Delhi and Ahmadabad. Anyone interested for some other details relating to e-gold can refer site, http://www.nationalspotexchange.com/NSELUploads/Trading_Doc/2010/Circular041_2010.pdf.

  1. Gold funds and fund of funds: Gold funds are very much similar to mutual funds managed by fund houses. The main advantage is that you do not need to have a demat account. The NAV of the fund reflects the price of gold. This option is pretty good for investors who do not have any demat account and are desirous of investing in gold. Besides this, you do not have to worry about storage cost and safety of the same.

Yet you have another option to invest in gold, Gold FoF (Fund of Funds). The fund invests in various gold ETFs. Its NAV is the weighted average of the NAV values of the various ETFs that the fund of fund comprises of.

Finally to conclude, gold seems to be bullish in the near future but do consider your own factors before investing. Return from gold is purely the outcome of price escalation and not from dividend or bonuses and is purely driven by market sentiments.

Every individual builds up his portfolio considering various investment options and finally making them a part of his portfolio. But not all of us are aware, which financial asset will actually help us during the period of crisis and finally support us to overcome that situation. Inflation, currency failure, stock market crash, etc are few examples of such economic crisis.

A serious investor is very much concerned about the future uncertainties and will definitely pick gold to make investment in. Gold is very much durable and widely accepted form of financial asset as it provides best assistance during the period of crisis. Not only individuals but also nations emphasizes on hoarding gold for the period of crisis. Recently China and India, procured tons of gold as a hedge against dollar risk. Gold as an investment option can be acquired in various forms and each form has its own merit and demerit. Below mentioned are few ways of making investment in gold along with their merits and demerits.

Jewellery

Merits

1)    Investment is quite easy as you just require cash to purchase it.

2)    Investing early benefits you by meeting marriage expenses.

Demerits

1)    Chances of theft has acquired in physical form.

2)    Making charges of near about 10-35% brings down your profit margin during rate hikes.

3)    People normally don’t wish to sell it off.

Inference drawn: Indians invest in gold for various reasons like, marriage, wearing purpose and finally selling it off during the period of crisis. However, people normally don’t wish to sell-off gold unless, very urgent. Owing gold in form of jewellery is our tradition and hence, a best option to invest in gold.

Gold Coins

Merits

1)    Its value is equivalent to that of international gold price.

2)    Highly accepted and reliable source to invest.

3)    Very easy, as can be purchased from banks, local jeweller, etc.

4)    Huge investment not required as available in smaller denominations also.

5)    Easily stored.

6)    Highly liquid.

Demerits

1)    Owned in physical form so fear of theft.

2)    You pay a premium of 4-10% while purchasing and same % is deduced while selling it thus, minimizing your profit.

Inference drawn: Definitely purity of coins is guaranteed by banks however, purchasing the same from local jeweller will be at your own risk. Investors wishing to be on safer side and desirous of making investment in gold can look for gold coins.

Gold bars

Merits

1)    Its value is equivalent to that of international gold price.

2)    Premium/discount on buy and sell is very minimal

3)    Renowned and reliable source to invest in.

4)    Can purchase from banks, local jeweller, etc. Hence, becomes easy to buy.

5)    Highly liquid.

Demerits

1)    Fear of theft as purchased in physical form.

2)    May require lump sum amount during initial period as smaller denominations not available.

3)    High risk of forgery.

4)    Involve storage cost for large bars.

Inference drawn: If the storage and initial lump sum amount is bearable for someone, they can look upon this option as the premium/discount is minimal.  Care should be taken while purchasing it. Look for genuine sources to avoid any sort of fraud.

Gold ETFs

Merits

1)    Investment is easy. You just require to open a demat account.

2)    No losses as per premium/discounts are concerned.

3)    Ensures safety, as no physical possession required.

4)    Minimum initial investment.

5)    Various options available to invest like, SIP, etc.

Demerit

1)    No physical possession so may face problem during the period of crisis.

2)    May have liquidity problem.

3)    Complicated structure.

4)    Involves transaction fees and annual maintenance charges.

Inference drawn: This option is not much popular as that of physical possession. Investors with demat account are aware of it. It’s very easy to manage your gold investment through this route involving no physical burden hence, quite convenient.

Gold mining stocks

Merits

1)    Indirect way to take exposure in to gold.

2)    Chances of capital increment high in comparison to direct investment.

3)    Safe as no physical holding required.

4)    Highly liquid.

5)    Low initial investment.

Demerits

1)    You don’t have gold in physical form so may face problem when the gold deposit yield reduces or if the company faces any crisis.

2)    In-depth research essential before investing.

3)    Volatile and risky in comparison to other options.

Inference drawn: It’s considered one of the most innovative investment options but requires in-depth research before investing.

Finally to conclude, investment in gold is actually essential and it’s also a wise decision of making gold a part of your portfolio. Gold reserves are even maintained by nations to meet future economic crisis. Invest in gold as per your needs, capability, though above mentioned ways which suits you best.

The domestic equity market as well as the foreign equity market is losing the steam impacting the portfolios of investors all over, negatively. Even the mutual fund investors are not away from this. Many mutual fund investors have incurred huge losses and are not able to identify the actual reason for such losses. Below mentioned steps will guide to improve and will boost up your portfolio.

Stay invested, even at bad phase of the market is highly recommended by experts. Invest in a well-diversified equity funds having a sound track record. Stay invested for at least a time period of 5 years. New investors can look for SIP’s (Systematic Investment Plan) to start with.

Investors already having a mutual fund portfolio should look out for pros and cons and make necessary alterations if required, in their portfolio to strengthen it. Steps to look out, which can help build up your portfolio.

1)    Diversification: Diversify your portfolio across various schemes as well as across varied asset classes. Picking up 5-7 good performing funds having a sound track record and consistent return should be a part of your portfolio. Part exposure into gold and debt schemes is considered better options in comparison to 100 percent exposure in equity.

2)    Proper allocation of assets: Decision regarding this should be made keeping in mind your goals, time frame and risk taking capability. Keep a periodical check on it. If it’s highly deviated from the benchmark allocation take immediate measures to correct the same.

3)    Avoid investing in similar funds: Avoid sector funds as you may incur huge loss when the sector underperforms. Diversification across varied equity funds is a good option. Avoid investing in multiple schemes with same objective and investment pattern.

4)    Avoid NFO’s: Choosing NFO’s for investment, not a wise decision. Fund houses many a times launch NFO’s of similar types already existing, for raising fresh funds. It’s advisable to avoid NFO’s as they do not have any track record.

5)    Exit underperforming funds from your portfolio: Exit persistent underperformers as, such type of single fund can bring down the overall profitability of your fund.

6)    Stable scheme and return: Don’t just get influenced with schemes that have witnessed high returns on a very short span of time. Pick the schemes on the basis of long term return. Long term performance of at least 3-5 years along with its performance during up trends and down trends should be considered. The fund should have outperformed the benchmark index along with its peers.

7)    Part investment in gold and debt schemes: Gold has performed well in the past 3-5 years. Gold ETF are the best option to hold gold. Staying invested with debt funds is also a good option. RBI has proposed trimming down of policy rates after inflation is under control. Choosing both options will strengthen your portfolio.

8 )    Expert advice: Take expert advice to pick the right fund and strengthening your portfolio. The expert should consider both quantitative and qualitative aspect of the fund. Quantitative means, funds past performance and qualitative means, fund is  consistent performer and fundamentally strong to outperform in future as well.

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