Demonetisation: Note ban no reason to tweak investment

Demonetisation has thrown a new challenge to find avenues to invest one‘s hard-earned money. Banks, which are flush with money, have already started cutting deposit rates and interest on small saving instruments too are coming down. Sensex has been volatile since November 8 and gold prices are also not stable.

However, personal finance experts say that one should invest with long-term planning and any fluctuation in rate of return of assets should not make one change his or her investment plans.

“One should start financial planning according to one’s circumstances like age, goal for which you are saving money and liabilities. As per these circumstances, one should chalk out an allocation plan where one invests in equities, debt and a small portion in gold,” said experts.

Experts said that people in their 30 or early 40s can invest a large sum in equities, then in debt and a small portion in gold. People who are in their 50s and senior citizens should invest large amounts in debt and a small portion in equity as they cant afford to take any risk which comes with equity investment. If they like they should invest a smaller portion in gold.

“Equities, historically, in long-term, have beaten all types of assets. Young people have time at their side so they can take a risk,” said experts. In fact, when the stock price falls, experts suggest investors to accumulate more stocks, if the company has a good track record. According to experts, volatility in stock markets is what makes them attractive for investments.

“A common man should invest in stocks through mutual funds and should not directly participate in it. However, he should desist from investing all his sum in one go in equities. Money should be invested in small sums over a long period of time. Currently people have the option to invest on monthly basis in  mutual funds through SIP,” said an expert with a broking firm. However, the impact of demonetisation would not be equal on all stocks. While some could gain, some may decline.

The sectors which could gain include banking and telecom — the two sectors that could gain due to the government’s push for cashless payments.
The sectors which could be badly hit include automobile, consumer goods, retail and food and beverage.

GDP can go down by 2 per cent
Demonetisation may not help in achieving the desired result of ending the menace of black money, industry body Assocham said on Wednesday, noting that it could take some five years to ensure a cashless society.

“The idea behind demonetisation is very good, but its implementation is flawed which can push GDP down by 1.5 to 2 per cent,” Assocham secretary general D.S. Rawat said at a press meet.

Besides, demonetisation could lead to deflation (negative inflation) where there will be plenty of goods but people will not have enough to buy, he said. Mr Rawat, who released a recent study titled ‘Digital India to Robotic India’, said up to 10 million jobs might be taken over by AI or robots in next five.