Tuesday, February 18, 2014

Investing in Pre Election volatile situation


Here is a question that you may have –

“I  save Rs X per month and where do I invest  it – I am looking for long term investment (2-3 years atleast) and I am looking for good returns.”

There are no straight answers to this question - the answer will  depend on the risk taking ability and life stage of the person investing. Plus as of now, there is the uncertainty of elections ahead and how does one recommend anything at all. 

Having given the disclaimer above, here is my answer to this question:

In case you have some money to invest and do not want to do a Fixed Deposit type of investment that just mirrors inflation, then here is one sector where you can put your money with a 2-3 year time frame:

  • Pharma sector – this sector has done well in the past few years and  is expected to do well in the coming years. Sure, there are bad apples like Ranbaxy – but there are great stories like Sun Pharma and Lupin too. The industry’s good performance is mirrored by MF’s focussed on this sector.  Look at Reliance Pharma Fund  -http://www.moneycontrol.com/mutual-funds/nav/reliance-pharma-fund/MRC058– this is the largest pharma fund in the country in terms of Assets under management and has given great returns in the past 5 years  (36% per annum compounded). Will it give the same in the future? I believe that it will give at least 20% per annum in the future and that I think is good enough (remember  -this 20%  is post tax if you hold the MF for more than one year).  I have invested in this fund last year and also recently and I recommend it to you as well. You can do an SIP if you want to invest your monthly savings – or you can do a one time investment. I believe that you will get a 20% return per annum at least.

 In case you have some lump sum amount that needs to be parked for a period not exceeding six months – then liquid funds is the way to go. These funds have given 9% per annum in the past year and I believe that there will be no lowering of interest rates till elections are over – so they will give 9% plus currently.

The biggest liquid fund in terms of Assets under management currently is ICICI Prudential Liquid plan - http://www.moneycontrol.com/mutual-funds/nav/icici-pru-liquid-plan/MPI115 this is the fund where I have parked my short term funds  and I recommend it to you as well.