NEW DELHI: You can earn one-year’s return on a bank fixed deposit in just one day by investing your money in equities.
The statement may look like an exaggeration, but there have been instances in the past when stock prices shot up more than 10 per cent in a single day.
Nearly 20 stocks from the smallcap space have more than doubled investors’ wealth in last one year while 10 stock from the midcap space -including Biocon, Indian Bank, JSW Steel, Piramal Enterprises, HPCL and UPL, among others – have delivered over 50 per cent returns.
The domestic equity market is expected to remain rangebound for the next two months at least, say experts. But investors can use any dip to buy quality stocks.
“An equity investor has to accept the swing of the pendulum. If he can average himself at the lower end of the pendulum into this market, probably he will make far more money in equity than in fixed income,” Nilesh Shah, MD, Kotak AMC, said in an interview with ETNow.
The broader market indices are ending the calendar year broadly at the same level where they were at the beginning of the year while fixed income as an asset class has delivered double-digit returns courtesy an interest rate cut as well as a rise in liquidity thanks todemonetisation.
But as we enter calendar 2016, things might change for the fixed income space. Although fixed income remains one of the safest asset classes, betting on equities could just help create more wealth.
Interest rates on bank fixed deposits (FD) are likely to fall further in 2017. Most banks currently offer rates between 6.5 and 7.2 per cent for tenures ranging from 1 to 10 years. This time last year, the 10-year G-sec yield stood at 7.7 per cent compared with 6.4 per cent now, a drop of 1.3 per cent over the past 12 months.
“For investors, it is crucial to get the entry right and buying good stocks at right prices is important. If you invest in bank fixed deposit for one year, the likely post-tax return you are going to get after waiting for 365 days will be lower than what one stock can deliver on a single good day,” Shah said.
The only precondition to that one has to buy the right stock and choose the right time. It is a difficult task but the potential for good returns is very high too.
Interest rates have come down over time and government policies such as demonetisation and GST implementation are likely to see a further drop in rates.
“Fixed deposits do not look like an attractive investment tool for the near term, if interest rates keep on falling. In this scenario, new investors should invest in equities and mutual funds, as current valuations offer them a good entry point,” Dinesh Thakkar, Chairman & Managing Director, Angel Broking, told ETMarkets.com.
“A person in the age bracket of 25-30 years can look to invest in a portfolio where largecaps have more weightage than midcaps. One can also invest in mutual funds, which we believe are very effective tools for wealth creation,” he said.