Best time to invest,what,when and how

2. Ongoing: Assets with possibility of ongoing returns

The first category involves assets like real estate,art,bullion etc. These returns may appreciate significantly during specific periods and they also fall significantly during adverse periods. Hence naturally the best time to invest in these assets is during a downturn,when there is abundant supply and there are few takers. In India the trend in real estate and bullion has normally been perceived to be upward moving all the time. This is a fallacy but most would think otherwise. The reason is simple to understand.

In real estate most people have not seen a real fluctuation. Most people have only seen an uptrend and think that this will continue forever. However,once a locality is fully developed and established,over the years the chances of fluctuation increase. Two examples here viz.,Mumbais Malabar Hill residential and Nariman Point commercial. Both ultra premium,fully developed and highly coveted. Its like a developed society in a developing country. Prices here peaked in mid nineties then settled,rose to sky high valuations in 2000 and then crashed by 2004. To talk numbers,prices were ruling around Rs 25,000-30,000 per sq. ft. in year 2000 and there seemed no upper limit. Then they came down to as low as 10,000-20,000 per sq. ft. in 2004-05. Currently prices are in these localities range from 35,000-80,000 per sq. ft. Now thats fluctuation,which only a very small section of our society has witnessed. Such fluctuations happen in other countries too and this can happen to real estate across the country over the years.

Talking about gold; we are at about 1,600 an ounce and we have touched about 1,900 in the past. Between 1975 and 1980 gold raced from 100 to about 750 to an ounce. Crashed to about 300 in 1981; remained for 20 years in 300-400 range i.e. till year 2000. Today in 2012 it is at about 1,600. In US dollar terms last 1 year return is about 5 per cent but in Indian rupees its 30 per cent. So basically there is quite a bit of fluctuation and rupee has rapidly depreciated too. Gold moves in rapid spurts; the theory of reserve currency is all well but know that there can be years of distress and fluctuation.

The take away from here is that for a technical valuation purpose we may consider real estate growing 10-15 per cent p.a. and gold being in line with inflation. That in reality does pan out over longer periods. Prices may languish around the same levels for many months and sometimes a couple of years. Moves are sporadic. Hence,the best time to invest is in times of gloom. All said,consider category 1 if you have surplus after making all investments with respect to your financial planning.

Coming to the category 2,the components are equities,fixed income etc. The possibility of earning a 14-15 per cent returns in equities is a given. For fixed income,returns around banks base rate are a given. The underlying logic being that shares of companies that you hold via your portfolio directly and via mutual funds will continue to earn a 15 per cent to 20 per cent net profit margin. At some point this has to be reflected in the price of the underlying stock. It may be higher or lower at a given time but over a block of 3-7 years the price will be guided by its profit margin,growth of income and other factors. A fixed income instrument will definitely give the contracted return for the contracted time frame. Beware of income funds and traditional insurance policies though. Returns are of the nature of fixed income but are not ongoing and are variable. Thus the probability of you achieving returns as specified above is something like 90 per cent. Hence,there is no best time to invest in these

assets. Any time is good time. For equities keep in mind a time frame of 5-10 years plus. When you have money just go ahead and deploy carefully. Do not keep waiting.

Author is DirectorTranscend Consulting kartiktranscend-india.com