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Your money report card for 2006

Your money report card for 2006 - 26th Dec 2006 ( Moneycontrol.com )

It’s time to take stock of all your investments and check if your hard earned money invested during 2006 actually gave back everything it promised. The big returns this year came from the arts, equity markets, mutual funds, gold and real estate. Alternative thinking was the way to go this year-at least for the smart investor.

Asset class

Returns

Art

104.08%

Gold

48.47%

Direct Equity

 

Sensex

42.3%

Nifty

33.9%

Equity Mutual Funds

 

Diversified

 

Best performer - Sundaram select midcaps

56.7%

ELSS

 

Best performer - Birla Tax Relief 96

40.7%

Balanced

 

Best performer - JM balanced fund

35.5%

Real estate: Premium Residential

Tier I & Tier II cities

(Source: NARAINS CORP)

15-20%

Debt

 

Bank FDs - Best rate

8%

Post office savings

8%

Debt Mutual Funds

 

Long term debt

 

Best performer - Pru ICICI Gilt Investment

9.7%

MIP

 

Best performer - Reliance MIP

14.4%

Floating rate

 

Best performer - LIC MF floating rate fund

7%

(All returns, except property, are for the period 13th Dec 2005 till 13th Dec 2006. Property returns are over one year)

just because your grandfather stored his savings in fixed bank deposits doesn't imply that you need to do the same (at least we hope not). Traditional avenues like bank fixed deposits and post office savings have lost complete ground as compared with the newer and riskier counterparts (but you already knew that). Gold, that was till a few years back, written off as a dead investment, bounced back and how!

The most stylish investment in the market today is that in art. Over a period of one year, art has returned over a 100% in returns, and that is according to the ET Art Index (in association with Osian's auction house). Of course, the art index, just like the stock index, is based on the performance of select artists. Works of artists of lesser repute would have returned lower numbers. Nevertheless, this has been an asset class that has attracted a lot of interest this year. Moreover, several art funds were launched to allow non- collectors to participate in the boom

Should you have invested in the art market? Certified Financial Planner Gaurav Mashruwala suggests, "I would not really recommend art as an active part of your portfolio, the main reason being that there is no track record of performance. Having said that, if you still want to invest in art, I would suggest that do so only if you have enough surplus left after you fulfil all your current and future financial responsibilities. Valuations are an issue in case of art investments as the market is still immature."

So invest in art after you have completed making all your other investments. Art today is an illiquid asset because it is not easy to find buyers. Of course over the years this will change, but till then, exercise caution.

The traditional Indian favourite, gold, comes in second with a return of almost 50%. Till a few years ago, gold was written off as a dead asset, giving returns of 3-4% per annum. However, the tide began to turn in 2002, when gold returned 15% in one year and continued to give returns over 10% thereafter. However, its not wise to go overboard on gold. Zankhana Shah, a financial planner says, "According to me, only 10-15% of your portfolio should be allocated to gold. If you already have that much, do not spend your money on gold anymore."

Then follows the equity story. It’s been a bull’s year all the way. The market climbed more than a couple of thousand points this year. While the sensex returned 42%, equity mutual funds outperformed the sensex. Best performing equity fund, Sundaram Select Midcap, gave a return of 57% last year. Investing in equities is a must if you want to beat inflation in the long term. Ask any financial planner and he will tell you that equity must be a part of any healthy portfolio.

Real estate has also been an attractive market since 2005. But since no systematic data is available to measure growth of the sector, Moneycontrol spoke to experts from the field to get estimation. Chetan Narain, Director, NARAINS CORP says, “The returns in premium real estate projects within Tier I and Tier II cities throughout the country are estimated to be around 4 to 6% in residential market prior to tax deductions and in commercial and premium retail properties of about 8 to 12%. Annually, one can expect a growth (capital appreciation) of 12 to 15% in the current scenario on a national view across all sectors.”

That means, the cumulative returns from rentals as well as capital appreciation can be pegged at 15-20%. However, Narain adds that the rates differ highly from area zones and also based on quality of the project. With a lot of infrastructure changes taking place, especially in Mumbai, the best investment returns are guaranteed from properties that are located in areas which are on the thrust of an infrastructural makeover.

Sandeep Sadh, CEO, Mumbai Property Exchange.com, gives some numbers for Mumbai, “While the premium segment has grown anywhere between 40-70%, the mid-segment by 30-60% and the lower segment by 20-45%, these are the mean average growth rates. Rate increases will vary significantly from area to area and property to property.”

Debt has been the poorest performer in the year gone by. Although the safest, the returns are seldom enough to beat inflation.

By Deepa Venkatraghvan