The year 2017 was marked by four distinct money events. One, it was the year in which systematic investment plans (SIPs) in mutual funds became a household name, leading to a fat pipeline of over Rs5,000 crore a month (that’s Rs60,000 crore a year) flowing from households to equity funds. Two, 2017 was the year in which investors finally gave up waiting for real estate to recover. Despite the bravado of the builder, broker and banker on the future of real estate, the math just did not add up to support prices that are still very high. Why would you invest in something that yields less than a bank deposit after taxes? Renting clearly was the winner over buying. Three, gold and bank deposits lost their sheen as prices dipped and rates fell. Four, risk-averse investors, who feared mutual funds because of their risk, went all out on crypto-money—not just bitcoin, other cryptocurrencies were also on the investment radar, as were non-regulated initial coin offerings (ICOs). What lies ahead in 2018 for your money? The answer in one line is: a continuation of the 2017 trends.
Are you thinking of investing in a debt fund? If data is any indicator, you may be already there because the assets under management of debt-oriented funds held by non-HNI (high net-worth individuals) retail investors have jumped by just over 40%, as on 31 March 2017, over the previous year to reach around Rs67,000 crore. As bank deposit interest rates fall, investors begin to look for better return options. This has coincided with rising awareness about the efficiency of the mutual fund vehicle to offer a full basket of products for instant to very long-term needs. Along with the awareness have come products and fintech solutions that now allow instant access to some parts of your money. Once on-boarded and linked to an online platform or app, mutual fund investing is a breeze.
The feeding frenzy on the possibility of long-term capital gains tax coming to equity for a while with editorials and TV shows hand-wringing about the retail investor getting hurt. But will we? Is a long-term capital gains tax on equity such a bad idea? Let’s get the basics out of the way first. The money we invest in different assets (bank fixed deposits or FDs, bonds, gold, real estate, equity and into some of these through mutual funds and bundled life insurance plans) throw off money in different forms. There is rent, interest and dividend that comes as income from an asset. This is income from owning and using an asset—financial (stocks, FDs and bonds) or real (gold and real estate). When you sell the asset you can either make a profit or a loss. Profits on sale of assets are called capital gains and in India are taxed under two heads—short-term and long-term.
This year will be remembered for the contradictions of the post-war world order manifesting in many ways. If 2008 was when the crack became visible, 2016 was when the fissure became too big to ignore. A series of global events point to the rising voice of those left hurting by rising inequality in the world economic order, where the benefits of globalization have gone to capital rather than labour. Labour as one of the factors of production—land and capital being the other two—has suffered. Real wages have been stagnant in the developed world and restrictive labour mobility rules have hurt labour in the emerging world. The rules set by the owners of capital make for a world without borders for capital, but not for labour.
The sudden shock of the currency ban and an unexpected election result in the US caused markets to open 6% down on 9 November. But a day later, the story has changed—all markets are up. So why are stock markets surging? Why are bond markets happy? Why are real estate magnates walking like zombies? What lies ahead for your money?
Readers of this column are hopefully smug with their financial plans and asset allocation in place and are not wasting time wondering if stocks are a good ‘bet’. But let’s deconstruct why markets are up on Day 2 of the #currencyban. Day 0 was 8 November, when Prime Minister Modi made his #currencyban address to the nation.