What the boom-bust-boom of the last four years proved, beyond a doubt, is that you need to have a plan. Those who stuck to their systematic investment plans through 2008 find that they are still making in excess of 20% a year, when they take into account five-year returns on equity. Those who sold and waited for markets to recover are now wondering if they left their return too late, as the markets are riding an around 90% return since the lowest point of 2009. The only point that the year past reinforced is this: You cannot time the market. It’s best to go in the direction you choose rather than lurch after markets and interest rates. So for those of you who do, those who still don’t have a plan—we know you’re out there!—here’s what 2010 looks like.
Home loans will get more expensive; not only will the Indian interest rate cycle turn, but so will the global cycle at some point in 2010. For the first-time buyer—go for it, since it’s always a good time to buy that first house. If you’re getting a teaser home loan rate at 8-8.5%, remember that you could be looking at a minimum of 2 percentage points higher in two years; that’s Rs80,000 more a year on a loan of Rs50 lakh. The statutory warning here is against over-leveraging; so even if you are looking at a second or a third property, keep your monthly payments at less than half your disposable income, or your other investments will suffer.
Rising interest rates usually work like pin pricks to a swelling stock market, so expect some sharp corrections as the interest rate cycle turns. But remember: India is on a bull run that should last two decades, as growth is yet to fully take off, and there is all of India to still build.
If you are in an employer’s provident fund, have maximized your public provident fund and have up to six months of spending money in near-cash and your term and medical insurance in place, please put all the rest in equity. Start or continue with your systematic investment plans of mutual funds. Look at exchange- traded funds as the lowest cost option to riding the index. As for gold, art and unit-linked insurance plans, or Ulips: just stay away. Gold, because it may be the new oil; art, because it is unregulated and illiquid; Ulips, because the product is a high-cost trap.