Is buying tax-free bonds from the secondary market a good proposition? What kind of investors is this route best suited for?
Quite a few tax-free bond issues have come out in the last few months from highly-rated PSUs and are listed on stock exchanges. Since many of these are available at yields of eight per cent, it would make sense for people with income in the highest tax bracket (of 30 per cent) to buy these bonds, since one would have to buy a taxable investment yielding 11.5 per cent to compare with the tax-free returns on these bonds.
What do investment experts mean by the India consumption story? There are so many sectors that fall in this space; how does one choose where to invest?
This means the increasing demand for goods and services as a result of the high disposable incomes and changing tastes and preferences of the people. It is true that many sectors fall in this space, but one of the most obvious is the fast moving consumer goods segment. You will have to do proper research before planning which sectors and stocks to invest in.
An article I read said invest in index funds instead of stocks. Would you agree? Are the two even comparable?
Investing in index funds is a more passive form of investment compared to investing in individual stocks. For example, if you invest in a Nifty-linked index fund, your money will be invested in the 50 stocks comprising the Nifty, in the same weightage as they have in the Nifty. Your investment value should move up or down in sync with the Nifty.
On the other hand, you may choose to invest in, say only 10 stocks of the 50 in the Nifty. Here, you will have to do proper research to select which stocks to invest in. Moreover, the returns on your investment may be different from the returns from the Nifty, depending on whether the stocks you selected are outperforming or underperforming.
Therefore, whether to invest in index funds or stocks depends on the time and effort you are willing to put into your investments.
I want to invest a surplus of Rs 1 lakh in a banking sector fund. My horizon is two-three years. Do you believe in this theme?
Investing in a sectoral fund could be more volatile than investing in a diversified equity fund. But then, your returns could also be possibly better, if the banking sector outperforms the market and vice-versa. Whenever economic recovery happens, the banking sector is generally one of the leaders in this rebound. So personally, I do believe in having quality banking stocks in a portfolio. But I wouldn’t advise putting all your money into just banking stocks. Your portfolio should be well balanced across sectors that you believe would do well.
The writer is CEO, Dalmia Securities