Notwithstanding valuation concerns, you will still need the power of equities in the year 2020. However, we enter 2020 with 2 consecutive years of relative underperformance by mid caps. At the same time, there has been a sharp kurtosis seen in large caps with a handful of stocks accounting for a chunk of the Nifty returns. What it means is that it will be increasingly difficult for large cap funds to outperform the index, and hence, multi-cap funds may be a good choice. It may be too early to jump into mid cap funds but multi cap funds should give investors the best of both worlds; the solidity of large caps and the relative undervaluation of mid caps.
During 2019, global gold prices gained close to 30% and settled above the $1500/oz mark. Gold has historically given the best performance when geopolitical risk and economic uncertainty are at a high. The ongoing trade war between the US and China as well as the BREXIT riddle has kept economic uncertainty high. At the same time, the worsening relations between Iran and the US have kept the Middle East on a boil. Gold would be the best choice in these circumstances. Of course, gold ETFs with its liquidity and flexibility would be the best allocation choice for investors.
Unit Linked Insurance Plans (ULIP)
ULIPs may look like a surprise inclusion in this list but there are reasons we are pushing the ULIP idea. Firstly, ULIP has the tax advantage because ELSS as a tax saving instrument is subject to long term capital gains tax of 10% on redemption. Moreover, the flat tax hits your returns without the benefit of indexation. ULIP profits are still exempt from any kind of capital gains tax. Secondly, ULIPs as a product have matured in the last five years due to constant monitoring and closer regulation by IRDA. The upfront loads have come down and ULIPs have become a lot more transparent. ULIPs with their unique and dynamic mix of equity and debt offer a good way to beat the markets in the year 2020.
Public Provident Funds
PPF has been a long time favourite of Indian investors, and not without reason. The returns at around 7.9% may be relatively low but that is just part of the story. The real takeaway is the tax breaks that make PPF extremely attractive in post tax terms. Your contribution to PPF qualifies for Section 80C exemption up to Rs1.50 lakhs and the interest is totally tax free. If you are in the 20% tax bracket, your effective yield works out to 12.34%. In the 30% tax bracket, your effective yield works out to a hefty 16.12%. That is not all! PPF is backed by government guarantee, and hence, entails zero default risk. It is really hard to think of another safe instrument that can give post-tax yields of up to 16.12%. You must latch on to PPFs before the government has second thoughts on the rates offered or the tax sops.
Real Estate Investment Trusts
REITs were launched in India only last year by Embassy but mutual funds have begun to show interest in the product. For year 2020, we could see the revival in the realty story translating into better returns on commercial realty. REITs offer an investment approach to investing in commercial real estate and must form a part of the portfolio. REITs are a quasi equity product since there is a price angle and also a rental angle to these commercial properties. That could give REITs an edge in 2020.
Of course, there are a lot more choices, but these could be your top ideas for year 2020. Needless to say, each needs to fit into your overall financial plan.