Investments are the roadmap to fulfilling life goals and achieving financial freedom. Be it traditional options or the newer ones, investing has been a preferred way of growing your finances for generations. But in the last few months, the average investor has faced a tough time due to the COVID-19 outbreak that has adversely affected investments. The virus that has spread like a wildfire infecting millions has completely changed the world as we knew it. The investments that you carefully selected and nurtured for months or years, may not be performing well and it can be quite distressing.
The pandemic has taken a huge toll on India’s economy, and the financial market has been one of its biggest victims. It is an unpredictable time from an investment perspective, but instead of being discouraged, you may consider relooking at your investment strategy. In these uncertain times, instead of looking for investments with quick returns, go the traditional way like your grandparents and select conventional investment options like real estate. It may not yield immediate returns but by being less volatile than the market-driven investments, it is definitely a safer bet in the current situation. And it gets better, at present the industry is witnessing one of the lowest interest rates in a decade.
Modern investment instruments like mutual funds, stocks, equity have witnessed severe volatility. The closure of businesses and disruption of supply chain caused by the nationwide lockdown created uncertainty, which led to the stock market crashing. Ever since the first few coronavirus cases were confirmed in India, the stock market has been extremely volatile. In March, the Sensex faced its biggest one-day fall ever when it crashed by 3,934 points. Bloomberg data reveals that from the beginning of the year the value of all shares traded — the aggregate market capitalization of India — fell 27.31% in dollar terms. This has forced India out of the $2-trillion market cap club. India has fallen out of the world’s top 10 stock market’s list and current stands at 11th spot with $1.57 trillion mcap.
Gold or yellow metal, a popular asset class for investment, also faced extreme highs and lows, though it is more stable than the stock markets. In March 2020, the price for 10 grams of 24-carat gold peaked at INR 46,160, which dropped to INR 41,680 in the first week of April 2020. It has managed to recover slightly, with the current price of 10 grams of 24-carat gold being around INR 44,614.
But one form of investment that has not been hit so hard by this crisis is real estate. Since real estate is not traded on the exchange, prices don’t fluctuate overnight depending on market forces. Investment in real estate has not seen a drastic fall during this time. Instead, it has been strengthened by a decreased interest rate on home loans and a renewed perception of people towards owning a home.
In March 2020, the Reserve Bank of India (RBI) slashed repo rates by 0.75 basis points (bps), the biggest rate cut in almost a decade. This action also impacted the real estate sector where banks reduced the interest rates on home loans, effective from April 2020. With one of the lowest interest rates — ranging between 7.15% and 8.05% — in the last 20 years, real estate has never been this attractive to potential home buyers. It gets even better for people interested in the affordable housing segment where the effective interest rate on home loans is around 5% taking available deductions into account. For probably the first time in 2 decades, interest rates on home loans have plateaued this low, allowing people to save while investing in a real estate asset.
Finally, this crisis has highlighted the need for shelter and protection in tough times. A home offers a feeling of security and safety and provides a sense of comfort. With low interests and the assurance of a steady investment, this might just be the best time for aspiring homeowners to buy a place they can call their own.
The author is an investment specialist at, Simple Solutions 4U