Low risk, High Return--------- An opportunity

Answer may be yes in current scenario. Thanks to a roaring inflation, the gap between equity and debt return is going thinner day by day.RBI has increased the rate six times in last one year which has forced the banks to increase their borrowing and lending rates. Repo rate reached to 6.5% from 5 % in last one year. Repo Rate simply means the interest rate at which banks borrows money from RBI. This step from RBI to check liquidity has automatically resulted into a hike in borrowing rate which is almost at the doorstep of a double digit. A person whose income does not fall under tax bracket will enjoy a 9.5-10 % yearly return on their FDs because of this rate hike.

Now let us concentrate on our very own stock market. It is as sensitive as a new born baby. It gets affected for numerous causes. It does not need to be a CFP to understand that if Reserve bank of a country is trying to cut the liquidity, how adverse effect will flow in market. For the last couple of months we are going through a negative trend because of numerous macro and micro economic factors. Starting from European debt crisis, followed by Indian scams and conspiracies, roaring inflation and costlier crude oil because of an unhealthy scenario in middle east, has sent the Bull for a long vacation.

Now being a CFP, my job is to gift a tension free life and a financial freedom to my client. If he can get a return around 10% on investing in debts, then why should I look for a stock market which will increase my client’s blood sugar level? The taxation aspect is there and as most of our clients fall under 30 % tax bracket hence a post tax return comes down to around 7 %.But let me give you some returns generated by blue-chips in last one year which will tell you the original story.

    

Script	Value as of 1st Apr,2010	Value as of 18th Mar,2011	% Return
Reliance Industries	1092.5	993	-9.10
SBI	2102	2590	23.21
Tata Steel	652.2	597.15	-8.44
Cipla	339	293	-13.57
Infosys	2670	2941	10.15
LT	1630	1512	7.24
NIFTY	5290	5373	1.57

          

At the same time one should consider the fact that a stock return is not a proper reflection of a portfolio return because of the charges and taxes he need to pay on his investment. If fixed income securities offer these kinds of lucrative returns after capital protection then a reshuffle in client’s portfolio by adding some more debt instruments in it will not be a bad option.